<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission file number: 000-22939
NEXTLINK Communications, Inc.
NEXTLINK Capital, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 91-1738221
Washington 91-1716062
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 108th Avenue NE, Suite 2200, Bellevue, WA 98004
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(Address of principal executive offices) (Zip Code)
(425) 519-8900
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
As of November 1, 1998, the number of shares of Class A and Class B common
stock of NEXTLINK Communications, Inc. issued and outstanding was 21,232,980
and 31,133,502, respectively, and there were 1,000 shares of common stock of
NEXTLINK Capital, Inc., all of which 1,000 shares were held by NEXTLINK
Communications, Inc.
NEXTLINK Capital, Inc. meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1(a). FINANCIAL STATEMENTS
NEXTLINK COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(AMOUNTS AS OF SEPTEMBER 30, 1998 ARE UNAUDITED)
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<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 392,350 $ 389,074
Marketable securities......................................... 784,493 353,283
Accounts receivable, net...................................... 29,525 22,955
Other......................................................... 12,273 4,530
Pledged securities............................................ 42,992 41,425
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Total current assets...................................... 1,261,633 811,267
Pledged securities................................................. -- 21,185
Property and equipment, net........................................ 448,550 253,653
Goodwill, net ..................................................... 55,813 52,278
Other assets, net.................................................. 260,182 78,770
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Total assets.............................................. $ 2,026,178 $ 1,217,153
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............................................. $ 24,634 $ 26,776
Accrued expenses.............................................. 32,119 13,082
Accrued interest payable...................................... 40,615 18,880
Notes payable and current portion of capital lease obligations 4,021 10,844
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Total current liabilities................................. 101,389 69,582
Long-term debt..................................................... 1,503,263 750,000
Capital lease obligations and other long-term liabilities.......... 16,096 10,842
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Total liabilities......................................... 1,620,748 830,424
Commitments and contingencies
Redeemable preferred stock, par value $0.01 per share, 25,000,000
shares authorized; 14% Preferred, aggregate liquidation
preference $358,646, 7,009,348 and 6,322,031 shares issued and
outstanding in 1998 and 1997, respectively; 6 1/2% Convertible
Preferred, 4,000,000 and 0 shares issued and outstanding in 1998
and 1997, respectively.......................................... 543,258 313,319
Common stock subject to redemption, par value $0.02 per share,
519,950 Class B shares issued and outstanding in 1997........... -- 4,950
Shareholders' equity (deficit):
Common Stock, par value $0.02 per share, stated at amounts
paid in; Class A, 110,334,000 shares authorized, 20,830,169
and 19,167,899 shares issued and outstanding in 1998 and
1997, respectively; Class B, 44,133,600 shares authorized,
33,133,502 and 33,746,573 shares issued and outstanding in
1998 and 1997, respectively................................. 352,018 330,561
Deferred compensation......................................... (12,894) (9,596)
Accumulated deficit........................................... (476,952) (252,505)
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Total shareholders' equity (deficit)...................... (137,828) 68,460
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Total liabilities and shareholders' equity (deficit)...... $ 2,026,178 $ 1,217,153
============= =============
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Revenue $ 37,817 $ 13,390 $ 96,392 $ 35,058
Costs and expenses:
Operating........................... 32,828 13,916 85,448 35,857
Selling, general and administrative. 41,565 19,318 109,599 48,421
Deferred compensation............... 1,720 334 3,104 1,449
Depreciation........................ 11,334 3,898 26,243 9,952
Amortization........................ 3,444 1,631 10,898 4,508
---------- ---------- ---------- ----------
Total costs and expenses........ 90,891 39,097 235,292 100,187
---------- ---------- ---------- ----------
Loss from operations..................... (53,074) (25,707) (138,900) (65,129)
Interest income.......................... 21,559 4,868 56,116 15,560
Interest expense......................... (37,434) (10,746) (99,050) (32,787)
---------- ---------- ---------- ----------
Net loss................................. $ (68,949) $ (31,585) $ (181,834) $ (82,356)
========== ========== ========== ==========
Preferred stock dividends and accretion
of preferred stock redemption
obligation, including issue costs... (15,734) (10,798) (42,613) (28,151)
---------- ---------- ---------- ----------
Net loss applicable to common shares..... $ (84,683) $ (42,383) $ (224,447) $ (110,507)
========== ========== ========== ==========
Net loss per share....................... $ (1.57) $ (1.08) $ (4.18) $ (2.87)
========== ========== ========== ==========
Shares used in computation of net loss
per share........................... 53,883,632 39,257,126 53,658,325 38,536,851
========== ========== ========== ==========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
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<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
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1998 1997
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OPERATING ACTIVITIES:
Net loss............................................................ $ (181,834) $ (82,356)
Adjustments to reconcile net loss to net cash used in operating
activities:
Deferred compensation expense.................................. 3,104 1,449
Equity in loss of affiliates................................... 2,635 1,688
Depreciation and amortization.................................. 37,141 14,460
Accretion of interest on senior notes.......................... 18,940 --
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable............................................ (6,570) (3,062)
Other assets................................................... (10,588) (662)
Accounts payable............................................... (8,016) (6,328)
Accrued expenses and other liabilities......................... 18,683 5,370
Accrued interest payable....................................... 21,735 10,208
------------ ------------
Net cash used in operating activities............................... (104,770) (59,233)
INVESTING ACTIVITIES:
Purchase of property and equipment.................................. (209,136) (89,146)
Net assets acquired in business and asset acquisitions (net of cash
acquired)........................................................ -- (41,239)
Cash withdrawn from escrow to be used in business acquisition....... -- 6,000
Assets acquired in network lease agreement.......................... (92,000) --
Contribution to NEXTBAND for purchase of spectrum licenses.......... (67,354) --
Investments in unconsolidated affiliates............................ (13,337) (6,342)
Maturity of pledged securities...................................... 19,636 18,049
Purchase of marketable securities................................... (3,347,468) (28,812)
Sale of marketable securities....................................... 2,916,258 --
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Net cash used in investing activities............................... (793,401) (141,490)
</TABLE>
-- Continued --
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NEXTLINK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
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<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------------------
1998 1997
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FINANCING ACTIVITIES:
Net proceeds from issuance of redeemable preferred stock............ $ 193,824 $ 274,000
Repayment of note payable and capital lease obligations............. (7,346) (1,380)
Repayment of payable to affiliates ................................. -- (1,500)
Proceeds from issuance of common stock upon exercise of stock options 2,021 111
Dividends paid on convertible preferred stock....................... (6,500) --
Repayment (issuance) of loans to related parties.................... 2,357 (2,825)
Proceeds from issuance of senior notes (net of discount)............ 734,323 --
Costs incurred in connection with financing......................... (17,232) (402)
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Net cash provided by financing activities........................... 901,447 268,004
------------ ------------
Net increase in cash and cash equivalents........................... 3,276 67,281
Cash and cash equivalents, beginning of period...................... 389,074 76,807
------------ ------------
Cash and cash equivalents, end of period............................ $ 392,350 $ 144,088
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Noncash financing and investing activities:
Redeemable preferred stock dividends, paid in redeemable
preferred shares............................................. $ 34,366 $ 20,413
============ ============
Accrued redeemable preferred stock dividends, payable in
redeemable preferred shares, and accretion of preferred stock
redemption obligation and issue costs........................ $ 1,747 $ 7,127
============ ============
Issuance of Class B common stock for purchase of minority
interests.................................................... $ 5,727 $ --
============ ============
Capital lease obligations assumed.............................. $ 5,065 $ 4,725
============ ============
Class A common stock issued under lease arrangement............ $ -- $ 1,400
============ ============
Cash paid for interest........................................... $ 58,860 $ 22,579
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</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of NEXTLINK
Communications, Inc., a Delaware corporation, and its majority-owned
subsidiaries (collectively referred to as the Company). The Company, through
predecessor entities, was formed on September 16, 1994 and, through its
subsidiaries, provides competitive local telecommunications services in selected
markets in the United States. The Company is a majority-owned subsidiary of
Eagle River Investments, L.L.C. (Eagle River).
The Company's financial statements include 100% of the assets, liabilities
and results of operations of subsidiaries in which the Company has a controlling
interest of greater than 50%. The Company's investment in Telecommunications of
Nevada, L.L.C. (Nevada L.L.C.), a limited liability company in which the Company
has a 40% interest and which operates a network that is managed by the Company
in Las Vegas, Nevada, is accounted for on the equity method. All operational
statistics of the Company included in this Report include 100% of the
operational statistics of Nevada L.L.C. Investments in entities in which the
Company has voting interests of not more than 20% are accounted for on the cost
method. All significant intercompany accounts and transactions have been
eliminated.
The interim financial statements are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. These
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
Company's Form 10-KSB as filed with the Securities and Exchange Commission on
March 25, 1998.
The financial information included herein reflects all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary to a fair presentation of the results for interim periods.
The results of operations for the three and nine-month periods ended
September 30, 1998 are not necessarily indicative of the results to be expected
for the full year.
2. FINANCINGS
DEBT
On March 3, 1998, the Company completed the sale of $335.0 million in
aggregate principal amount of 9% Senior Notes due March 15, 2008 (9% Senior
Notes). Proceeds from the sale net of discounts, underwriting commissions,
advisory fees and expenses totaled approximately $326.5 million. Interest
payments on the 9% Senior Notes are due semi-annually. The 9% Senior Notes
are redeemable at the option of the Company, in whole or in part, beginning
March 15, 2003.
On April 1, 1998, the Company completed the sale of 9.45% Senior Discount
Notes (9.45% Notes), due April 15, 2008. The 9.45% Notes were issued at a
discount from their principal amount to generate aggregate gross proceeds to the
Company of approximately $400.0 million. Proceeds net of underwriting
commissions, advisory fees and expenses totaled $390.9 million. The 9.45% Notes
accrete at a rate of 9.45% compounded semi-annually, to an aggregate principal
amount of approximately $637.0 million by April 15, 2003. No cash interest will
accrue on the 9.45% Notes until April 15, 2003. Interest will become payable in
cash semi-annually beginning on October 15, 2003. The 9.45% Notes are redeemable
at the option of the Company, in whole or in part, at any time after April 15,
2003.
The indentures pursuant to which the 9% Senior Notes and the 9.45% Notes
(the Notes) are issued contain certain covenants that, among other things, limit
the ability of the Company and its subsidiaries to incur additional
indebtedness, issue stock in subsidiaries, pay dividends or make other
distributions, repurchase equity interests or
<PAGE>
subordinated indebtedness, engage in sale and leaseback transactions, create
certain liens, enter into certain transactions with affiliates, sell assets
of the Company and its subsidiaries, and enter into certain mergers and
consolidations.
In the event of a change in control or asset disposition of the Company as
defined in the indentures, holders of the Notes will have the right to require
the Company to purchase their Notes, in whole or in part, at a price equal to
101% of the principal amount thereof, plus accrued and unpaid interest, if any,
thereon to the date of purchase. The Notes are senior unsecured obligations of
the Company, and are subordinated to all current and future indebtedness of the
Company's subsidiaries, including trade payables.
REDEEMABLE PREFERRED STOCK
On March 31, 1998, the Company completed the sale of 4,000,000 shares of
6 1/2% cumulative convertible preferred stock (6 1/2% Preferred Stock) with a
liquidation preference of $50 per share. The sale generated gross proceeds to
the Company of $200.0 million, and proceeds net of underwriting discounts,
advisory fees and expenses of $193.8 million. Each share of 6 1/2% Preferred
Stock is convertible, at the option of the holder, into 1.145 shares of the
Company's Class A common stock (subject to adjustments in certain
circumstances). The Company may cause such conversion rights to expire if the
closing price of the Class A common stock exceeds 120% of an implied conversion
price (as defined) for 20 days in a 30 consecutive day trading period after
April 15, 2001 and through April 15, 2006. Dividends on the 6 1/2% Preferred
Stock accrue from March 31, 1998 and are payable in cash quarterly, beginning on
June 30, 1998, at an annual rate of 6 1/2% of the liquidation preference
thereof. The Company is required to redeem all of the 6 1/2% Preferred Stock
outstanding on March 31, 2010 at a redemption price equal to 100% of the
liquidation preference thereof, plus accumulated and unpaid dividends to the
date of redemption.
3. NETWORK LEASE
In February 1998, the Company entered into a 20-year capital lease for
exclusive rights to multiple fibers and innerducts throughout New York, New
Jersey, Connecticut, Pennsylvania, Delaware, Maryland and Washington D.C. The
Company paid $92.0 million in the transaction, of which $80.3 million was placed
into escrow pending completion and delivery of segments of the network route to
the Company. The payment was recorded as a long-term asset, and will be
reclassified as property and equipment as portions of the network are completed.
The Company has the option to renew the lease for two additional 10-year terms.
4. JOINT VENTURES
NEXTBAND
In January 1998, the Company and Nextel Communications, Inc. (Nextel), a
nationwide provider of wireless telephone services, formed a joint venture
called NEXTBAND Communications, L.L.C. (NEXTBAND), which is owned 50% each by
the Company and Nextel. NEXTBAND was the successful bidder in 42 markets
covering approximately 105 million POPs, or persons located within the licensed
areas owned, in the FCC's local multipoint distribution service (LMDS) auctions,
which concluded in March 1998. The Company has contributed $67.4 million to
NEXTBAND, representing its pro rata share of NEXTBAND's total bid in the LMDS
auctions. The Company is evaluating means to use its access to NEXTBAND's LMDS
spectrum to enhance its ability to connect customers to its fiber rings, and to
deploy wireless local loop technologies using LMDS frequencies where it
determines it cost effective to do so.
INTERNEXT
In July 1998, the Company announced the formation of INTERNEXT L.L.C.,
which is beneficially owned 50% each by the Company and Eagle River. INTERNEXT
has entered into an agreement with Level 3 Communications, LLC (Level 3). Level
3 is constructing a national fiber optic network that is expected to cover more
than 16,000 route miles with six or more conduits and connect 50 cities in the
United States and Canada. Pursuant to this agreement, INTERNEXT will receive an
exclusive interest in 24 fibers in a shared, filled conduit, one entire empty
conduit and the right to 25% of the fibers pulled through the sixth and any
additional conduits in the network. INTERNEXT will pay $700.0 million in
exchange for these rights, the majority of which will be payable as
<PAGE>
segments of the network are completed and accepted by INTERNEXT, which is
expected to occur substantially during 2000 and 2001. The Company has
guaranteed 50% of the financial obligations of INTERNEXT under this agreement
and, together with Eagle River, has also guaranteed the performance of
certain other obligations of INTERNEXT thereunder. The Company anticipates
that Nextel will acquire a one-third ownership interest in INTERNEXT, which
would reduce the Company's beneficial interest in and obligations with
respect to INTERNEXT to one-third.
5. RECLASSIFICATIONS
Certain reclassifications have been made to prior period amounts in order
to conform to the current presentation.
6. SUBSEQUENT EVENT
On November 12, 1998, the Company completed the sale of $500.0 million in
aggregate principal amount of 10 3/4% Senior Notes due November 15, 2008
(10 3/4% Senior Notes). Proceeds from the sale net of underwriting commissions,
advisory fees and expenses totaled approximately $488.5 million. Interest
payments on the notes are due semi-annually, beginning May 15, 1999. The 10 3/4%
Senior Notes are redeemable at the option of the Company, in whole or in part,
beginning November 15, 2003.
The indenture pursuant to which the 10 3/4% Senior Notes are issued
contains certain covenants that, among other things, limit the ability of the
Company and its subsidiaries to incur additional indebtedness, issue stock in
subsidiaries, pay dividends or make other distributions, repurchase equity
interests or subordinated indebtedness, engage in sale and leaseback
transactions, create certain liens, enter into certain transactions with
affiliates, sell assets of the Company and its subsidiaries, and enter into
certain mergers and consolidations. In addition, under the indenture, the
Company has agreed to use the net proceeds from the sale for expenditures
relating to the construction, improvement and acquisition of new and existing
networks and services and direct or indirect investments in certain joint
ventures to fund similar expenditures.
In the event of a change in control or asset disposition of the Company as
defined in the indentures, holders of the 10 3/4% Senior Notes will have the
right to require the Company to purchase their 10 3/4% Senior Notes, in whole or
in part, at a price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, thereon to the date of purchase. The 10 3/4% Senior
Notes are senior unsecured obligations of the Company, and are subordinated to
all current and future indebtedness of the Company's subsidiaries, including
trade payables.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1(b). FINANCIAL STATEMENTS
NEXTLINK CAPITAL, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 1997
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<S> <C> <C>
ASSETS
Cash in bank........................................... $ 100 $ 100
============ ============
SHAREHOLDER'S EQUITY
Common stock, no par value,
1,000 shares authorized, issued and outstanding...... $ 100 $ 100
============ ============
</TABLE>
NOTES TO BALANCE SHEETS
1. DESCRIPTION
NEXTLINK Capital, Inc. (NEXTLINK Capital) is a Washington corporation and a
wholly owned subsidiary of NEXTLINK Communications, Inc. (NEXTLINK). NEXTLINK
Capital was formed for the sole purpose of obtaining financing from external
sources and is a joint obligor on the 12 1/2% Senior Notes due April 15, 2006 of
NEXTLINK. NEXTLINK Capital was initially funded with a $100 contribution from
NEXTLINK and has had no operations to date.
2. BASIS OF PRESENTATION
The interim financial statements have been prepared without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. These
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Form 10-KSB as filed with the Securities and Exchange Commission on March 25,
1998.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Since its inception in 1994, the Company has executed a strategy of
constructing and acquiring fiber optic networks and acquiring related
telecommunications businesses. Over this period, the Company has pursued this
strategy by constructing, acquiring, leasing fibers or capacity on, and entering
into agreements to acquire local telecommunications networks.
The Company develops and operates high capacity, local fiber optic networks
with broad market coverage in a growing number of markets across the United
States. In its switched local service markets, the Company offers its customers
a bundled package of local and long distance services and also offers dedicated
transmission and competitive access services to long distance carriers and end
users. The Company plans to acquire, build or develop networks in new areas,
expand its current networks, and also explore the acquisition or licensing of
additional enhanced communications services and other telecommunications service
providers. These efforts should allow the Company to increase its presence in
the marketplace, and facilitate providing a single source solution for the
telecommunications needs of its customers.
The Company currently operates 19 facilities-based networks providing
switched local and long distance services in 33 markets in 11 states. The
Company serves larger markets including New York, Los Angeles, Chicago, Atlanta
and the San Francisco Bay Area, medium-sized markets such as Salt Lake City and
Nashville, and clusters of smaller markets in Orange County, California and
central Pennsylvania. The Company anticipates developing additional new markets
throughout a majority of the nation's top 30 markets which, together with its
existing markets, are expected to have a total of approximately 27 million
addressable business lines by the end of 2000. The Company plans to launch
service in Dallas, Denver and Miami in the fourth quarter of 1998 and in San
Diego, Washington, D.C. and Seattle in the first half of 1999. The Company is
also developing a national network strategy to enable it to offer its customers
complete, end-to-end voice and data communications services over NEXTLINK-owned
facilities.
The table below provides selected key financial and operating data (dollars
are in thousands):
<TABLE>
<CAPTION>
AS OF AND
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
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<S> <C> <C>
FINANCIAL DATA:
Gross property and equipment.................. $ 511,204 $ 214,320
EBITDA (1) .................................... $ (36,576) $ (19,844)
OPERATING DATA (2):
Route miles (3)................................ 2,150 1,757
Fiber miles (4)................................ 158,987 124,399
On-net buildings connected (5)................. 736 479
Off-net buildings connected (6)................ 9,688 1,404
Switches installed............................. 18 13
Access lines in service (7).................... 134,107 30,944
Employees .................................... 2,065 1,027
</TABLE>
(1) EBITDA represents net loss before interest expense, interest income,
depreciation, amortization and deferred compensation expense. EBITDA is
commonly used to analyze companies on the basis of operating
performance, leverage and liquidity. While EBITDA should not be
construed as a substitute for operating income or a better measure of
liquidity than cash flow from operating activities, which are
determined in accordance with generally accepted accounting principles,
it is included herein to provide additional
<PAGE>
information with respect to the ability of the Company to meet future
debt service, capital expenditure and working capital requirements.
(2) The operating data includes 100% of the statistics of the Las Vegas
network, which the Company manages and in which the Company has a 40%
membership interest.
(3) Route miles refers to the number of miles of the telecommunications
path in which the Company-owned or leased fiber optic cables are
installed.
(4) Fiber miles refers to the number of route miles installed along a
telecommunications path, multiplied by the Company's estimate of the
number of fibers along that path.
(5) Represents buildings physically connected to the Company's networks,
excluding those connected by unbundled incumbent local exchange carrier
(ILEC) facilities.
(6) Represents buildings connected to the Company's networks through leased
or unbundled ILEC facilities.
(7) Represents the number of access lines in service, including those lines
that are provided through resale of Centrex services, for which the
Company is billing services. The Company serviced 3,312 resold access
lines as of September 30, 1998. The Company defines an access line as
a telephone connection between a customer purchasing local telephone
services and NEXTLINK. This connection does not include the concept of
access line equivalents (ALEs), and is a one-for-one relationship with
no multipliers used for trunk ratios, except for those trunks over
which primary rate interface (PRI) service is provided, which are
counted as 23 access lines.
The Company builds its networks to encompass the significant business
concentrations in each area it serves, focusing on direct connections to
end-user locations and ILEC central offices. The Company employs a uniform
technology platform for each of its local exchange networks that is based on the
Nortel DMS 500 digital local and long distance combination switching platform
and associated distribution technology. As of September 30, 1998, the Company
had 16 operational Nortel DMS 500 switches, including one switch in its NEXTLAB
facility, and currently plans to install three additional switches by the end of
1998. NEXTLAB is a fully functional model of one of the Company's networks,
which serves as a testing facility for switch software and the Company's
products and services and will serve as the Company's network operations control
center.
The development of the Company's businesses and the construction,
acquisition and expansion of its networks require significant expenditures,
substantial portions of which are incurred before the realization of revenues.
These expenditures, together with the associated early operating expenses,
result in negative cash flow until an adequate customer base is established.
However, as the customer base grows, the Company expects that incremental
revenues can be generated with decreasing incremental operating expenses, which
may provide positive contributions to cash flow. The Company has made the
strategic decision to build high capacity networks with broad market coverage,
which initially increases its level of capital expenditures and operating
losses. The Company believes that over the long term this will enhance the
Company's financial performance by increasing the traffic flow over the
Company's networks. The Company has recently entered into leased dark fiber and
fiber capacity arrangements which allow the Company, by installing one or more
switches and related electronics, to enter a market prior to completing
construction of its own fiber optic network.
RESULTS OF OPERATIONS
Revenue increased 182% to $37.8 million during the third quarter of 1998,
from $13.4 million in the same period in 1997. Year to date revenue of $96.4
million represented a 175% increase from the $35.1 million reported for the
comparable period in 1997. The increase was driven by 290% growth in revenues
from bundled local and long distance services and dedicated services, as well as
by the acquisitions of Start Technologies Corporation (Start) and Chadwick
Telecommunications Corporation (Chadwick) in the fourth quarter of 1997.
Revenues reported in the third quarter of 1998 included $31.5 million derived
from local and long distance, competitive access, dedicated line services and
shared tenant services and $6.3 million derived from enhanced communications
services, primarily interactive voice response (IVR) services. The Company's IVR
revenue comprised 16% and 28% of the Company's total revenues during the third
quarter of 1998 and 1997, respectively.
The Company increased the number of customer access lines added during the
quarter from 30,053 in the second quarter of 1998 to 31,220 during the third
quarter of 1998. As of September 30, 1998, the Company had
<PAGE>
134,107 access lines in service, compared to 50,131 as of December 31, 1997
and 30,944 as of September 30, 1997. Revenues from the provision of such
services are expected to continue to increase as a component of total
revenues over future periods. Access lines in service includes those lines
which are provided through resale of Centrex services, the number of which is
decreasing over time as the Company converts those customers to its own
network.
Operating expenses consist of costs directly related to providing
facilities-based network and enhanced communications services and also include
salaries and benefits and related costs of operations and engineering personnel.
Operating expenses increased 136% in the third quarter of 1998 to $32.8 million,
an increase of $18.9 million over the third quarter of 1997. For the nine months
ended September 30, 1998, operating expenses rose $49.6 million, or 138%, over
the same period in 1997. These increases were attributed to increased network
costs related to provisioning higher volumes of local, long distance and
enhanced communications services, an increase in employees and an increase in
other related costs primarily to expand the Company's switched local and long
distance service businesses in its existing and planned markets. To a lesser
extent, the acquisitions of Start and Chadwick in the fourth quarter of 1997
also contributed to the increase in operating costs over those in the third
quarter of 1997.
Selling, general and administrative (SG&A) expenses include salaries and
related personnel costs, facilities expenses, sales and marketing,
information systems costs, consulting and legal fees and equity in loss of
affiliates. SG&A expenses increased 115% and 126% in the three and nine-month
periods ended September 30, 1998 as compared to the corresponding periods in
1997. The increases were due to the Company's increase in employees, as well
as other costs associated with the expansion of the Company's switched local
and long distance service businesses in its existing and planned markets.
Deferred compensation expense was recorded in connection with the Company's
Equity Option Plan until April 1997, and in connection with the Company's Stock
Option Plan, which replaced the Equity Option Plan, subsequent to April 1997.
The stock options granted under the Equity Option Plan were considered
compensatory and were accounted for on a basis similar to that for stock
appreciation rights. All options outstanding under the Equity Option Plan were
regranted under the new Stock Option Plan with terms and conditions
substantially the same as under the Equity Option Plan. As such, the Company
continues to record deferred compensation expense for those compensatory stock
options issued, as well as for compensatory stock options issued subsequent to
the Plan conversion date. Compensation expense is recognized over the vesting
periods based on the excess of the fair value of the stock options at the date
of grant over the exercise price.
Depreciation expense increased primarily due to placement in service of
additional telecommunications network assets, including switches, fiber optic
cable, network electronics and related equipment. Amortization of intangible
assets increased primarily as a result of the Start and Chadwick acquisitions in
the fourth quarter of 1997.
Interest expense increased 248% in the third quarter of 1998 over the
comparable period in the prior year due to an increase in the Company's
average outstanding indebtedness over the respective periods. Interest
expense will increase in future periods in conjunction with the sale of
$500.0 million in aggregate principal amount of 10 3/4% Senior Notes on
November 12, 1998. See "--Liquidity and Capital Resources." Pursuant to
Statement of Financial Accounting Standards No. 34, the Company capitalizes a
portion of its interest costs as part of the construction cost of its
communications networks. Capitalized interest during the first nine months of
1998 totaled $3.0 million. Interest income results from investment of excess
cash as well as certain securities that have been pledged as collateral for
interest payments on the 12 1/2% Senior Notes. The increase in interest
income for the three and nine-month periods in 1998 over the same periods in
1997 corresponded to the increase in the Company's average outstanding cash
balances.
LIQUIDITY AND CAPITAL RESOURCES
The competitive local telecommunications service business is a
capital-intensive business. The Company's existing operations have required and
will continue to require substantial capital investment for the acquisition and
installation of fiber, electronics and related equipment in order to provide
switched services in the Company's
<PAGE>
networks and the funding of operating losses during the start-up phase of
each market. In addition, the Company's strategic plan calls for expansion
into additional market areas. Such expansion will require significant
additional capital for: potential acquisitions of businesses or assets;
design, development and construction of new networks; and the funding of
operating losses during the start-up phase of each market. During the first
nine months of 1998, the Company used $104.8 million in cash for operating
activities, compared to $59.2 million for the same period in the prior year.
The increase was primarily due to a substantial increase in the Company's
activities associated with the continued development and expansion of
switched local and long distance service operations. During the first nine
months of 1998, the Company invested an additional $301.1 million in property
and equipment and acquisitions of telecommunications assets. During the same
period in 1997, the Company invested $130.7 million in property and
equipment, acquisitions of telecommunications assets and businesses and
equity investments in telecommunications businesses.
In July 1998, the Company announced the formation of INTERNEXT L.L.C.,
which is beneficially owned 50% each by the Company and Eagle River Investments,
L.L.C (Eagle River). INTERNEXT entered into an agreement with Level 3
Communications LLC (Level 3). Level 3 is constructing a national fiber optic
network that is expected to cover more than 16,000 route miles with six or more
conduits and connect 50 cities in the United States and Canada. Pursuant to this
agreement, INTERNEXT will receive an exclusive interest in 24 fibers in a
shared, filled conduit, one entire empty conduit and the right to 25% of the
fibers pulled through the sixth and any additional conduits in the network.
INTERNEXT will pay $700.0 million in exchange for these rights, the majority of
which will be payable as segments of the network are completed and accepted by
INTERNEXT, which is expected to occur substantially during 2000 and 2001. The
Company has guaranteed 50% of the financial obligations of INTERNEXT under this
agreement and, together with Eagle River, has also guaranteed the performance of
certain other obligations of INTERNEXT thereunder. The Company anticipates that
Nextel Communications, Inc. (Nextel) will acquire a one-third ownership interest
in INTERNEXT, which would reduce the Company's beneficial ownership interest in
and obligations with respect to INTERNEXT to one-third. The Company is in the
process of defining its plans for implementation of a national network
strategy, which will require additional capital expenditures.
In February 1998, the Company signed a definitive agreement with Metromedia
Fiber Network for exclusive rights to multiple fibers and innerducts for 20
years, with two 10-year renewals. The route covered by the agreement extends
from Manhattan to White Plains (NY), to Stamford (CT), to Newark (NJ) and south
from Manhattan through Philadelphia, Wilmington (DE), Baltimore, and to
Washington (DC). The route will offer frequent splice points within metropolitan
areas and on routes between metropolitan areas, as well as provide access to
ILEC central and tandem switching offices. The Company paid $92.0 million in
cash for this transaction, $80.3 million of which was placed into escrow, to be
released as segments of the route are constructed and delivered to the Company.
In January 1998, the Company and Nextel formed NEXTBAND, a joint venture
that is owned 50% each by the Company and Nextel. NEXTBAND was the successful
bidder in 42 markets in the FCC's local multipoint distribution service (LMDS)
auctions. The Company's pro rata share of NEXTBAND's total bid in the LMDS
auctions was $67.4 million, which was paid in full in June 1998. The Company is
in process of defining its operational and financial plans for implementation of
an LMDS strategy, which will likely involve additional capital expenditures.
On March 3, 1998, the Company completed the sale of $335.0 million in
aggregate principal amount of 9% Senior Notes due March 15, 2008. Proceeds from
the sale net of discounts, underwriting commissions, advisory fees and expenses
totaled approximately $326.5 million. Interest payments on the 9% Senior Notes
are due semi-annually, beginning September 1998.
On March 31, 1998, the Company completed the sale of 4,000,000 shares of
6 1/2% cumulative convertible preferred stock (6 1/2% Preferred Stock) with a
liquidation preference of $50 per share. The sale generated gross proceeds to
the Company of $200.0 million, and proceeds net of underwriting discounts,
advisory fees and expenses of $193.8 million. Each share of 6 1/2% Preferred
Stock is convertible, at the option of the holder, into 1.145 shares of the
Company's Class A common stock (subject to adjustments in certain
circumstances). Dividends on the 6 1/2% Preferred Stock accrue from March 31,
1998 and are payable quarterly in cash, beginning on June 30, 1998.
<PAGE>
On April 1, 1998, the Company completed the sale of 9.45% Senior Discount
Notes (9.45% Notes), due April 15, 2008. The 9.45% Notes were issued at a
discount from their principal amount to generate aggregate gross proceeds to the
Company of approximately $400.0 million. Proceeds net of underwriting
commissions, advisory fees and expenses totaled $390.9 million. The 9.45% Notes
accrete at a rate of 9.45% compounded semi-annually, to an aggregate principal
amount of approximately $637.0 million by April 15, 2003. No cash interest will
accrue on the Notes until April 15, 2003. Interest will become payable in cash
semi-annually beginning on October 15, 2003.
On November 12, 1998, the Company completed the sale of $500.0 million in
aggregate principal amount of 10 3/4% Senior Notes due November 15, 2008.
Proceeds from the sale net of underwriting commissions, advisory fees and
expenses totaled approximately $488.5 million. Interest payments on the notes
are due semi-annually, beginning May 1999. Pursuant to a covenant in the
indenture under which the 10 3/4% Senior Notes were issued, the Company has
agreed to use the net proceeds from the sale for expenditures relating to the
construction, improvement and acquisition of new and existing networks and
services and direct or indirect investments in certain joint ventures
(including NEXTBAND and INTERNEXT) to fund similar expenditures.
The Company will use the net proceeds from the sale of the 9% Senior
Notes, the 6 1/2% Preferred Stock, the 9.45% Notes, the 10 3/4% Senior Notes
(subject to the limitations described above) and existing unrestricted cash
balances for expenditures relating to the development, construction,
acquisition and operation of telecommunications networks and service
providers and the offering of telecommunications services in those areas
where the Company currently operates or intends to operate. Expenditures for
the construction and operation of networks include (i) the purchase and
installation of switches and related electronics in existing networks and in
networks to be constructed or acquired in new or adjacent markets, (ii) the
purchase and installation of fiber optic cable and electronics to expand
existing networks and develop new networks, including the connection of new
buildings, (iii) the development of its comprehensive information technology
platform, (iv) the acquisition of LMDS spectrum purchased in the FCC's
auction and the construction and deployment of associated facilities and (v)
the funding of operating losses and working capital. The Company may also
acquire or invest in businesses that consist of existing networks or
companies engaged in businesses similar to those engaged in by the Company
and its subsidiaries or other complementary businesses.
As of September 30, 1998, the Company had unrestricted cash and investments
of $1,176.8 million and $1,665.3 million on a pro forma basis after giving
effect to the sale of the 10 3/4% Senior Notes. The Company's current plan
contemplates an aggressive expansion into a number of new markets throughout
the United States. The Company may pursue various alternatives for achieving
its growth strategy, including: additional network construction; additional
leases of network capacity from third party providers; acquisitions of
existing networks; and spectrum that was purchased during the LMDS auction
and associated facilities construction and deployment. The Company also
anticipates that a substantial amount of additional capital expenditures will
be made in 1999 and beyond. The funding of these capital expenditures is
expected to be provided by existing cash balances, future vendor and/or
credit facilities, future public or private sales of debt securities, future
sales of public or private capital stock and joint ventures. There can be no
assurance, however, that the Company will be successful in raising sufficient
additional capital on terms that it will consider acceptable or that the
Company's operations will produce positive consolidated cash flow in
sufficient amounts to meet its interest and dividend obligations on its
outstanding securities. Failure to raise and generate sufficient funds may
require the Company to delay or abandon some of its planned future expansion
or expenditures, which could have a material adverse effect on the Company's
growth and its ability to compete in the telecommunications services industry.
In addition, the Company's operating flexibility with respect to certain
business matters is, and will continue to be, limited by covenants associated
with the 12 1/2% Senior Notes, the 9 5/8% Senior Notes, the 9% Senior Notes, the
9.45% Notes and the 10 3/4% Senior Notes (collectively referred to as the
Notes). Among other things, these covenants limit the ability of the Company and
its subsidiaries to incur additional indebtedness, create liens upon assets,
apply the proceeds from the disposal of assets, make dividend payments and other
distributions on capital stock and redeem capital stock. In addition, the terms
of the 14% Senior Exchangeable Redeemable Preferred Shares (14% Preferred
Shares) contain certain covenants that may limit the Company's operating
flexibility with respect to the incurrence of indebtedness and issuance of
additional preferred shares. There can be no assurance that such covenants will
not adversely affect the Company's ability to finance its future operations or
capital needs or to engage in other business activities that may be in the
interest of the Company. The Company was in compliance with all covenants
associated with the Notes and the 14% Preferred Shares as of September 30,
1998.
<PAGE>
IMPACT OF YEAR 2000
Certain of the Company's older computer systems and applications were
written to define a given year with abbreviated dates using the last two
digits in a year rather than the entire four digits. As a result, when
computer systems attempt to process dates both before and after January 1,
2000, two digit year fields may create processing ambiguities that can cause
errors and system failures. For example, systems and applications may have
time-sensitive software that recognize an abbreviated year "00" as the year
1900 rather than the year 2000. These errors or failures may have limited
effects, or the effects may be widespread, depending on the computer chip,
system, or software, and its location and function.
STATE OF READINESS
The Company is currently assessing the impact of the Year 2000, and a
formal Year 2000 plan (the "Plan") is expected to be completed and adopted
by the Company by year-end 1998. The purpose of the Plan will be to develop
and perform reasonable steps intended to prevent the Company's critical
operational functions from being impaired due to the Year 2000 problem. The
first phase of the Company's Year 2000 assessment, to be completed by December
1998, includes: 1) taking an inventory of Company-wide systems and equipment to
determine the extent of testing required for Year 2000 compliance (generally
defined as the ability of information systems to accurately process data
from, into and between the twentieth and twenty-first centuries, including
leap year calculations), 2) developing a strategy to manage vendors' and
other outside entities' progress toward Year 2000 compliance, 3) designing a
Company-wide Year 2000 communications plan, and 4) creating a risk assessment
and impact analysis from which the Plan can be developed. The Company has
engaged outside consultants to aid in formulating and implementing the Plan.
The Company's assessments to date have indicated that its major
operational support systems, including its billing, order management, network
management, and financial systems are Year 2000 compliant. In addition, the
Company has received positive confirmation from its vendor that the Company's
Nortel DMS 500 switches are also Year 2000 compliant.
As part of the Plan and ongoing Year 2000 assessment, the Company will
continue its testing of existing telecommunications equipment and back office
systems to access the effects of the Year 2000 problem on those areas that
would result in significant impairment to the Company's critical operations.
Through its NEXTLAB facility, which operates separate and apart from the
Company's operational switches, the Company has the means to test switch
configurations without impacting its networks or customers, and the Company
is using NEXTLAB to independently verify Year 2000 compliance of its network
systems and equipment.
The Plan will also address the potential adverse effects to the Company
in the event that the computer, telecommunications, and other systems of
outside entities' (including vendors, customers, and local and interexchange
carriers and Internet service providers with which the Company interchanges
traffic) are not Year 2000 compatible. The Company does not have control of
these outside entities or their systems. However, the Company's Plan will
include ongoing identification of and contact with such outside entities
whose systems may have a substantial effect on the Company's ability to
continue to conduct the critical aspects of its operations without disruption
from Year 2000 problems. In the event such outside systems are identified,
the Company will work with the outside entities in a reasonable attempt to
inventory, assess, analyze, test, and develop contingency plans for the
Company's connections to these outside entities and their systems and to
determine the extent to which they are, or can be made to be, Year 2000
compliant.
COSTS TO ADDRESS YEAR 2000 ISSUES
The Company has not incurred material historical costs for Year 2000
awareness, inventory, assessment, analysis, conversion, testing, or
contingency planning. Further, the Company anticipates that its future costs
for these purposes will not be material.
Year 2000 costs are difficult to estimate accurately because of
unanticipated vendor delays, technical difficulties, the impact of tests of
outside entities' systems, and similar events. Although management believes
that its estimates are reasonable, there can be no assurance that the actual
costs of implementing
<PAGE>
the Plan will not differ materially from the estimated costs or that the
Company will not be materially adversely affected by Year 2000 issues.
Furthermore, the estimated costs of implementing the Plan do not consider the
costs, if any, that might be incurred as a result of Year 2000-related
failures that occur despite the Company's implementation of the Plan.
YEAR 2000 RISK FACTORS
Between now and the year 2000 there will be increased competition for
people with the technical and managerial skills necessary to deal with the
Year 2000 problem. The Company believes it employs an adequate number of
personnel skilled in dealing with the Year 2000 problem and has retained
outside consultants who bring additional skilled people to deal with the Year
2000 problem as it affects the Company. Nevertheless, the Company could face
shortages of skilled personnel or other resources, such as Year 2000
compliant computer chips. These shortages might delay or otherwise impair the
Company's ability to assure that its critical systems are Year 2000
compliant. Outside entities could face similar problems that could materially
affect the Company. The Company believes that the possible impact of the
shortage of skilled people and resources is not, and will not be, unique to
the Company.
The Company believes that its critical systems will be Year 2000
compliant before January 1, 2000. However, there is no assurance that the
Plan will succeed in accomplishing its purposes and unforeseen circumstances
may arise during implementation of the Plan that would materially and
adversely affect the Company.
The Company is taking reasonable steps to identify, assess, and, where
appropriate, replace devices that contain embedded chips. Despite these
reasonable efforts, the Company may not be able to find and remediate all
embedded chips in all of the Company's systems. Further, outside entities on
which the Company depends also may not be able to find and remediate all
embedded chips in their systems. Some chips that are not Year 2000 compliant
may create system disruptions or failures, which may, in turn, cause
disruptions or failures in other systems. These cascading problems could
impair the Company's ability to serve its customers and otherwise fulfill
contractual and legal obligations. The Company believes that the possible
adverse impact of the embedded chip problem is not, and will not be, unique
to the Company.
The Company cannot ensure that suppliers upon which it depends for
essential supplies and services will convert and test their critical systems
and processes in a timely manner. Failure or delay by all or some of these
entities, including federal, state, or local governments, to make their
systems and processes Year 2000 compliant could create substantial
disruptions having a material adverse effect on the Company's operations.
In a recent Securities and Exchange Commission release regarding Year
2000 disclosure, the Securities and Exchange Commission stated that public
companies must disclose the most reasonably likely worst case Year 2000
scenario. Although it is not possible to assess the likelihood of any of the
following events, each must be included in a consideration of worst case
scenarios: widespread failure of electrical, gas, and similar supplies
serving the Company; widespread disruption of the services provided by common
communications carriers; similar disruption to the means and modes of
transportation for the Company and its employees, contractors, suppliers, and
customers; significant disruption to the Company's ability to gain access to,
and remain working in, office buildings and other facilities; the failure of
substantial numbers of the Company's critical computer hardware and software
systems, including both internal business systems and systems controlling
operational facilities such as electrical generation, transmission, and
distribution systems; and the failure of outside entities' systems, including
systems related to banking and finance. Among other things, the Company could
face substantial claims by customers or loss of revenue due to service
interruptions, inability to fulfill contractual obligations or to bill
customers accurately and on a timely basis, and increased expenses associated
with litigation, stabilization of operations following critical system
failures, and the execution of contingency plans. The Company could also
experience an inability by customers and others to pay, on a timely basis or
at all, obligations owed to the Company. Under these circumstances, the
adverse effects on the Company would be material, although not quantifiable
at this time. Further, the cumulative effect of these failures could have a
substantial adverse effect on the
<PAGE>
economy, domestically and internationally. The adverse effect on the Company
from a domestic or global recession or depression also could be material,
although not quantifiable at this time.
The Company will continue to monitor business conditions to assess and
quantify material adverse effects, if any, that may result from the Year 2000
problem.
CONTINGENCY PLANS
As part of the Plan, the Company is developing contingency plans that
deal with two aspects of the Year 2000 problem: 1) that the Company, despite
its good faith and reasonable efforts, may not have satisfactorily addressed
the Year 2000 problem with respect to its critical internal systems and 2)
that outside entities' systems may not be Year 2000 ready. The Company's
contingency plans will be designed to minimize the disruptions or other
adverse effects resulting from Year 2000 incompatibilities with respect to
critical functions or systems.
The Company's contingency plans will contemplate an assessment of all
its critical internal information technology systems and its internal
operational systems that use computer-based controls. In addition, the
Company will assess any critical disruptions due to Year 2000-related
failures that are external to the Company. These processes will begin January
1, 2000, and will continue as long as circumstances require.
The Company's contingency plans will include the creation of teams that
will be prepared to respond immediately and as necessary to critical Year
2000 problems as soon as they become known. The composition of teams that are
assigned to deal with such problems will vary according to the nature,
significance, and location of the problem.
<PAGE>
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
The statements contained in this report and in associated prior filings by
the Company with the Securities and Exchange Commission which are not historical
facts are "forward-looking statements" (as such term is defined in the Private
Securities Litigation Reform Act of 1995), which can be identified by the use of
forward-looking terminology such as "believes", "expects", "may", "will",
"should", or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy that involve risks and
uncertainties. Such forward-looking statements include, but are not limited to:
the Company's plans to build, acquire or develop networks and offer services in
new areas, expand its current networks and explore the acquisition or licensing
of additional enhanced communications services and other telecommunications
service providers (and the effects of such efforts); the Company's development
of a national strategy for end-to-end communications services; the Company's
presence in the marketplace and its ability to provide a single source solution
for the telecommunications needs of its customers; the Company's anticipated
development of and entry into new markets and market expansion (and timing
thereof); its expected number of addressable business lines in markets where the
Company operates and by the end of 2000; its plans to launch service in various
cities; its plans to install additional switches by the end of 1998; its
expectation regarding incremental revenues, incremental operating expenses and
contributions to cash flow; the Company's belief regarding its financial
performance and traffic flow over its networks; its expectations regarding
revenue from access lines as a percentage of total revenues; increases in
interest expense in future periods; its requirements for capital investment; its
use of proceeds from various financings; its anticipated capital expenditures;
its intentions regarding LMDS technology; matters related to the national
network being constructed by Level 3, including network specifications,
INTERNEXT's interest therein, the delivery of segments thereunder, and the cost
thereof and the timing of payments for the network; the participation by other
entities (including Nextel) in certain joint ventures and financial matters
related thereto; and other statements contained herein regarding matters that
are not historical facts. Management wishes to caution the reader that these
forward-looking statements are only predictions. These statements are based on
a number of assumptions that ultimately could prove inaccurate and, therefore,
no assurance can be given that the future results will be achieved. Actual
events or results may differ materially as a result of a number of factors,
including those identified in the Company's annual report on Form 10-KSB (File
No. 333-04603). Factors that could affect performance include: the level of
the Company's future negative cash flows and operating losses incurred by the
Company until it establishes an adequate revenue base and generates
substantial revenues from the provision of switched local and long distance
services; successfully generating or raising on terms that the Company will
consider acceptable sufficient capital to accommodate planned future expansion
and expenditures; continued attraction and retention of qualified managerial,
professional and technical personnel; timely installation of the required
switches, fiber optic cable and associated electronics necessary to provide
switched local service in a manner that will permit the resolution of
technical problems; successfully negotiating new and, to the extent necessary,
renegotiating existing interconnection agreements; successfully developing
effective systems relating to ordering, provisioning and billing for
telecommunications services; successfully offering, marketing and selling
switched local services and other enhanced products and services in all of the
Company's networks as quickly as practicable; sufficient access to the ILEC's
networks and adequate cooperation therefrom to connect new customers to the
Company's network on a timely basis; identifying, financing and completing
suitable acquisitions; maintaining existing, and obtaining and maintaining
new, franchises, permits and rights-of-way and any required governmental
authorizations, franchises and permits on a timely basis; competition from
incumbent providers and new entrants; the nature of regulatory, legislative
and judicial developments; rapid and significant changes in technology; and
risks related to the Company's national network and LMDS strategies. These are
representative of factors that could affect the outcome of the forward-looking
statements. In addition, such statements could be affected by general industry
and market conditions and economic conditions including interest rate
fluctuations.
NEW ACCOUNTING STANDARD
In April 1998, the AICPA released Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" (SOP 98-5). The new standard requires that all
entities expense costs of start-up activities as those costs are
<PAGE>
incurred. SOP 98-5 defines "start-up costs" as those costs directly related
to pre-operating, pre-opening, and organization activities. This standard
must be adopted in fiscal years beginning after December 15, 1998. The adoption
of SOP 98-5 will not have a material impact the Company's financial position.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings, other
than regulatory and other proceedings that are in the normal course of
its business.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company filed a registration statement on Form S-1 (File No.
333-32001) which became effective on September 26, 1997, whereby
15,200,000 shares of Class A common stock, $.02 par value per share,
were sold in an initial public offering (IPO) at a price of $17 per
share. Of the 15,200,000 shares of Class A common stock sold,
12,000,000 were sold by the Company and 3,200,000 were sold by a
selling shareholder. The Company did not receive any of the proceeds
from the sale of shares by the selling shareholder. In addition, the
underwriters of the IPO, led by Salomon Brothers Inc, exercised an
option to purchase 2,280,000 additional shares of Class A common stock
at the same price per share. Net proceeds to the Company from the
initial public offering totaled approximately $226.8 million, after
deducting underwriting discounts, advisory fees and expenses
aggregating approximately $16.0 million. The Company intends to use
substantially all of the net proceeds from the initial public offering
for expenditures relating to the expansion of existing networks and
services, the development and acquisition of new networks and services
and the funding of operating losses and working capital. None of the
proceeds from this offering had been used as of September 30, 1998.
The Company filed a registration statement on Form S-1 (File No.
333-32003) which became effective on September 26, 1997, whereby the
Company sold $400.0 million aggregate principal amount of 9 5/8%
Senior Notes. The offering was led by Salomon Brothers Inc. Net
proceeds from the sale of the 9 5/8% Senior Notes totaled
approximately $388.5 million, after deducting issuance costs
aggregating approximately $11.5 million, relating to underwriting
discounts, advisory fees and expenses. The use of proceeds from the
debt offering is expected to be substantially the same as the
Company's initial public offering. Approximately $349.8 million of the
proceeds from this offering had been used as of September 30, 1998,
$209.1 million of which was used for the purchase of property and
equipment, $20.5 million for the network lease agreement entered into
in February 1998, and the remainder was used to fund the Company's
operations and working capital requirements.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
3.1 Certificate of Incorporation of NEXTLINK Communications,
Inc. (1)
<PAGE>
3.2 By-laws of NEXTLINK Communications, Inc. (1)
3.3 Articles of Incorporation of NEXTLINK Capital, Inc. (2)
3.4 By-laws of NEXTLINK Capital, Inc. (2)
4.1 Form of Exchange Note Indenture, by and among NEXTLINK
Communications, Inc. and United States Trust Company of New
York, as Trustee, relating to the Exchange Notes, including
form of Exchange Notes. (3)
4.2 Certificate of Designations of the Powers, Preferences and
Relative, Participating, Optional and Other Special Rights
of 14% Senior Exchangeable Redeemable Preferred Shares and
Qualifications, Limitations and Restrictions Thereof. (1)
4.3 Form of stock certificate of 14% Senior Exchangeable
Redeemable Preferred Shares. (3)
4.4 Indenture, dated as of April 25, 1996, by and among NEXTLINK
Communications, Inc., NEXTLINK Capital, Inc. and United
States Trust Company of New York, as Trustee, relating to
12 1/2% Senior Notes due April 15, 2006, including form of
global note. (2)
4.5 First Supplemental Indenture, dated as of January 31, 1997,
by and among NEXTLINK Communications, Inc., NEXTLINK
Communications, L.L.C., NEXTLINK Capital and United States
Trust Company of New York, as Trustee. (3)
4.6 Form of Indenture between United States Trust Company, as
Trustee and NEXTLINK Communications, Inc., relating to the
9 5/8% Senior Notes due 2007. (4)
4.7 Indenture, dated March 3, 1998, between United States Trust
Company, as Trustee and NEXTLINK Communications, Inc.,
relating to the 9% Senior Notes due 2008. (5)
4.8 Certificate of Designations of the Powers, Preferences and
Relative, Participating, Optional and Other Special Rights
of 6 1/2% Cumulative Convertible Preferred Stock and
Qualifications, Limitations and Restrictions Thereof. (1)
4.9 Indenture, dated April 1, 1998, between United States Trust
Company, as Trustee and NEXTLINK Communications, Inc.
relating to the 9.45% Senior Discount Notes due 2008. (6)
4.10 Second Supplemental Indenture, dated June 3, 1998, amending
Indenture dated April 25, 1996, by and among NEXTLINK
Communications, Inc., NEXTLINK Capital, Inc. and United
States Trust Company of New York, as Trustee. (1)
4.11 First Supplemental Indenture, dated June 3, 1998, amending
Indenture dated September 25, 1997, by and between NEXTLINK
Communications, Inc. and United States Trust Company of New
York, as Trustee. (1)
<PAGE>
4.12 First Supplemental Indenture, dated June 3, 1998, amending
Indenture dated March 3, 1998, by and between NEXTLINK
Communications, Inc. and United States Trust Company of New
York, as Trustee. (1)
4.13 Cost Sharing and IRU Agreement dated July 18,1998, between
Level 3 Communications, LLC and INTERNEXT LLC. (7)
10.1 Stock Option Plan of NEXTLINK Communications, Inc., as
amended. (1)
10.2 Employee Stock Purchase Plan of NEXTLINK Communications,
Inc. (1)
10.3 Registration Rights Agreement dated as of January 15, 1997,
between the predecessor of NEXTLINK Communications, Inc. and
the signatories listed therein. (3)
10.4 Preferred Exchange and Registration Rights Agreement, dated
as of January 31, 1997, by and among the predecessor of
NEXTLINK Communications, Inc. and the Initial Purchasers.
(3)
10.5 Fiber Lease and Innerduct Use Agreement, dated as of
February 23, 1998, by and between NEXTLINK Communications,
Inc. and Metromedia Fiber Network, Inc. (5)
10.6 Amendment No. 1 to Fiber Lease and Innerduct Use Agreement,
dated as of March 4, 1998, by and between NEXTLINK
Communications, Inc. and Metromedia Fiber Network, Inc. (5)
10.7 Guaranty Agreement, dated July 18, 1998, between NEXTLINK
Communications, Inc. and Level 3 Communications, LLC.
10.8 Cost Sharing and IRU Agreement, dated July 18, 1998, between
Level 3 Communications, LLC and INTERNEXT LLC. (7)
27 Financial Data Schedule
</TABLE>
-------------
(1) Incorporated herein by reference to the exhibit filed
with the Registration Statement on Form S-4 of NEXTLINK
Communications, Inc. and NEXTLINK Capital, Inc.
(Commission File No. 333-53975).
(2) Incorporated herein by reference to the exhibit filed
with the Registration Statement on Form S-4 of NEXTLINK
Communications, L.L.C. (the predecessor of NEXTLINK
Communications, Inc.) and NEXTLINK Capital, Inc.
(Commission File No. 333-4603).
(3) Incorporated herein by reference to the exhibit filed
with the Annual Report on Form 10-KSB for the year
ended December 31, 1996 of NEXTLINK Communications,
Inc. and NEXTLINK Capital, Inc. (Commission File Nos.
333-04603 and 333-04603-01).
(4) Incorporated herein by reference to the exhibit filed
with the Registration Statement on Form S-1 of NEXTLINK
Communications, Inc. (Commission File No. 333-32003).
(5) Incorporated herein by reference to the exhibit filed
with the Annual Report on Form 10-KSB for the year
ended December 31, 1997 of NEXTLINK Communications,
Inc. and NEXTLINK Capital, Inc. (Commission File Nos.
333-04603 and 333-04603-01).
<PAGE>
(6) Incorporated herein by reference to the exhibit filed
with the quarterly report on Form 10-Q for the
quarterly period ended March 31, 1998 of NEXTLINK
Communications, Inc. and NEXTLINK Capital, Inc.
(Commission File No. 000-22939).
(7) Portions of this exhibit were omitted and filed
separately with the Secretary of the Commission
pursuant to NEXTLINK Communications, Inc.'s Application
Requesting Confidential Treatment under Rule 24(b)-2 of
the Securities Exchange Act of 1934.
(b) Reports on Form 8-K
Current report on Form 8-K, filed July 20, 1998, regarding the
announcement by James Voelker of his resignation as President and
a director of the Company and the appointment of George Tronsrue
as President of the Company.
Current report on Form 8-K, filed July 22, 1998, regarding
INTERNEXT L.L.C., of which each of the Company and Eagle River
Investments L.L.C. beneficially owns a one-half interest,
entering into a Cost Sharing and IRU Agreement with Level 3
Communications, LLC.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
NEXTLINK Communications, Inc.
Date: November 16, 1998 By: /s/ Kathleen H. Iskra
-----------------------------------
Kathleen H. Iskra
Vice President, Chief Financial Officer
and Treasurer (Principal financial and
accounting officer)
NEXTLINK Capital, Inc.
Date: November 16, 1998 By: /s/ Kathleen H. Iskra
-----------------------------------
Kathleen H. Iskra
Vice President, Chief Financial Officer
and Treasurer (Principal financial and
accounting officer)
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Certificate of Incorporation of NEXTLINK Communications, Inc. (1)
3.2 By-laws of NEXTLINK Communications, Inc. (1)
3.3 Articles of Incorporation of NEXTLINK Capital, Inc. (2)
3.4 By-laws of NEXTLINK Capital, Inc. (2)
4.1 Form of Exchange Note Indenture, by and among NEXTLINK
Communications, Inc. and United States Trust Company of New York,
as Trustee, relating to the Exchange Notes, including form of
Exchange Notes. (3)
4.2 Certificate of Designations of the Powers, Preferences and
Relative, Participating, Optional and Other Special Rights of 14%
Senior Exchangeable Redeemable Preferred Shares and
Qualifications, Limitations and Restrictions Thereof. (1)
4.3 Form of stock certificate of 14% Senior Exchangeable Redeemable
Preferred Shares. (3)
4.4 Indenture, dated as of April 25, 1996, by and among NEXTLINK
Communications, Inc., NEXTLINK Capital, Inc. and United States
Trust Company of New York, as Trustee, relating to 12 1/2% Senior
Notes due April 15, 2006, including form of global note. (2)
4.5 First Supplemental Indenture, dated as of January 31, 1997, by
and among NEXTLINK Communications, Inc., NEXTLINK Communications,
L.L.C., NEXTLINK Capital and United States Trust Company of New
York, as Trustee. (3)
4.6 Form of Indenture between United States Trust Company, as Trustee
and NEXTLINK Communications, Inc., relating to the 9 5/8% Senior
Notes due 2007. (4)
4.7 Indenture, dated March 3, 1998, between United States Trust
Company, as Trustee and NEXTLINK Communications, Inc., relating
to the 9% Senior Notes due 2008. (5)
4.8 Certificate of Designations of the Powers, Preferences and
Relative, Participating, Optional and Other Special Rights of
6 1/2% Cumulative Convertible Preferred Stock and Qualifications,
Limitations and Restrictions Thereof. (1)
4.9 Indenture, dated April 1, 1998 between United States Trust
Company, as Trustee and NEXTLINK Communications, Inc. relating to
the 9.45% Senior Discount Notes due 2008. (6)
4.10 Second Supplemental Indenture, dated June 3, 1998, amending
Indenture dated April 25, 1996, by and among NEXTLINK
Communications, Inc., NEXTLINK Capital, Inc. and United States
Trust Company of New York, as Trustee. (1)
4.11 First Supplemental Indenture, dated June 3, 1998, amending
Indenture dated September 25, 1997, by and between NEXTLINK
Communications, Inc. and United States Trust Company of New York,
as Trustee. (1)
<PAGE>
4.12 First Supplemental Indenture, dated June 3, 1998, amending
Indenture dated March 3, 1998, by and between NEXTLINK
Communications, Inc. and United States Trust Company of New York,
as Trustee. (1)
4.13 First Supplemental Indenture, dated June 3, 1998, amending
Indenture dated April 1, 1998, by and between NEXTLINK
Communications, Inc. and United States Trust Company of New York,
as Trustee. (1)
10.1 Stock Option Plan of NEXTLINK Communications, Inc., as
amended. (1)
10.2 Employee Stock Purchase Plan of NEXTLINK Communications, Inc. (1)
10.3 Registration Rights Agreement dated as of January 15, 1997,
between the predecessor of NEXTLINK Communications, Inc. and the
signatories listed therein. (3)
10.4 Preferred Exchange and Registration Rights Agreement, dated as of
January 31, 1997, by and among the predecessor of NEXTLINK
Communications, Inc. and the Initial Purchasers. (3)
10.5 Fiber Lease and Innerduct Use Agreement, dated as of February 23,
1998, by and between NEXTLINK Communications, Inc. and Metromedia
Fiber Network, Inc. (5)
10.6 Amendment No. 1 to Fiber Lease and Innerduct Use Agreement, dated
as of March 4, 1998, by and between NEXTLINK Communications, Inc.
and Metromedia Fiber Network, Inc. (5)
10.7 Guaranty Agreement, dated July 18, 1998, between NEXTLINK
Communications, Inc. and Level 3 Communications, LLC.
10.8 Cost Sharing and IRU Agreement dated July 18, 1998, between
Level 3 Communications, LLC and INTERNEXT LLC. (7)
27 Financial Data Schedule
</TABLE>
---------------
(1) Incorporated herein by reference to the exhibit filed with
the Registration Statement on Form S-4 of NEXTLINK
Communications, Inc. and NEXTLINK Capital, Inc. (Commission
File No. 333-53975).
(2) Incorporated herein by reference to the exhibit filed with
the Registration Statement on Form S-4 of NEXTLINK
Communications, L.L.C. (the predecessor of NEXTLINK
Communications, Inc.) and NEXTLINK Capital, Inc. (Commission
File No. 333-4603).
(3) Incorporated herein by reference to the exhibit filed with
the Annual Report on Form 10-KSB for the year ended
December 31, 1996 of NEXTLINK Communications, Inc. and
NEXTLINK Capital, Inc. (Commission File Nos. 333-04603 and
333-04603-01).
(4) Incorporated herein by reference to the exhibit filed with
the Registration Statement on Form S-1 of NEXTLINK
Communications, Inc. (Commission File No. 333-32003).
(5) Incorporated herein by reference to the exhibit filed with
the Annual Report on Form 10-KSB for the year ended
December 31, 1997 of NEXTLINK Communications, Inc. and
NEXTLINK Capital, Inc. (Commission File Nos. 333-04603 and
333-04603-01).
(6) Incorporated herein by reference to the exhibit filed with
the quarterly report on Form 10-Q for the quarterly period
ended March 31, 1998 of NEXTLINK Communications, Inc. and
NEXTLINK Capital, Inc. (Commission File No. 000-22939).
<PAGE>
(7) Portions of this exhibit were omitted and filed separately
with the Secretary of the Commission pursuant to NEXTLINK
Communications, Inc.'s Application Requesting Confidential
Treatment under Rule 24(b)-2 of the Securities and Exchange
Act of 1934.
<PAGE>
GUARANTY AGREEMENT
GUARANTY AGREEMENT, dated as of July 18, 1998, between NEXTLINK,
Communications, Inc., a Delaware corporation ("Guarantor"), and Level 3
Communications, LLC, a Delaware limited liability company ("Beneficiary").
W I T N E S S E T H :
WHEREAS, Guarantor is, directly or indirectly, the owner of 50% of the
issued and outstanding membership interests in INTERNEXT, LLC a Delaware
limited liability company ("Grantee");
WHEREAS, Beneficiary and Grantee have entered into an IRU Agreement,
dated as of July 18, 1998 (the "IRU Agreement"), providing for the grant to
Grantee of an indefeasible right to use and/or ownership of certain facilities
in the Grantor System (as defined in the IRU Agreement);
WHEREAS, pursuant to the terms of the IRU Agreement, Grantee's
obligations under the IRU Agreement are required to be guaranteed from time to
time by one or more of the Permitted Guarantors (as defined in the IRU
Agreement); and
WHEREAS, Guarantor is a Permitted Guarantor.
NOW, THEREFORE, in consideration of the premises and the covenants
herein contained, the parties hereto agree as follows:
1. DEFINED TERMS. Capitalized terms used herein without other
definition shall have the respective meanings ascribed to them in the IRU
Agreement. In addition, the following terms shall have the following meanings:
(a) "Guaranteed Obligations" shall mean, as of any date of
determination, an amount equal to (but not exceeding) 50% of the the IRU
Obligations, provided that any IRU Obligations (including, without limitation,
interest and penalty obligations) resulting from or relating to another
Permitted Guarantor's failure to make any payment under such Permitted
Guarantor's guaranty shall be excluded for purposes of determining Guaranteed
Obligations.
(b) "IRU Obligations" shall mean (i) the due, prompt and complete
payment of all amounts due to Beneficiary by Grantee under the IRU Agreement,
when and as the same shall become due and payable and (ii) the due, prompt and
faithful performance of, and compliance with, all other covenants, undertakings
and obligations of Grantee set forth in the IRU Agreement.
2. GUARANTY. Guarantor hereby unconditionally and irrevocably
guarantees to Beneficiary the Guaranteed Obligations. This guaranty is a
guaranty of payment, performance and compliance and not of collectibility and is
in no way conditioned
1
<PAGE>
or contingent upon any attempt to collect from or enforce performance or
compliance by Grantee or upon any other event or condition whatsoever. If
for any reason whatsoever Grantee shall fail or be unable duly, punctually
and fully to pay such amounts as and when the same shall become due and
payable or to perform or comply with any other Guaranteed Obligation,
Guarantor will forthwith pay or cause to be paid the Guaranteed Obligations
to Beneficiary, in lawful money of the United States, or perform or comply
with such Guaranteed Obligations or cause such Guaranteed Obligations to be
performed or complied with. Guarantor, promptly after demand, will reimburse
Beneficiary for all costs and expenses of collecting such amounts or
otherwise enforcing this Agreement, including, without limitation, the fees
and expenses of counsel. Notwithstanding any other provision of this
Agreement to the contrary, Guarantor shall have all rights of Grantee under
IRU Agreement with respect to the determination of amounts due and
determination of other obligations, including, without limitation, the
provisions of Article 24 of the IRU Agreement, except to the extent that such
rights have been exhausted or waived by Grantee.
3. REPRESENTATIONS AND WARRANTIES. Guarantor hereby represents and
warrants as follows:
(a) ORGANIZATION, GOOD STANDING, ETC. Guarantor is a corporation
duly organized and validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own and
operate its properties, to carry on its business as now conducted and as
proposed to be conducted, and to enter into and to carry out the terms of this
Agreement.
(b) AUTHORIZATION AND ENFORCEABILITY. The execution and delivery by
Guarantor of this Agreement and all other agreements and documents to be
executed and delivered by it in connection herewith, the performance by
Guarantor of its obligations hereunder and thereunder, and the consummation of
the transactions contemplated hereby and thereby have been duly and validly
authorized by all requisite corporate acts and other proceedings of Guarantor.
This Agreement and all other agreements and documents to be executed and
delivered by Guarantor in connection herewith have been duly and validly
executed and delivered by Guarantor and constitute legal, valid and binding
obligations of Guarantor, enforceable against it in accordance with their
respective terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, rearrangment, fraudulent transfers,
conservatorship or other laws (including court decisions) affecting the
enforcement of creditors' rights generally.
(c) RELATIONSHIP TO COMPANY. Guarantor owns, directly or indirectly
50% of the issued and outstanding membership interests in Grantee.
(d) COMPLIANCE WITH OTHER INSTRUMENTS, ETC. The execution and
delivery by Guarantor of, and performance of the obligations of Guarantor under,
this Agreement will not result in any violation of or be in conflict with or
constitute a default under any term of any agreement or instrument to which it
is a party or by which it is bound or any term of any applicable law, ordinance,
rule or regulation of any governmental authority or any term of any applicable
order, judgment or decree of any court, arbitrator or governmental authority or
result in the creation of (or impose any obligation on Guarantor to create) any
lien upon
2
<PAGE>
any of the properties or assets of Guarantor pursuant to any such term, which
violation, conflict, default or lien might have a materially adverse effect
on the business, operations, condition (financial or physical), properties,
net assets or liabilities of Guarantor or upon the ability of Guarantor to
perform its obligations under this Agreement.
(e) GOVERNMENTAL CONSENT. No consent, approval or authorization of,
or declaration or filing with, any governmental authority, on the part of
Guarantor is required for the valid execution and delivery of this Agreement and
the due performance of the obligations of Guarantor under this Agreement.
4. GUARANTOR'S OBLIGATIONS UNCONDITIONAL. The obligations of
Guarantor under this Agreement are primary, absolute and unconditional
obligations of Guarantor, are not subject to any counterclaim, set-off,
deduction, diminution, abatement, recoupment, suspension, deferment or
defense based upon any claim Guarantor or any other person may have against
Grantee, Beneficiary or any other person, and shall remain in full force
and effect without regard to, and shall not be released, discharged or in
any way affected by, any circumstance or condition whatsoever (whether or
not Guarantor or Grantee shall have any knowledge or notice thereof),
including, without limitation:
(a) any amendment of or change in, or termination or waiver of, the
IRU Agreement;
(b) any furnishing, acceptance or release of, or any defect in any
security for, any of the Guaranteed Obligations;
(c) any waiver of the payment, performance or observance of any of
the obligations, conditions, covenants or agreements contained in the IRU
Agreement, or any other waiver, consent, extension, indulgence, compromise,
settlement, release or other action or inaction under or in respect of the IRU
Agreement;
(d) any failure, omission or delay on the part of Beneficiary to
enforce, assert or exercise any right, power or remedy conferred on it in this
Agreement;
(e) any voluntary or involuntary bankruptcy, insolvency,
reorganization, arrangement, readjustment, assignment for the benefit of
creditors, composition, receivership, conservatorship, custodianship,
liquidation, marshalling of assets and liabilities or similar proceedings with
respect to Grantee or any other person or any of their respective properties or
creditors, or any action taken by any trustee or receiver or by any court in any
such proceeding;
(f) any discharge, termination, cancellation, frustration,
irregularity, invalidity or unenforceability, in whole or in part, of the IRU
Agreement;
(g) any merger or consolidation of Grantee or Guarantor into or with
any other corporation, or any sale, lease or transfer of any of the assets of
Grantee or Guarantor to any other person;
3
<PAGE>
(h) any change in the ownership of any membership interests in
Grantee, or any change in the corporate relationship between Grantee and
Guarantor, or any termination of such relationship; or
(i) any other occurrence, circumstance, happening or event
whatsoever, whether similar or dissimilar to the foregoing, whether foreseen or
unforeseen, and any other circumstance which might otherwise constitute a legal
or equitable defense or discharge of the liabilities of a guarantor or surety or
which might otherwise limit recourse against Guarantor.
5. FULL RECOURSE OBLIGATIONS. The obligations of Guarantor set
forth herein constitute the full recourse obligations of Guarantor
enforceable against it to the full extent of all its assets and properties.
6. WAIVER. Guarantor unconditionally waives, to the extent
permitted by applicable law, (a) notice of any of the matters referred to in
Section 4, (b) notice to Guarantor of the incurrence of any of the Guaranteed
Obligations, notice to Guarantor or Grantee of any breach or default by Grantee
with respect to any of the Guaranteed Obligations or any other notice that may
be required, by statute, rule of law or otherwise, to preserve any rights of
Beneficiary against Guarantor, (c) presentment to or demand of payment from
Grantee or Guarantor with respect to any Guaranteed Obligation or protest for
nonpayment or dishonor, (d) any right to the enforcement, assertion, exercise or
exhaustion by Beneficiary of any right, power, privilege or remedy conferred in
the IRU Agreement or otherwise, (e) any requirement of diligence on the part of
Beneficiary, (f) any requirement to mitigate the damages resulting from any
default under the IRU Agreement, (g) any notice of any sale, transfer or other
disposition of any right, title to or interest in the IRU Agreement, (h) any
release of Guarantor from its obligations hereunder resulting from any loss by
it of its rights of subrogation hereunder and (i) any other circumstance
whatsoever which might otherwise constitute a legal or equitable discharge,
release or defense of a guarantor or surety or which might otherwise limit
recourse against Guarantor.
7. SUBROGATION. Upon the payment and performance in full of all
Guaranteed Obligations, Guarantor shall be subrogated to the rights of
Beneficiary in respect of any payment or other obligation with respect to which
an amount has been payable by Guarantor hereunder. Guarantor shall not seek to
exercise any rights of subrogation, reimbursement or indemnity arising from
payments made by Guarantor pursuant to the provisions of this Agreement until
the full and complete payment or performance and discharge of the Guaranteed
Obligations.
8. EFFECT OF BANKRUPTCY PROCEEDINGS, ETC. This Guaranty shall
continue to be effective or be automatically reinstated, as the case may be, if
at any time any payment made by any person on account of any of the sums due
Beneficiary pursuant to the terms of the IRU Agreement is rescinded or must
otherwise be restored or returned by such holder upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of Grantee or any other
person, or upon or as a result of the appointment of a custodian, receiver,
trustee or other officer with similar powers with respect to Grantee or other
person or any substantial
4
<PAGE>
part of its property, or otherwise, all as though such payment had not been
made.
9. TERM OF AGREEMENT. This Agreement and all guarantees, covenants
and agreements of Guarantor contained herein shall continue in full force and
effect and shall not be discharged until such time as all of the Guaranteed
Obligations and other independent payment obligations of Guarantor under this
Agreement shall be paid and performed in full and all of the agreements of
Guarantor hereunder shall be duly paid and performed in full. Notwithstanding
anything in this Agreement to the contrary, this Agreement may be terminated,
replaced or amended in the manner contemplated by, and subject to the provisions
of, Section 20.06 of the IRU Agreement.
10. NOTICES. All notices under the terms and provisions hereof shall
be in writing, and shall be delivered or sent by telex or telecopy or mailed by
first-class mail, postage prepaid, addressed, (a) if to Beneficiary, at the
address set forth in Article 25 of the IRU Agreement, or at such other address
as Beneficiary shall from time to time designate in writing to Guarantor and
(b) if to Guarantor, at SUITE 2200, 500 108TH AVENUE, NE, BELLEVUE, WASHINGTON
98004, ATTENTION: GENERAL COUNSEL, or at such other address as Guarantor shall
from time to time designate in writing to Beneficiary. Any notice so addressed
shall be deemed to be given when so delivered or sent or, if mailed, on the
third business day after being so mailed.
11. AMENDMENTS, ETC. Except as provided in Section 9, no amendment,
alteration, modification or waiver of any term or provision of this Agreement,
nor consent to any departure by Guarantor therefrom, shall in any event be
effective unless the same shall be in writing and signed by Beneficiary, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
12. SUBMISSION TO JURISDICTION. Guarantor, for itself and its
successors and assigns, hereby irrevocably (a) agrees that any legal or
equitable action, suit or proceeding against Guarantor arising out of or
relating to this Agreement or any transaction contemplated hereby or the subject
matter of any of the foregoing may be instituted in any state or federal court
in the State of Delaware, (b) waives any objection which it may now or hereafter
have to the venue of any action, suit or proceeding, (c) irrevocably submits
itself to the nonexclusive jurisdiction of any state or federal court of
competent jurisdiction in the State of Delaware for purposes of any such action,
suit or proceeding. Guarantor waives personal service of process and consents
that service of process upon it may be made by certified or registered mail,
return receipt requested, at its address specified or determined in accordance
with the provisions of Section 10, and service so made shall be deemed completed
on the third business day after mailing. Nothing contained in this Section 12
shall be deemed to affect the right of Beneficiary to serve process in any other
manner permitted by law or to commence legal proceedings or otherwise proceed
against Guarantor in any jurisdiction.
13. WAIVER OF JURY TRIAL. EACH OF GUARANTOR AND BENEFICIARY
IRREVOCABLY AND UNCONDITIONALLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LEGAL
OR EQUITABLE ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY
5
<PAGE>
TRANSACTION CONTEMPLATED HEREBY OR THEREBY OR THE SUBJECT MATTER OF ANY OF
THE FOREGOING.
14. SURVIVAL. All warranties, representations and covenants made by
Guarantor herein or in any certificate or other instrument delivered by it or on
its behalf hereunder shall be considered to have been relied upon by Beneficiary
and shall survive the execution and delivery of this Agreement, regardless of
any investigation made by Beneficiary or on its behalf. All statements in any
such certificate or other instrument shall constitute warranties and
representations by Guarantor hereunder.
15. MISCELLANEOUS. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, Guarantor hereby waives any provision of law that renders any
provisions hereof prohibited or unenforceable in any respect. The terms of this
Agreement shall be binding upon, and inure to the benefit of, Guarantor and
Beneficiary and their respective successors and assigns. No term or provision
of this Agreement may be changed, waived, discharged or terminated orally, but
only by an instrument in writing signed by Guarantor and Beneficiary. The
section and paragraph headings in this Agreement and the table of contents are
for convenience of reference only and shall not modify, define, expand or limit
any of the terms or provisions hereof, and all references herein to numbered
sections, unless otherwise indicated, are to sections in this Agreement. This
Agreement shall in all respects be governed by, and construed in accordance
with, the laws of the State of Delaware, without giving effect to applicable
principles of conflicts of law.
16. SPECIAL COVENANTS. Guarantor hereby covenants and agrees as
follows:
(a) For purposes of this Section 16, the following terms are defined:
(1) "Board of Directors" means the board of directors of Guarantor.
(2) "Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of
corporate stock or other equity participations, including partnership
interests, whether general or limited, of such Person and any rights (other
than debt securities convertible or exchangeable into an equity interest),
warrants or options to acquire an equity interest in such Person.
(3) "Consolidated Net Worth" of any Person means the stockholders'
equity of such Person, determined on a consolidated basis in accordance
with generally accepted accounting principles.
(4) "Fair Market Value" means, with respect to any Property, the
price that could be negotiated in an arm's-length free market transaction,
for cash, between
6
<PAGE>
a willing seller and a willing buyer, neither of whom is under pressure
or compulsion to complete the transaction. Unless otherwise specified
herein, Fair Market Value shall be determined by the Board of Directors
acting in good faith and shall be evidenced by a Board of Directors
resolution.
(5) "Property" means, with respect to any Person, any interest of
such Person in any kind of property or asset, whether real, personal or
mixed, or tangible or intangible, including Capital Stock in, and other
securities of, any other Person.
(6) "Subsidiary" of any Person means (i) a corporation more than 50%
of the combined voting power of the outstanding Voting Stock of which is
owned, directly or indirectly, by such Person or by one or more other
Subsidiaries of such Person or by such Person and one or more Subsidiaries
thereof or (ii) any other Person (other than a corporation) in which such
Person, or one or more other Subsidiaries of such Person or such Person and
one or more other Subsidiaries thereof, directly or indirectly, has at
least a majority ownership and power to direct the policies, management and
affairs thereof.
(7) "Voting Stock" of any Person means Capital Stock of such Person
which ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only
for so long as no senior class of securities has such voting power by
reason of any contingency.
(b) Guarantor shall not, in a single transaction or a series of
related transactions, (i) consolidate with or merge into any other Person or
Persons or permit any other Person to consolidate with or merge into Guarantor
or (ii) directly or indirectly, transfer, sell, lease, convey or otherwise
dispose of all or substantially all its assets to any other Person or Persons,
unless:
(1) in a transaction in which Guarantor is not the surviving Person
or in which Guarantor transfers, sells, leases, conveys or otherwise
disposes of all or substantially all of its assets to any other Person, the
resulting, surviving or transferee Person (the "successor entity") is
organized under the laws of the United States or any State thereof or the
District of Columbia and shall expressly assume all of Guarantor's
obligations under this Agreement;
(2) immediately after giving effect to such transaction, the
Consolidated Net Worth of Guarantor (or the successor entity) is equal to
or greater than that of Guarantor immediately prior to the transaction; and
(3) in the case of a transfer, sale, lease, conveyance or other
disposition of all or substantially all of the assets of Guarantor, such
assets shall have been transferred as an entirety or virtually as an
entirety to one Person and such Person shall have complied with all the
provisions of (1) and (2) above.
(c) Guarantor shall cause all properties owned by Guarantor or any
Subsidiary or used or held for use in the conduct of its business or the
business of any
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Subsidiary to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment and shall cause to be made
all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of Guarantor may be necessary so that the
business carried on in connection therewith may be properly and
advantageously conducted at all times; provided that nothing contained herein
shall prevent Guarantor or any Subsidiary from discontinuing the maintenance
of any of such properties if such discontinuance is, in the judgment of
Guarantor, desirable in the conduct of its business or the business of any
Subsidiary and not disadvantageous in any material respect to Beneficiary.
(d) Guarantor shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, sell, lease, transfer or otherwise dispose of any
material portion of its Property to, or purchase any material portion of
Property from, or enter into any material contract, agreement, understanding,
loan, advance, guarantee or transaction (including the rendering of services)
with or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless such Affiliate Transaction or series of Affiliate
Transactions is (i) in the best interest of Guarantor or such Subsidiary and
(ii) on terms that are no less favorable to Guarantor or such Subsidiary than
those that would have been obtained in a comparable arm's-length transaction by
Guarantor or such Subsidiary with a Person that is not an Affiliate (or, in the
event that there are no comparable transactions involving Persons who are not
Affiliates of Guarantor or the relevant Subsidiary to apply for comparative
purposes, is otherwise on terms that, taken as a whole, Guarantor has determined
to be fair to Guarantor or the relevant Subsidiary). Notwithstanding the
foregoing, the following shall not be deemed Affiliate Transactions: (i) any
employment agreement entered into by Guarantor or any of its Subsidiaries in the
ordinary course of business and consistent with industry practice; (ii) any
agreement or arrangement with respect to the compensation of a director or
officer of Guarantor or any Subsidiary approved by a majority of the
disinterested members of the Board of Directors and consistent with industry
practice; (iii) transactions between or among the Company and its Subsidiaries,
provided that no more than 5% of the Voting Stock (on a fully diluted basis) of
any such Subsidiary is owned by an Affiliate of Guarantor (other than a
Subsidiary); (iv) transactions pursuant to the terms of any agreement or
arrangement as in effect on the date hereof; and (v) transactions with respect
to wirelink or wireless transmission capacity, the lease or sharing or other use
of cable or fiber optic lines, equipment, rights-of-way or other access rights,
between Guarantor (or any Subsidiary) and any other Person.
(e) Guarantor shall not, and shall not permit any Subsidiary to,
sell, transfer or dispose of any of its Property with a Fair Market Value of
$5,000,000 or more outside the ordinary course of its business (excluding any
sale, transfer or disposition of Property that is obsolete or no longer used by
or useful to Guarantor or any Subsidiary) unless:
(1) Guarantor or the Subsidiary, as the case may be, receives
consideration for such disposition at least equal to the Fair Market Value
for the Property sold or disposed of.
(2) the consideration received in connection therewith is used by
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Guarantor or such Subsidiary within 360 days of receipt for the payment of
expenses in the ordinary course of business, for the payment of debt of
Guarantor or such Subsidiary, or for reinvestment in the business of
Guarantor or such Subsidiary.
(f) Guarantor shall deliver to Beneficiary on request (but not more
than once per year), a brief certificate from the principal executive officer,
principal financial officer or principal accounting officer as to his or her
knowledge of Guarantor's compliance during the period covered by such report
with all conditions and covenants of this Agreement.
The covenants and agreements contained in this Section 16 shall terminate
effective as of the date of full and complete payment of the IRU Fee to
Beneficiary in accordance with the terms and provisions of the IRU Agreement.
17. QUALIFICATION TO SPECIAL COVENANTS.. Any Guarantor maintaining
an indenture qualified under the Trust Indenture Act of 1939, as amended, with
at least $100 million of indebtedness outstanding pursuant thereto shall have
the right, in its sole discretion, to re-execute and redeliver this Agreement to
Beneficiary omitting section 16 and substituting in its place a covenant
substantially equivalent to section 16 of the similar agreement executed by
Level 3 Communications, Inc. as Guarantor, except referencing one of its public
indentures and the sections thereof equivalent to the matters addressed in the
current version of section 16 of this Agreement. In addition, the provisions of
section 16 of this Agreement or of any redelivered Agreement shall be of no
force or effect during any period that, if Guarantor has publicly-traded common
stock, the total market value of Guarantor's outstanding common stock as
determined on the basis of closing price (or, if Guarantor is privately held,
the total value of its outstanding common stock, as demonstrated to the
reasonable satisfaction of Beneficiary) exceeds the amount obtained when $1.5
billion is multiplied by the percentage set forth in paragraph 1(a) of this
Agreement.
IN WITNESS WHEREOF, Guarantor and Beneficiary have each caused this
Agreement to be duly executed as of the day and year first above written.
NEXTLINK COMMUNICATIONS, INC.,
as Guarantor
By /s/ WAYNE M. PERRY
----------------------------------------
Title: CEO
LEVEL 3 COMMUNICATIONS, LLC,
as Beneficiary
By /s/ KEVIN O'HARA
----------------------------------------
Title: President
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NOTE: Redacted portions have been marked with asterisks (***). The redacted
portions are subject to a request for confidential treatment that has been
filed with the Securities and Exchange Commission.
COST SHARING AND IRU AGREEMENT
THIS COST SHARING AND IRU AGREEMENT ("Agreement") is made and entered
into as of the 18th day of July, 1998, by and between LEVEL 3 COMMUNICATIONS,
LLC, a Delaware limited liability company ("Grantor") and INTERNEXT, LLC, a
Delaware limited liability a company ("Grantee").
RECITALS
A. Grantor intends to construct a nationwide multiconduit (currently
estimated at eight 11/4" conduits, taking into account this Agreement) fiber
optic communications system, including certain Opamp Facilities and Regeneration
Facilities (as such terms are defined herein) as generally depicted on Exhibit
"A-1" attached hereto and which will connect the cities described on Exhibit
"A-2" attached hereto (the "Grantor System").
B. Grantor further intends to install within one of the conduits of
the Grantor System a high fiber count (currently estimated at 96 fibers, taking
into account this Agreement) fiber optic cable (as more fully described in
Exhibit "H", the "Cable").
C. Grantee desires to own or to possess an indefeasible right to use
and control a network consisting of 24 conduit-protected fibers and one spare
conduit connecting the cities described on Exhibit "A-2" attached hereto.
D. Grantor and Grantee can complete their desired networks less
expensively if such networks are constructed as part of a single project than
if each network were constructed independently.
E. Grantor and Grantee therefore desire to share the costs of
constructing the Grantor System, and, pursuant to such sharing of costs,
Grantor desires to grant to Grantee ownership of and/or an indefeasible right
to use certain facilities in the Grantor System, all upon and subject to the
terms and conditions set forth below.
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ARTICLE 1.
DEFINITIONS
1.01 "Acceptance Date" shall mean the date when Grantee delivers (or is
deemed to have delivered) notice of acceptance of a Completion Notice with
respect to a Segment in accordance with Article 9.
1.02 "Acceptance Testing" shall have the meaning set forth in
Section 9.01.
1.03 "Access Points" shall have the meaning set forth in Section 10.01.
1.04 "Actual Operating Expenses" shall mean, without duplication, the
actual out-of-pocket costs and expenses reasonably and necessarily incurred by
Grantor in connection with the operation of the Grantor System, as more fully
described in Exhibit "L" hereto.
1.05 "Additional Grantee Fibers" shall have the meaning set forth in
Section 3.01.
1.06 "Affiliate" shall mean, with respect to any specified Person, any
other Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person. "Control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or credit arrangement,
as trustee or executor, or otherwise, provided that, with respect to Grantor and
for the purpose of Sections 3.04(i), 6.04 and 7.02 only, the term "Affiliates"
shall not include the following Persons if they would otherwise be Affiliates:
(A) Cable Michigan, Inc., RCN Corporation and Commonwealth Telephone
Enterprises, Inc. (and any intermediate holding companies or other entities
formed solely for the purpose of owning stock in such Persons), unless Grantor
or its other Affiliates shall acquire more than fifty percent of the voting
control of such Persons, and (B) California Private Transportation Company,
L.P., to the extent California Private Transportation Company, L.P. has been
required to construct or install fibers or conduits pursuant to the requirement
of any Governmental Authority.
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1.07 "Associated Property" shall mean the tangible and intangible
property needed for the use of the Grantee Fibers and Grantee Conduit as
permitted by this Agreement, including the Regeneration Facilities and Opamp
Facilities, but excluding in any and all events any electronic and/or optronic
equipment.
1.08 "Authorization" shall mean any consent, registration, filing,
agreement, notarization, certificate, license, approval, permit, authority or
exemption from, by or with any Governmental Authority or other Person.
1.09 "Canadian Person" shall mean any Person which is permitted under
applicable Canadian telecommunications laws to own or operate a
telecommunications system located in Canada.
1.10 "CBD" shall mean the commonly referred to central business
district of a city.
1.11 "Commencement Date" shall mean the date on which Grantor commences
construction of the Grantor System, provided that if Grantor has not commenced
such construction on or prior to December 31, 1998, then the "Commencement Date"
shall mean December 31, 1998.
1.12 "Commencement Contribution" shall have the meaning set forth in
Section 4.01.
1.13 "Completion Date" shall mean (i) in the case of all Segments
within Phase One and Phase Two, the (***) anniversary of the Commencement Date
and (ii) in the case of all Segments within Phase Three, the earlier to occur of
(a) (***) months from the date that Grantor commences construction of Phase
Three and (b) the (***) anniversary of the Commencement Date, subject in each
case to any Force Majeure Event or Grantee Delay Event.
1.14 "Completion Contribution" shall have the meaning set forth in
Section 4.01.
1.15 "Completion Notice" shall have the meaning set forth in
Section 9.02.
1.16 "Costs" shall mean actual, direct costs paid or payable in
accordance with the established accounting procedures generally used by Grantor
and which it utilizes in billing third parties for reimbursable projects which
costs shall be limited to the following: (i) internal labor costs, including
wages and salaries, and benefits and
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overhead (provided that the costs of such benefits and overhead do not exceed
thirty percent (30%) of such wages and salary), and (ii) other direct costs
and out-of-pocket expenses on a pass-through basis (e.g., equipment,
materials, supplies, contract services, etc.).
1.17 "Dark Fiber" shall have the meaning set forth in Section 15.03.
1.18 "Designated Party" shall mean (i) Eagle River, Inc., Teledesic
Corp., Nextel Communications, Inc., (***).
1.19 "Dispute Notice" shall have the meaning set forth in Article 24.
1.20 "Effective Date" shall have the meaning set forth in Section 5.01.
1.21 "Execution Contribution" shall have the meaning set forth in
Section 4.01.
1.22 "Final Contribution" shall have the meaning set forth in
Section 4.01.
1.23 "Force Majeure Event" shall have the meaning set forth in Article
19.
1.24 "Governmental Authority" shall mean any federal, state, regional,
county, city, municipal, local, territorial or tribal government, whether
foreign or domestic, or any department, agency, bureau or other administrative
or regulatory body obtaining authority from any of the foregoing, including,
without limitation, courts, public utilities and sewer authorities.
1.25 "Grantee Conduit" shall have the meaning set forth in Section
3.01.
1.26 "Grantee Delay Event" shall mean the failure of Grantee to timely
observe and perform its obligations and agreements hereunder, which failure
delays the construction and installation of the Grantor System with respect to
one or more segments.
1.27 "Grantee Fibers" shall have the meaning set forth in Section 3.01.
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1.28 "Grantor System" shall have the meaning set forth in the Recitals.
1.29 "Grantor Termination Point" shall have the meaning set forth in
Section 2.02.
1.30 "Hotel" shall mean a building in which points of presence of
interexchange carriers are found.
1.31 "Impositions" shall mean all taxes, fees, levies, imposed duties
charges or withholdings of any nature (including without limitation gross
receipts, taxes and franchise, license and permit fees), together with any
penalties, fines or interest thereon arising out of the transactions
contemplated by this Agreement and/or imposed upon the Grantor System, or any
part thereof, by any Governmental Authority.
1.32 "Incremental Costs" shall mean, with respect to Sections 7.02 and
7.06, the Costs of construction and installation of the Additional Grantee
Fibers but shall not include the cost of constructing and installing the conduit
in which such fibers are installed, the cost of constructing and installing the
Initial Grantee Fibers or any other costs associated with the Grantor System.
1.33 "Initial Grantee Fibers" shall have the meaning set forth in
Section 3.01.
1.34 "IRU" shall have the meaning set forth in Section 3.01.
1.35 "IRU Contribution" shall have the meaning set forth in
Section 4.01.
1.36 "Lien" shall mean any mortgage, pledge, hypothecation, claim,
assessment, security interest, lease, sublease, license, lien, conditional sale
contract, title retention contract, adverse or infringing claim or interest,
easement, encroachment, voting trust agreement, option, charge, right of first
refusal or other encumbrance or restriction of any kind, or rights of others or
other contract to give any of the foregoing, excluding any of the foregoing (i)
in favor of the grantor of any Required Right, or granted by the grantor of a
Required Right independent of the transactions contemplated by such Required
Right, (ii) arising under or resulting from the terms and provisions of, and
the execution by, Grantor of the instrument evidencing such Required Right, and
(iii) which are customary for agreements of that type.
1.37 "Major Cities" shall mean the cities designated as Major Cities
listed on Exhibit A-2.
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1.38 "Minimum Period" shall mean, with respect to each Segment, a
period of (***) years from the Acceptance Date for such Segment.
1.39 "Node Site" shall mean the facilities (other than long-distance
backbone Regeneration Facilities and Opamp Facilities) which accommodate or
house switch equipment, fiber optic transmission and associated ancillary
equipment to serve as a switch terminal, transport concentrator, hub terminal,
junction or end user pop location.
1.40 "Operating Expense Charge" shall have the meaning set forth in
Section 13.02.
1.41 "Operating Expense Estimate" shall have the meaning set forth in
Section 13.05.
1.42 "Opamp Facilities" shall mean facilities to optically amplify lit
fibers as more particularly described on Exhibit "I".
1.43 "Option Right" shall have the meaning set forth in Section 6.01.
1.44 "Person" shall mean any natural person, corporation, partnership,
limited liability company, business trust, joint venture, association, company
or government, or any agency or political subdivision thereof.
1.45 "Phase" shall mean Phase One, Phase Two or Phase Three.
1.46 "Phase One" shall have the meaning set forth in Section 2.04.
1.47 "Phase Two" shall have the meaning set forth in Section 2.04.
1.48 "Phase Three" shall have the meaning set forth in Section 2.04.
1.49 "Pinch Event" shall have the meaning set forth in Section 7.02.
1.50 "Proprietary Information" shall have the meaning set forth in
Section 23.01.
1.51 "Recurring Charges" shall mean the ROW Charge and the Operating
Expense Charge.
1.52 "Regeneration Facilities" shall mean facilities to regenerate the
signal of lit fibers as more particularly described on Exhibit "I".
1.53 "Required Rights" shall have the meaning set forth in
Section 6.01.
1.54 "Required Right Payment" shall mean any payment which Grantor is
required to make to the grantor or provider of a Required Right pursuant to the
terms of the instrument governing such Required Right.
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1.55 "Route Miles" shall mean, for each Segment, the actual number of
route miles for such Segment as constructed, provided that, if the Grantor
System follows more than one route for all or any portion of a Segment, only
the actual route miles for the route containing the Initial Grantee Fibers
shall be included.
1.56 "ROW Charge" shall have the meaning set forth in Section 13.02.
1.57 "RRG" shall have the meaning set forth in Section 2.02.
1.58 "Segments" shall have the meaning set forth in Section 2.01.
1.59 "Segment End Points" shall have the meaning set forth in
Section 2.01, as the same may be extended and terminated pursuant to Section
2.02.
1.60 "System Route" shall have the meaning set forth in Section 2.01.
1.61 "Term" shall have the meaning set forth in Section 5.01.
ARTICLE 2.
SYSTEM ROUTE
2.01 Grantor shall cause the Grantor System to connect the city pairs
identified on Exhibit "B" attached hereto (each city identified on Exhibit "B"
is herein called a "Segment End Point", the route between the applicable Segment
End Points is herein called a "Segment", and all of the Segments together are
herein called the "System Route").
2.02 In the case of the Major Cities, Grantor shall cause the Grantor
System, or at a minimum the portion thereof in which Grantee shall receive the
IRU, to extend to (***) the serving manholes or access points located adjacent
to the building containing Grantee's Node Site as specified by Grantee in each
such Major City, in accordance with Exhibit "M" attached hereto, provided that
Grantee shall obtain all necessary permits or waivers for such extension from
the owner of such building and/or the owner of the real property on which such
building is located, and provided further that all end-point locations with
respect to the Major Cities will have diverse routing from the main backbone of
the Grantor System. In the event that, for any Major City, Exhibit "M" does not
contain the address of the building in which Grantee's Node Site will be
located,
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Grantee shall provide Grantor with such address, which will be within (***)
miles of the center point of the CBD, no later than (***) months prior to the
targeted completion date for such Major City set forth in Exhibits "B", "D"
and "E", except that Grantee shall have a 30-day grace period in circumstances
where Grantee has made substantial efforts to locate real estate to house its
Node Site. For all Segment End Points which are not Major Cities, the Grantor
System, or at a minimum the portion thereof in which Grantee shall have
received the IRU, shall connect to and terminate at a splice point contained
in any of the following, in Grantor's sole discretion: (i) a Node Site of
Grantee or one of its Affiliates in the CBD of such city, (ii) the primary or
secondary Hotel for such city, or (iii) a Regeneration Facility, Opamp
Facility or a Node Site of Grantor or one of its Affiliates in such city (each
such Regeneration Facility, Opamp Facility or Node Site of Grantor or one of
its Affiliates, a "Grantor Termination Point"), provided that (A) such Grantor
Termination Point is located within (***) miles of the center point of such
city's CBD and (B) Grantor shall return the Grantor System or such portion
thereof in which Grantee shall receive the IRU to a publicly dedicated street
adjacent to such Grantor Termination Point, provided that all end-point
locations for cities other than Major Cities will have diverse routing from
the main backbone of the Grantor System to the extent the Grantor System
provides such diverse routing to Grantor or its Affiliates. (***).
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The Grantor Termination Point in any Segment End Point shall be the same for all
Segments ending at such Segment End Point.
2.03 The specific location of the System Route between Segment End
Points is subject to Grantor obtaining the Required Rights, provided that in
any event Grantor shall cause the System Route to connect the Segment End
Points for each Segment. The Grantor System will be constructed and installed
in three phases (the "Phases"). The first Phase of the Grantor System ("Phase
One"), estimated at approximately 11,411 route miles, shall include the
Segments described on Exhibit "C"; the second Phase of the Grantor System
("Phase Two"), estimated at approximately 3,714 route miles, shall include the
Segments described on Exhibit "D"; and the third Phase of the Grantor System
("Phase Three"), estimated at approximately 910 route miles, shall include the
Segments described on Exhibit "E" PROVIDED that (i) construction of each of
(A) the Seattle to Vancouver Segment in Phase Three and (B) the aggregate of
the Albany to Montreal, Montreal to Toronto and Toronto to Buffalo Segments in
Phase Three, shall be optional in the sole discretion of Grantor, and (ii) in
the event Grantor elects to not construct the Seattle to Vancouver Segment,
the Final Contribution shall be reduced by the sum of (***) and Grantee will
not be required to pay the Completion Contribution set forth in Exhibit "F"
for the Seattle to Vancouver Segment, and (iii) in the event Grantor elects
not to construct the Albany to Montreal, Montreal to Toronto and Toronto to
Buffalo Segments in Phase Three, (A) the Final Contribution shall be reduced
by the sum of (***), and (B) an Albany to Buffalo Segment shall be added to
Phase One with a Completion Contribution equal to the aggregate amount set
forth in Exhibit "F" for the Albany to Montreal, Montreal to Toronto and
Toronto to Buffalo Segments less the sum of (***). Grantor shall provide
Grantee with written notice of the commencement of construction of each Phase
promptly upon commencement thereof and of any determination not to construct
Phase Three. 2.05 Notwithstanding anything to the contrary contained herein,
Grantor may elect, at its option, to acquire any portions of the Grantor
System from third parties (whether under a lease, sublease, indefeasible
right of use, or otherwise) in lieu of constructing and installing the
Grantor System respecting such portions; (***).
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ARTICLE 3.
GRANT OF IRU
3.01 Subject to the terms of Article 7 below, as of the Effective
Date for each Segment delivered by Grantor to Grantee hereunder, Grantor
hereby grants to Grantee, and Grantee hereby acquires from Grantor for the
purposes described herein (i) an exclusive indefeasible right of use in (or,
if and to the extent provided in Section 3.02 hereof, ownership of),
twenty-four (24) fibers (the "Initial Grantee Fibers") plus (a) to the extent
Grantee exercises its option pursuant to Section 7.06, the fibers acquired by
Grantee pursuant to such option, (b) the fibers in excess of 24 delivered to
Grantee pursuant to Section 7.02 and (c) fibers installed in the Grantee
Conduit (the fibers described in clauses (a), (b) and (c) are herein referred
to as the "Additional Grantee Fibers"), in each case to be specifically
identified in the Cable or cables between the Segment End Points for such
Segment (the "Initial Grantee Fibers" and the "Additional Grantee Fibers",
together with all substitutions and replacements thereof, are herein referred
to as the "Grantee Fibers"), (ii) an exclusive indefeasible right of use in
(or, if and to the extent provided in Section 3.02 hereof, ownership of) one
specifically identified unoccupied conduit in the Grantor System between the
Segment End Points for
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each Segment (the "Grantee Conduit"), and (iii) an associated and non-exclusive
indefeasible right of use in the Associated Property with respect to such
Segment, all upon and subject to the terms and conditions set forth herein
(collectively the "IRU").
3.02 Notwithstanding anything contained herein to the contrary: (a)
if and to the extent not prohibited by the Required Right(s) for a particular
Segment, and (b) if the Required Right(s) with respect to such Segment do not
and will not impose upon Grantor any additional fees, costs or charges as a
result thereof (unless Grantee shall pay the same or make arrangements
satisfactory to Grantor to assure such payment), Grantor shall, upon the
request of Grantee and on a Segment-by-Segment basis on the Acceptance Date
with respect to such Segment and without the need for any further action or
execution of documents by Grantor to Grantee: (i) transfer title to the
Grantee Fibers and the Grantee Conduit to Grantee free and clear of all Liens
attributable to Grantor; (ii) grant to Grantee a lease, subeasement or
similar agreement providing rights (at no additional cost to or monetary
obligations of Grantee, except to the extent provided in clause (b) above) to
Grantee substantially identical to the rights held by Grantor under the
relevant Required Right(s) (a "Sublease"); and (iii) continue the grant of
the IRU in the Associated Property. Nothing in this Section 3.02 or in any
such Sublease shall relieve Grantor or Grantee of its rights, duties and
obligations set forth in this Agreement or diminish, enlarge or otherwise
affect such rights, duties and obligations (except that, to the extent
applicable under this Section 3.02, Grantee's property interest will consist
of title in the Grantee Fibers and the Grantee Conduit and a grant of a
Sublease) and if any Sublease shall terminate or Grantee shall be otherwise
subsequently prohibited from owning title to the Grantee Fibers and the
Grantee Conduit, Grantor shall maintain the Required Rights in accordance with
and pursuant to Article 6, title to such Grantee Fibers and Grantee Conduit
shall revert and be reconveyed to Grantor and Grantee shall have and retain
the IRU in such Grantee Fibers and Grantee Conduit under and subject to the
terms and conditions of this Agreement.
3.03 Except to the extent not permitted by any Required Right, Grantor
hereby grants to Grantee a security interest and lien in all of Grantor's right,
title and interest in
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the Grantee Fibers and the Grantee Conduit, whether now or hereafter acquired,
in order to secure performance of Grantor's obligations to Grantee in this
Agreement.
3.04 Grantor shall use commercially reasonable best efforts to cause
construction and Acceptance Testing for all Segments to be successfully
completed no later than (***) (or in the case of Phase Three, the earlier of
(***) and (***) months after the commencement of construction thereof) and, if
not so completed by such date, then as soon as practicable thereafter. Grantor
acknowledges that time is of the essence in this Agreement and that Grantee is
relying on delivery of all Segments by such date. In light of the fact that it
would be impossible to calculate the reduction in the value of the IRU that
Grantee bargained for in the event that construction or Acceptance Testing for
any Segment is not completed by such date, or if Grantor fails to deliver any
Segment altogether, Grantor and Grantee hereby agree to the following payments
and/or reductions (which constitute adjustments to the IRU Contribution), which
except as otherwise specifically provided for in paragraph (i) below, shall be
the sole remedy of Grantee in the event of the late delivery or non-delivery of
any Segment:
(a) At any time that Grantor determines, in its best judgment, that
the Acceptance Date for any Segment will be delayed past (***), it shall deliver
to Grantee a notice in writing (a "Delay Notice"), specifying the Segment or
Segments affected, stating that the Acceptance Date(s) for such Segments will be
delayed past (***), and setting forth a new firm delivery date(s) for such
Segments. Grantor may not deliver more than two Delay Notices in respect of any
segment, and may only deliver a second Delay Notice in respect of any Segment if
the second Delay Notice sets forth an earlier firm delivery date for such
Segment Date. Such firm delivery date, as it may be revised in a second Delay
Notice, is hereinafter referred to as the "Revised Delivery Date" for such
Segment.
(b) If Grantor delivers to Grantee a Delay Notice for any Segment, then
the following provisions shall apply:
(i) Grantee may terminate this Agreement as to such Segment at
any time on or prior to (x) the date which is the later of (A) ninety (90) days
following the date of delivery of such Delay Notice and (B) six (6) months prior
to the Revised Delivery Date
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for such Segment or (y) the Acceptance Date with respect to such Segment, if the
Acceptance Date for such Segment does not occur on or prior to its Revised
Delivery Date. Upon any such termination pursuant to this paragraph (b), Grantor
shall pay Grantee, in respect of the non-delivery of such Segment, an amount
equal to the Total Contribution for such Segment multiplied, in the case of
termination pursuant to clause (x) above, by the First Adjustment Factor, and in
the case of termination pursuant to clause (y) above, by the Second Adjustment
Factor.
(ii) If Grantee does not terminate this Agreement as to such
Segment, the Completion Contribution for such Segment shall be reduced by an
amount equal to the sum of (x) the Total Contribution for such Segment
multiplied by the sum of (A) either (1) if the Revised Delivery Date for such
Segment is on or prior to (***) multiplied by the number of whole or partial
months occurring during the period from and including (***) and to and
including the month in which the Revised Delivery Date occurs, or (2) if the
Revised Delivery Date for such Segment is on or after (***), the sum of
(***) multiplied by the number of whole or partial months occurring during the
period from and including (***) and to and including the month in which the
Revised Delivery Date occurs plus (***), plus (B) (***) multiplied by the
number of whole or partial months during the period from and including the
Revised Delivery Date and to and including the month in which the Acceptance
Date occurs, plus (C) the Additional Percentage, if any, based on the date of
delivery of the Delay Notice as to such Segment, plus (y) the Second Notice
Amount, if any, arising out of the delivery of a second Delay Notice as to
such Segment. Grantee shall notify Grantor of the Second Notice Amount at the
time of payment of such Completion Contribution.
(c) If Grantor fails to deliver a Delay Notice as to any Segment, then
the following provisions shall apply:
(i) If the Acceptance Date for such Segment occurs after (***),
and on or prior to (***), the Completion Contribution for such Segment shall be
reduced by an amount equal to the Total Contribution for such Segment multiplied
by (***) multiplied by the number of whole or partial months occurring during
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the period from and including (***) and to and including the month in which such
Acceptance Date occurs.
(ii) If the Acceptance Date for such Segment has not occurred on
or prior to (***), Grantee may terminate this Agreement with respect to such
Segment at any time on or prior to such Acceptance Date, in which case Grantor
shall pay Grantee, in respect of the non-delivery of such Segment, an amount
equal to the Total Contribution for such Segment multiplied by (x) if Grantee
has sent Grantor a Reminder with respect to such Segment at least 10 days prior
to the date of such termination, (***) or (y) if Grantee has not sent Grantor a
Reminder with respect to such Segment at least 10 days prior to the date of such
termination, the amount that would have been payable in respect of such
termination under paragraph (b)(i)(x) above as if Grantor had sent a Delay
Notice on (***) specifying a Revised Delivery Date the same as the date of
termination.
(iii) If the Acceptance Date for such Segment has not occurred on
or prior to (***), and if Grantee does not terminate this Agreement as to such
Segment, the Completion Contribution for such Segment shall be reduced by an
amount equal to the Total Contribution for such Segment multiplied by (x) if
Grantee has sent Grantor a Reminder with respect to such Segment at least 10
days prior to the Acceptance Date, (***) or (y) if Grantee has not sent Grantor
a Reminder with respect to such Segment at least 10 days prior to the Acceptance
Date, the amount of such reduction that would have been applicable in respect of
such Completion Contribution under paragraph (b) above as if Grantor had sent a
Delay Notice on (***) specifying a Revised Delivery Date the same as the
Acceptance Date.
(d) In the event the Acceptance Date for a Segment has not occurred by
(***) and Grantee has not terminated this Agreement as to such Segment prior to
such date, this Agreement shall be deemed terminated as to such Segment on
(***), in which case Grantor shall pay Grantee, in respect of the non-delivery
of such Segment, an amount equal to the Total Contribution for such Segment
multiplied by (***).
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(e) Grantor shall pay Grantee any amounts required by the foregoing
paragraphs to be paid within thirty (30) days after termination of this
Agreement as to any Segment. Any sums not paid by Grantor when due shall bear
interest at the rate of eighteen percent (18%) per annum. Grantee shall have the
right to set off against any other amounts payable to Grantor under this
Agreement the amount of any payment due Grantee pursuant to this Section 3.04.
All payments by Grantor pursuant to this Section 3.04, and all adjustments to
the Completion Contributions payable by Grantee on the Acceptance Date of
Segments, shall be treated by both Grantor and Grantee as adjustments to the IRU
Contribution payable hereunder. Grantor and Grantee shall file (and shall cause
their respective parents to file) their respective income tax returns and other
returns and reports for their respective businesses on such basis and, except as
otherwise required by law, not take any positions inconsistent therewith.
(f) In the event that Grantor breaches its obligations in the first
sentence of this Section 3.04 as to any Segment, Grantee may terminate this
Agreement as to such
Segment. Upon any such termination pursuant to this paragraph (f), Grantor shall
pay Grantee, in respect of the non-delivery of such Segment, an amount equal to
the Total Contribution for such Segment multiplied by (***).
(g) As used in this Section 3.04, the following terms shall have the
meanings set forth below:
(i) "Additional Percentage" shall be (***) and (***),
respectively, with respect to any Segment if the Delay Notice for such Segment
is delivered on or before (***) and at any time on or after (***),
respectively.
(ii) "First Adjustment Factor" shall equal, as to any Segment,
(w) (***) multiplied by the number of whole or partial months in the period from
and including (***) and to and including the month in which the Revised Delivery
Date occurs, if the Revised Delivery Date is on or before (***), (x) (***), if
the Revised Delivery Date is on or after (***) and on or before (***), (y)
(***), if the Revised Delivery Date is on or after (***) and on or before (***),
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or (z) (***), if the Revised Delivery Date is on or after (***), in each case
plus the Additional Percentage, if any, based on the date of delivery of the
Delay Notice.
(iii) "Reminder" shall mean a written notice sent on or after
(***) by Grantee to Grantor reminding Grantor of Grantee's termination rights
under paragraph (d) of this Section 3.04 as to any Segments not for which the
Acceptance Date has not occurred and Grantor has not prior thereto delivered a
Delay Notice.
(iv) "Second Adjustment Factor" shall equal, as to any Segment,
(x) (***) plus (y) (***) multiplied by the number of whole or partial months in
the period from and including (***) and to and including the month in which
Grantee notifies Grantor in writing of the termination of this Agreement as to
such Segment.
(v) "Second Notice Amount" shall mean, as to any Segment
regarding which Grantor has delivered a second Delay Notice, an amount, not to
exceed the product of (***) multiplied by the number of whole or partial
months occurring during the period from and including the Acceptance Date for
such Segment and to and including the month in which the Revised Delivery Date
set forth in the original Delay Notice occurs, determined by Grantee, absent
bad faith, to be necessary to compensate it for costs incurred, business
opportunities foregone or damages otherwise suffered based upon the initial
notification of the Revised Delivery Date which are not fully compensated for
by the earlier delivery of such Segment.
(vi) "Total Contribution" for any Segment shall be deemed to
equal, for purposes of convenience in this Section 3.04 only, and for no other
purposes whatsoever, an amount equal to 70/60.375 multiplied by the Completion
Contribution due upon the Acceptance Date for such Segment as set forth in
Exhibit "F".
(h) Under circumstances where more than one of the foregoing
paragraphs may apply to the termination of this Agreement as to any Segment,
Grantee shall not be entitled to payment under more than one of the such
paragraphs. Each of the foregoing paragraphs shall be limited by the provision
that in no event shall the payments in respect of the non-delivery of any
Segment, or the reductions in the amount of the Completion Contribution with
respect to any Segment, required under this Section 3.04 exceed (***) of the
Total Contribution for such Segments.
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(i) (i) (***).
(ii) If Grantee accepts such offer, the amount of the Completion
Contribution and/or Recurring Charges payable with respect to such Segment upon
acceptance of such fibers and/or conduit shall be reduced by an amount (not to
exceed (***) of 70/60.375 of the Completion Contribution), as Grantor and
Grantee shall agree, in good faith, to reflect the reduced value of the fibers
and/or conduit accepted as compared to what Grantee had bargained for hereunder,
taking into account, if this Agreement has been terminated as to such Segment
prior to the acceptance of such offer by Grantee, any amounts already paid by
Grantor in respect of the non-delivery of such Segment. The amounts of the
Execution Contribution, Commencement Contribution and Final Contribution shall
also all be reduced by an amount equal to, in each case, the original amount
thereof multiplied by the products of 17.5/700, 8.75/700 and 70/700,
respectively, multiplied by the percentage reduction in the Completion
Contribution for such Segment. If Grantor and Grantee shall be unable to agree
upon the appropriate reductions in the Completion Contribution and Recurring
Charges payable hereunder within the thirty (30) day period following acceptance
by Grantee of such offer, the amount of the reductions shall be determined
through an arbitration procedure in accordance with Section 24.01(iv).
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(iii) If Grantee rejects such offer, the preceding provisions of
this Section 3.04 shall continue to apply as to such Segment, PROVIDED that this
paragraph (i) shall continue to apply to other fibers and or conduits
constructed or acquired by Grantor or its Affiliates prior to (***).
(iv) If this Agreement has been terminated as to any Segment
prior to the time that the payments and/or reductions provided for in this
Section 3.04 no longer constitute the sole remedy of Grantee in respect of the
non-delivery of such Segment, then even if Grantor has prior thereto made a
payment to Grantee in respect of the non-delivery of such Segment, Grantee may
nevertheless bring an action for damages for the non-delivery of such Segment,
in which case the amount of any damages awarded shall be reduced by the amount
previously paid by Grantor to Grantee.
(j) The determination as to whether the delivery of any Segment is late
shall be made after taking into consideration the effect of any Grantee Delay
Events or Force Majeure Events applicable to such Segment.
(k) In the event that this Agreement has been terminated with respect to
one or more Segments, the amount of the Final Contribution shall be reduced by
an amount equal to (x) the original Final Contribution set forth on Exhibit "F"
multiplied by (y) a fraction, the number of which is the total of the amounts of
the Completion Contributions set forth on Exhibit "F" for all such terminated
Segments divided by the total original Completion Contribution set forth on
Exhibit "F" and Grantor shall reimburse Grantee in an amount equal to (A) the
sum of the original Execution Contribution and Commencement Contribution set
forth on Exhibit "F" multiplied by (B) the fraction set forth in clause (y)
above.
ARTICLE 4.
CONSIDERATION
4.01 Grantee agrees to make contributions to Grantor for the
construction of the Grantor System as set forth in Exhibit "F", as such amount
may be adjusted as provided herein (the "IRU Contribution"). The IRU
Contribution shall consist of a contribution to
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be made upon execution of this Agreement (the "Execution Contribution"), a
contribution to be made upon Grantor's commencement of construction of the
Grantor System (the "Commencement Contribution"), a contribution to be made with
respect to each Segment on the Acceptance Date for such Segment (the "Completion
Contribution") and a contribution to be made upon final completion of the
Grantor System, excluding any Segments terminated by Grantee pursuant to Section
3.04 or otherwise undelivered by Grantor (the "Final Contribution"), all as
more particularly described in Exhibit "F".
4.02 In addition to the IRU Contribution, Grantee shall pay directly or
reimburse Grantor for all other sums, costs, fees and expenses which are
expressly provided to be paid by Grantee under this Agreement, including without
limitation, the Recurring Charges. Except as expressly set forth in this
Agreement, Grantee shall have no obligation to pay any amounts in respect of the
IRU granted hereunder.
4.03 Grantor will deliver to Grantee invoices for payments of the IRU
Contribution and all other sums, costs, fees and expenses owed by Grantee to
Grantor hereunder and Grantee shall pay such invoiced amounts, less any
reasonably disputed amounts, within thirty (30) days after receipt of such
invoice. Grantee shall provide Grantor with written notice by the payment due
date describing in reasonable detail the basis for any disputed amounts;
provided that any disputed amounts resolved in favor of Grantor shall thereafter
be paid promptly by Grantee. Any sums not paid by Grantee when due shall bear
interest at the rate of eighteen (18%) per annum, other than reasonably disputed
amounts, which shall bear interest at the rate of twelve percent (12%) per
annum.
4.04 Grantor agrees that it will not, for a period of (***) years after
the Acceptance Date of the last Segment delivered hereunder, sell, transfer or
grant rights of use or similar rights to use any facilities, in whole or in
part, in the Grantor System (other than to an Affiliate of Level 3
Communications, Inc. or an RRG) upon economic or other material terms more
beneficial than those provided to Grantee hereunder. Prior to entering into any
agreement or other arrangement with any other Person (other than such a
subsidiary or such an RRG) regarding the use or transfer of all or part of the
Grantor System, (i) Grantor will provide Grantee with sufficient detail of the
terms thereof (the
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confidentiality of which information shall be maintained by Grantee as provided
in Article 23) in order to enable Grantee to compare such terms to those
provided to Grantee hereunder and (ii) at Grantee's option, this Agreement shall
be modified to give Grantee the benefits of the more beneficial economic or
other material terms contained in such other agreement or arrangement. In the
event that Grantor and Grantee are unable to agree whether such terms are more
beneficial or have been appropriately incorporated in this Agreement, if Grantee
so requests, the parties shall submit such disagreement to arbitration in
accordance with Section 24.01(iv). The provisions of this Section 4.04 shall
survive any modification of this Agreement pursuant to this Section 4.04. A
merger or consolidation of Grantor or a sale by Grantor of all or substantially
all of its assets shall not be considered a sale, transfer or grant of rights to
use the Grantor System covered by this Section 4.04.
ARTICLE 5.
TERM
5.01 The IRU with respect to each Segment shall become effective (and
the transfer of title to the Grantee Fibers and the Grantee Conduit for each
Segment, if applicable, shall occur) on the first day when both (i) the
Acceptance Date with respect to the Segment has occurred and (ii) Grantor has
received payment of all of the IRU Contribution then due to Grantor for such
Segment (as to such Segment, its "Effective Date"). Subject to the provisions
of Article 6 and Article 7, the IRU with respect to each Segment shall
terminate at the end of the economically useful life of both the Grantee
Fibers and Grantee Conduit within such Segment, as determined pursuant to
Section 5.03 (the "Term").
5.02 Notwithstanding anything in this Agreement to the contrary, the
Term with respect to each Segment shall not be less than the Minimum Period.
Grantor shall take all such actions as may be necessary to cause each Required
Right to remain in effect so that the Term for each Segment shall be not less
than the Minimum Period (including, without limitation, exercising any renewal
rights under any Required Right, or otherwise
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acquiring at no cost to Grantee such extensions or additions of any Required
Right and/or obtaining replacements or substitutions of any Required Right (and
relocating such Segment or portions thereof at Grantor's sole cost under Section
6.05) as may be necessary, in order to cause the term of each such Required
Right, or such replacement or substitution thereof, to be continued until a
date that is not earlier than the last day of the Minimum Period for such
Segment).
5.03 Grantee shall determine, in its sole discretion, when the Grantee
Fibers and/or Grantee Conduit with respect to any Segment shall have reached the
end of their economically useful life and shall give written notice of such
determination to Grantor. Upon any such determination by Grantee after the
Minimum Period, the Term shall expire with respect to such Grantee Fibers and/or
Grantee Conduit in such Segment and all title to and/or rights to the use
thereof shall revert to Grantor without reimbursement of any of the IRU
Contribution or other sums, costs, fees or expenses previously made with respect
thereto, and from and after such time Grantee shall have no further rights,
obligations or liabilities hereunder or any other liability with respect thereto
unless such rights, obligations or liabilities are specifically provided herein
to survive the Term.
5.04 Absent a determination by Grantee under Section 5.03, at the end
of the Term for each Segment, at Grantee's option, (i) Grantor shall transfer
all of Grantor's right, title and interest to the Grantee Fibers and the Grantee
Conduit within such Segment not then owned by Grantee to Grantee for $1.00
(except if Grantee has given written notice as to such Segment described in
Section 5.03), in which case Grantee shall assume, and Grantor shall be relieved
of, all obligations in connection therewith, or (ii) Grantee shall transfer all
of Grantee's right, title and interest to the Grantee Fibers and the Grantee
Conduit within such Segment not then owned by Grantor to Grantor for $1.00.
5.05 Grantor and Grantee acknowledge and agree that Grantee shall be
treated for accounting and federal and all applicable state tax purposes as the
exclusive beneficial owner of all Grantee Fibers and Grantee Conduit (each of
which constitutes an interest in real property) with respect to which it has
received an IRU hereunder, and as the holder of an associated non-exclusive
indefeasible right of use in the Associated Property (which constitutes a
leasehold interest in real property). Grantor and Grantee further agree that
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the transactions contemplated in this Agreement constitute, for accounting and
federal and applicable state tax purposes, a joint undertaking to share and
minimize the expenses of constructing of each party's respective
telecommunications network, and not as a separate entity or as a sale or lease
(except with respect to lease of the Associated Property). Grantor and Grantee
shall file (and shall cause their respective Parents to file) their respective
income tax returns and other returns and reports for their respective
Impositions on such basis and, except as otherwise required by law, not take any
positions inconsistent therewith.
5.06 This Agreement shall become effective on the date hereof, subject
to Section 20.04 hereof, and shall terminate on the date when, after completion
and delivery of the Segments all the Terms of all such Segments shall have
expired or terminated, except that Articles 16, 24 and those provisions of this
Agreement which are expressly provided herein to survive such termination shall
remain binding on the parties hereto.
5.07 If (i) Grantee or an entity which directly or indirectly
controls Grantee (each a "Grantee Parent") makes a general assignment for the
benefit of its creditors, files a voluntary petition in bankruptcy or any
petition or answer seeking, consenting to, or acquiescing in reorganization,
arrangement, adjustment, composition, liquidation, dissolution, or similar
relief, (ii) an involuntary petition in bankruptcy or other insolvency
protection against Grantee or any Grantee Parent is filed and not dismissed
within one hundred twenty (120) days, (iii) Grantee or any Grantee Parent
defaults with respect to any borrowed money indebtedness of Grantee or such
Grantee Parent having a principal amount in excess of (***), which
indebtedness is already due and payable in full or which default has resulted
in, or would permit, the acceleration of the maturity of such indebtedness,
(iv) except as provided in (v) below, Grantee materially breaches this
Agreement and such breach remains uncured for 30 days (or, if not susceptible
of cure within such period, cure has not been commenced and diligently pursued
thereafter) after written notice thereof by Grantor, (v) Grantee fails, for a
period of ten (10) days following written notice by Grantor of such failure,
to make payment in excess of an aggregate of (***) due hereunder (unless the
unpaid sum is being disputed in good faith), or (vi) any Permitted Guarantor
shall materially breach Section 16 of its guaranty
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referred to in Section 20.06 and such breach shall have a material adverse
effect or such Permitted Guarantor's ability to perform under such Guaranty, and
such breach remains uncured (or Grantee has not substituted a new Guaranty
therefor) for 30 days (or, if not susceptible of cure within such period, cure
has not been commenced and diligently pursued thereafter) after written notice
thereof by Grantor, Grantor may, upon twenty (20) days prior written notice to
Grantee and while such event is continuing, terminate this Agreement as to all
Segments as to which Grantee has not yet paid the Completion Contribution, in
which case Grantee shall have no further obligation to make any payments
hereunder as to the Segments terminated. In addition, upon the occurrence of
any event described in clauses (iv) or (v) above, in addition to any other
remedies available to Grantor at law or in equity, including specific
performance and injunctive relief, Grantor shall have no obligations under
Article 12 hereunder as to any Segments as to which Grantee has paid the
Completion Contribution, unless and until such default is cured. Except as
provided in the immediately preceding sentence, and notwithstanding other
provisions in this Agreement to the contrary, Grantor acknowledges and agrees
that Grantor shall have no right under any circumstances to terminate the IRU,
in whole or in part, or any of the rights and interests of Grantee hereunder,
with respect to any Segment for which the Completion Contribution relating
thereto has been fully paid in accordance with the terms hereof prior to the
termination of the Term of such Segment.
5.08 If (i) Grantor or an entity which directly or indirectly
controls Grantor (each a "Grantor Parent") makes a general assignment for the
benefit of its creditors, files a voluntary petition in bankruptcy or the
filing by Grantor or any Grantor Parent of any petition or answer seeking,
consenting to, or acquiescing in reorganization, arrangement, adjustment,
composition, liquidation, dissolution, or similar relief, (ii) an involuntary
petition in bankruptcy or other insolvency protection against Grantor or any
Grantor Parent is filed and not dismissed within one hundred twenty (120)
days, (iii) Grantor or any Grantor Parent defaults with respect to any
borrowed money indebtedness of Grantor or such Grantor Parent having a
principal amount in excess of (***), which indebtedness is already due and
payable in full or which default has resulted in, or would permit, the
acceleration of the maturity of such indebtedness, (iv) Grantor materially
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breaches this Agreement (except breaches covered by Section 3.04) and such
breach remains uncured 30 days (or, if not susceptible of cure within such
period, cure has not been commenced and diligently pursued thereafter) after
written notice thereof by Grantee, or (v) Level 3 Communications, Inc. (or any
successor guarantor thereunder) shall materially breach Section 16 of its
guaranty referred to in Section 20.05 and such breach shall have a material
adverse effect on its ability to perform under such guaranty, and such breach
remains uncured for 30 days (or, if not susceptible of cure within such period,
cure has not been commenced and diligently pursued thereafter) after written
notice thereof by Grantee, then, after written notice thereof from Grantee,
Grantee may (i) terminate this Agreement, in whole or in part, in which case
Grantee shall have no further obligation to make any payments hereunder as to
the portion terminated, and (ii) subject to Article 17, pursue any legal
remedies it may have under applicable law or principles of equity relating to
such default, including specific performance and injunctive relief.
ARTICLE 6.
REQUIRED RIGHTS
6.01 Grantor covenants and agrees that, during the Term of each
Segment, it shall obtain and maintain in full force and effect all rights,
licenses, permits, authorizations, rights-of-way, easements and other agreements
which are necessary in order to permit Grantor to construct, install, keep
installed and maintain the Grantee Fibers and Grantee Conduit comprising such
Segment, to grant the IRU and to provide Grantee with all other rights and
privileges (it being understood that Grantee's option rights under Section 7.06,
prior to the exercise thereof, shall not be considered for this purpose) under
this Agreement (collectively, the "Required Rights"). Grantor shall use
its commercially reasonable best efforts to cause each such Required Right to
provide (a) Grantee with notice of any default on the part of Grantor thereunder
and to permit Grantee to cure, on behalf of and at the expense of Grantor, any
such default and, thereafter, to continue the use of such Required Right in
accordance with Grantor's rights and interests thereunder, (b) subject to the
last sentence of this Section 6.01, option or
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renewal rights ("Option Rights") permitting the stated term of each Required
Right to be continued until the end of the economically useful life of the
Grantee Fibers and Grantee Conduit located in the Segment to which such Required
Right relates or otherwise beyond the scheduled expiration date of such Required
Right and (c) provide Grantee with non-disturbance agreements (in form and
substance reasonably satisfactory to Grantee) relating to the Grantee Fibers,
the Grantee Conduit, the Associated Property and Grantee's interest in, and/or
ownership and use thereof. Each Required Right shall by its terms, or by the
terms of an option or similar renewal right exercisable at the sole discretion
of Grantor, remain in effect for the Minimum Period for each Segment covered
thereby, (***), PROVIDED FURTHER that Grantor shall nevertheless remain bound by
the provisions of Section 5.02 with respect to such Required Rights.
6.02 Grantor further covenants and agrees that during the Term of the
IRU with respect to each Segment:
(a) Grantor shall observe and perform each and every of its
obligations under each Required Right if the failure to observe and perform any
such obligation or obligations would permit the grantor or provider of such
Required Right to terminate such Required Right prior to its stated expiration
date or to increase the fees, charges or assessments due to such grantor or
provider, or would otherwise adversely impair or affect Grantee's rights to use
the Grantee Fibers, the Grantee Conduit and the Associated Property hereunder;
(b) in the event Grantor shall receive notice from any grantor
or provider of a Required Right that Grantor has failed to observe or perform
its obligations under such Required Right (unless Grantor is contesting the
validity of such claimed or alleged failure in good faith, provided such contest
does not adversely impair or affect Grantee's rights hereunder ), Grantor shall
give written notice of such failure to Grantee (promptly following the date
Grantor shall have received notice of such failure) and Grantee may, at its
option (subject to the terms and provisions of the Required Right and
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the ability of third parties to cure defaults of Grantor thereunder), (i) cure
or correct any such failure and (ii) pay any subsequent amounts due under such
Required Right to the grantor or provider if such Required Right unless Grantee
shall have received written notice from Grantor that Grantor will pay timely all
such amounts;
(c) in the event Grantor is in default of any of its
obligations under any Required Right and Grantee cures such default pursuant to
Section 6.02(b)(i) or Grantee exercises its rights pursuant to Section 6.02
(b)(ii) , Grantor shall reimburse Grantee promptly upon demand for any and all
amounts reasonably paid by Grantee;
(d) Grantor shall at its sole reasonable cost and expense
defend and protect Grantor's rights in and interests under each Required Right,
and Grantee's rights under this Agreement and Grantee's interest in the Grantee
Fibers, the Grantee Conduit, any Sublease and the Associated Property, against
all Liens attributable to Grantor;
(e) Grantor shall not exercise any right or otherwise take any
action under a Required Right which is inconsistent with its obligations, or
Grantee's rights under this Agreement, nor shall Grantor fail to exercise any
such rights if such failure would be inconsistent with such obligations or
rights or would otherwise adversely affect Grantee's ownership of and/or
indefeasible right to use the Grantee Fibers, the Grantee Conduit and the
Associated Property hereunder;
(f) Grantor shall not take any action which would result in the
termination of a Required Right prior to its scheduled expiration (including any
extended term pursuant to an exercised option); and
(g) In the event that (i) the grantor or provider of a Required
Right is in default under such Required Right, (ii) such grantor or provider
makes a general assignment for the benefit of its creditors, files a voluntary
petition in bankruptcy or any petition or consider seeking, consenting to, or
acquiescing in reorganization, arrangement, adjustment, composition,
liquidation, dissolution or similar relief, (iii) an involuntary petition in
bankruptcy or other insolvency protection against such grantor or provider is
filed or (iv) any other event or condition arises which may materially adversely
affect Grantor's rights under such Required Right or Grantee's rights under this
Agreement, then Grantor shall provide Grantee with prompt written notice of each
such event or
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condition and keep Grantee reasonably informed with respect to any subsequent
developments relating thereto.
6.03 In the event any Required Right shall contain, or shall otherwise
be subject to, an Option Right in favor of Grantor with respect to any portion
of the Grantor System, Grantor shall give Grantee written notice thereof at
least 90 days prior to the last date required for exercise thereof and either
(i) exercise such Option Right (provided that (a) Grantor shall not be required
to expend, as consideration for exercising any such Option Right, more than the
fair market rate payable at such time for similar rights and terms, except to
the extent that Grantee and the other users of the Grantor System agree at their
option to pay directly or reimburse Grantor for any amounts required to be paid
in excess of such fair market rate, and (b) any such extension shall not modify
the rights or obligations of Grantor or Grantee under this Agreement (including,
without limitation, the amount of fees payable by Grantee pursuant to Article
13)) or (ii) if Grantor elects not to exercise such Option Right and Grantee
wishes to exercise such Option Right and continue to use the portion of the
Grantor System to which such Option Right relates, then Grantor shall (a) if
such Option Right and the Required Right relating thereto are assignable, assign
its interest therein and in such portion of the Grantor System (including,
without limitation, all facilities and rights therein) to Grantee for $1.00 or
(b) if such Option Right or the Required Right relating thereto are not
assignable, exercise such Option Right on behalf of Grantee pursuant to this
Section 6.03, whereupon Grantor shall have no further right, title, interest or
obligation (and Grantee shall have all such right, title, interest and
obligation) under this Agreement to or with respect to such affected portion of
the Grantor System during the period of extension or renewal, provided, and on
the condition, that Grantee shall assume and agree to pay, observe and perform
all of the duties, obligations and liabilities associated with such Required
Right relating to such affected portion arising after the date of such
assumption and shall indemnify Grantor in accordance with Article 16 with
respect to any Losses suffered by Grantor relating to the duties, obligations
and liabilities assumed by Grantee pursuant to this sentence.
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6.04 Subject to Grantor's compliance with Sections 6.01, 6.02 and 6.03,
then notwithstanding any other provision of this Agreement to the contrary, if
a Required Right expires or otherwise terminates at any time after the Minimum
Period, the Term (with respect to the Segment or Segments or portions thereof
affected thereby) shall likewise automatically expire; provided that, in the
event Grantor or any of its Affiliates shall extend, renew or enter into a new
agreement with respect to such Required Right, the Term shall continue with
respect to such Segment or Segments or portions thereof until the subsequent
expiration or termination of such Required Right; provided further that any such
extension, renewal or new agreement shall not modify the rights or obligations
of Grantor or Grantee under this Agreement (including, without limitation, the
amount of fees payable by Grantee pursuant to Article 13).
6.05 If, after the Acceptance Date with respect to a Segment, Grantor
is required by any Governmental Authority, or by any grantor or provider of a
Required Right prior to the scheduled expiration of such Required Right, to
surrender, cease using or relocate such Segment or portion thereof, including
any of the facilities used or required in providing the IRU, Grantor shall
relocate such Segment of portion thereof and shall have the right, in good
faith, to reasonably determine the extent and timing of, and methods to be used
for such relocation; provided that (i) Grantee shall be kept fully informed of
all actions to be taken and determinations made by Grantor in connection with
such relocation, (ii) any such relocated Segment or portion thereof shall (a) be
constructed in accordance with the construction specifications set forth in
Exhibits "G" and "J" and incorporate fiber and conduit meeting the
specifications set forth in Exhibit "H" (b) be subject to successful completion
of Acceptance Testing (which shall be completed, if practicable, prior to
termination of service on the affected portion of the Grantor System) and (c)
contain the same number of Grantee Fibers as the Segment or portion thereof
being relocated and, if the Segment or portion thereof being relocated contains
the Grantee Conduit, any such relocated Segment or portion thereof shall contain
the Grantee Conduit and (iii) Grantor shall use its commercially reasonable best
efforts to
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minimize any disruption resulting from such relocation to Grantee's
telecommunication operations. Unless such relocation is the result of a
failure by Grantor to observe and perform its obligations under any Required
Rights or this Agreement (e.g., failure to obtain a Required Right with a
scheduled term at least equal to the Minimum Period or failure to comply with
the terms thereof in order to maintain such Required Right in effect for the
Minimum Period), Grantee shall reimburse Grantor for its proportionate share
of the Costs of such relocation of such Segment or portion thereof (to the
extent Grantor has not been reimbursed or otherwise compensated by any other
Person) as follows: (i) if the affected Segment or portion thereof includes
any conduits (whether or not occupied), the total Costs of relocation of the
affected conduits shall be allocated (***).
6.06 Notwithstanding anything in this Agreement to the contrary, the
IRU and Grantee's rights are subject to the terms of the Required Rights,
PROVIDED that the Required Rights shall not contain terms, provisions or
obligations which conflict or are inconsistent with Grantee's rights (it being
understood that Grantee's option rights under Section 7.06, prior to the
exercise thereof, shall not be considered for this purpose) under the IRU or
this Agreement or Grantor's obligations thereunder or hereunder or which impose
any other material obligations or duties on Grantee, and PROVIDED FURTHER that
the Required Rights may contain customary provisions regarding access and other
customary restrictions and limitations. Except as otherwise provided in this
Agreement, Grantor will not obtain for itself or any of its Affiliates any
material rights or benefits in respect of the Grantor System from the grantor or
provider of any Required Right that it does not make available or cause to be
made available to Grantee on comparable terms.
ARTICLE 7.
CONDUIT
7.01 Grantor shall use its commercially reasonable best efforts to have
the IRU for each Segment of the Grantor System consist of 24 fibers and one
unoccupied conduit (or comparable aerial segment).
7.02 (***).
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7.03 Grantor shall give written notice to Grantee of the likely
occurrence of a Pinch Event with respect to a Segment or a portion thereof,
promptly following Grantor's knowledge of the likelihood of such Pinch Event,
which notice shall certify that, in Grantor's good faith determination, either
(i) such Pinch Event will be temporary and Grantor will deliver the Grantee
Conduit in such Segment or portion thereof by the date specified in such notice
(which date shall not be later than the applicable Completion Date) or (ii) such
Pinch Event will be permanent and Grantor will not deliver the Grantee Conduit
by the applicable Completion Date. Notwithstanding anything in this Agreement
to the contrary, (a) in the event that Grantor delivers a notice pursuant to
clause (i) above, for purposes of determining the Minimum Period with respect to
such Segment only, the Acceptance Date for the Segment or portion thereof to
which such notice relates shall not commence until the date that the Grantee
Conduit has been delivered and (b) in the event that Grantor delivers a notice
pursuant to clause (ii) above, then Grantor shall have no obligation to deliver,
and Grantee shall have no obligation to accept or pay for, the Grantee Conduit
in the Segment or portion thereof to which such notice relates after the date of
such notice. In each of clauses (a) and (b) above, the IRU Contribution and the
Recurring Charge for such Segment shall be adjusted in accordance with
Section 7.04 below. If, prior to the later of the third anniversary of the
Commencement Date and the delivery of the last Segment delivered hereunder, such
Segment or portion thereof includes at least three conduits, (A) in the event
that a notice has been delivered pursuant to clause (i) above, Grantee shall
take delivery of and pay for the Grantee Conduit in accordance with the terms of
this Agreement, and (B) in the event that a notice has been delivered pursuant
to clause (ii) above, Grantee shall have the option (which option shall
be exercisable within 30 days following receipt of written notice of proposed
delivery by Grantor) to take delivery of and pay for the Grantee Conduit in
accordance with the terms of this Agreement. In either such case, if Grantee
takes delivery of and pays for the Grantee Conduit, the IRU Contribution and
Recurring Charge for such Segment shall be adjusted as provided in Section 7.05
below.
7.04 (***).
7.05 In the event that (i) Grantor delivers a notice pursuant to
Section 7.03(i) and Grantee takes delivery of the Grantee Conduit in the Segment
or portion thereof to which such notice relates by the applicable Completion
Date or (ii) Grantee exercises its
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option pursuant to clause (B) of the last sentence of Section 7.03, then (a)
Grantee shall reconvey to Grantor, or relinquish the use of, any fibers in
excess of the Initial Grantee Fibers granted to Grantee pursuant to Section
7.02, (b) Grantor shall reimburse Grantee for all Incremental Costs paid by
Grantee pursuant to Section 7.02 and (c) Grantee shall pay Grantor the excess
of the IRU Contribution for such Segment over the amount of the fee paid by
Grantee with respect thereto pursuant to Section 7.04 and the Recurring Charge
shall be restored from and after the date of such delivery to what it would
have been if such Pinch Event had not occurred.
7.06 Grantor agrees that in the event the Grantor System in any Segment
shall include six or more conduits (inclusive of the Grantee Conduit and the
conduit housing the Cable), Grantee shall have the option to elect that the IRU
with respect to the Grantee Fibers in such Segment be increased to include
twenty-five percent (25%) of the fibers installed (rounded up to the nearest
whole fiber) in every conduit after the first five conduits (inclusive of the
Grantee Conduit and the conduit housing the Cable), PROVIDED that if Grantor
grants to an unrelated party an indefeasible right to use all of the fibers
installed in any such conduit, Grantee shall not have such option but in lieu
thereof Grantor shall pay Grantee, simultaneously with the grant of such right,
an amount in cash equal to 25% of the value of the consideration received by
Grantor for such indefeasible right to use such fibers (it being understood
that, if such indefeasible right to use such fibers is part of a larger
transaction, any allocation of consideration in such transaction shall not be
relevant for purposes of this Section 7.06 and, if Grantor and Grantee are
unable to agree on the amount of the total consideration allocable to such
indefeasible right to use, such amount shall be determined by the procedures set
forth in Article 24). Grantor shall give written notice to Grantee prior to
installing any fiber in such sixth conduit and any subsequent conduit, which
notice shall contain Grantor's good faith estimate of Grantee's proportionate
share of the costs and other amounts described below which will be payable by
Grantee. If Grantor installs fiber in one or more conduits contemporaneously
under circumstances where at least one of such conduits would be subject to this
Section 7.06, Grantee may select which of those conduits is subject to its
option rights under this Section 7.06. Grantee shall have a period of ninety
(90) days
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after receipt of such notice to exercise its option under this Section 7.06 by
written notice to Grantor. In the event Grantee shall exercise its option with
respect to such a conduit in any Segment, all fibers installed therein for
Grantee's use shall be deemed to be and constitute Additional Grantee Fibers
hereunder and Grantee shall be responsible for, and Grantee shall pay to Grantor
from time to time during the Term (at least five (5) days prior to the date
Grantor is required to make payments as a result of the occupancy of such
conduit), Grantee's proportionate share (based on the number of fibers in such
conduit which will become Additional Grantee Fibers and the total fiber count in
such conduit) of each of: (i) the Incremental Costs incurred by Grantor in
connection with the installation of the Additional Grantor Fibers in such
conduit; (ii) the operating expenses incurred by Grantor in connection with the
fibers in such conduit; and (iii) the fees, costs or charges payable under the
terms of any related Required Right(s) as a result of the placement or use of
fiber in such conduit. In the event Grantee shall fail to timely exercise the
option provided in this Section 7.06 with respect to a conduit, or if Grantee
notifies Grantor in writing of its desire to surrender such option with respect
to any conduit in any Segment, Grantee's option with respect to such conduit
shall terminate, but Grantee's option with respect to any subsequent conduits or
other Segments shall continue in full force and effect. Notwithstanding anything
contained in this Agreement to the contrary, Grantor shall never be obligated to
cause six or more conduits to be installed as a part of the Grantor System and
Grantor shall not be in breach or default hereunder or otherwise liable to
Grantee if the Grantor System does not include six or more conduits. The rights
granted to Grantee under this Section 7.06 shall not apply to (x) any inner city
or local loop conduit constructed or installed by Grantor in a city in the form
of a spur (which may have two or more connection points) to the Grantor System,
provided that this sentence shall not modify Grantor's obligations under Section
2.02 or (y) if the Grantor System consists of 11 or more conduits, any conduits
in excess of 10 conduits constructed or installed by Grantor, simultaneously
with and adjacent to the other conduits constituting part of the Grantor System,
expressly for exchange for conduits in another Segment or portion of the Grantor
System provided by an unrelated third party (and no more than a de minimis
amount of other consideration).
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7.07 Grantee may elect at any time during the Term of a Segment to have
fibers installed within all or any part of the Grantee Conduit in such Segment,
on such reasonable schedule as may be specified by Grantee and approved by
Grantor (which approval shall not be unreasonably withheld), and, subject to
Article 19, Grantor shall install such fibers in accordance with such schedule,
subject to the following: (i) Grantee shall provide to Grantor for Grantor's
reasonable approval and, if applicable, to the grantors or providers of any
Required Rights, detailed installation plans and specifications, the proposed
contractor or contractors, the schedule for installation, and such other
information or documentation as may be reasonably requested by Grantor or as may
be required under any Required Right, and (ii) Grantee shall reimburse Grantor
for all Costs incurred by Grantor in connection with such installation (but not
including the cost of construction of the Grantee Conduit itself).
7.08 Any installation of fiber for Grantee's use within a Segment under
Sections 7.06 or 7.07 shall not extend the Minimum Period with respect to such
Segment.
ARTICLE 8.
CONSTRUCTION OF THE GRANTOR SYSTEM
8.01 Grantor will design, engineer, install and construct the Grantor
System (including any portion of the Grantor System delivered pursuant to
Article 7) in conformity with the construction specifications set forth in
Exhibit "G" and all applicable manufacturer specifications and in a
workmanlike manner and in accordance with industry standards and building,
construction and safety codes, as well as any and all other applicable
governmental laws, codes, ordinances, statutes and regulations. Such
responsibilities shall include, without limitation, preparation of
construction drawings, materials specifications and materials requisitions.
The Grantee Fibers shall meet or exceed the applicable fiber specifications
set forth in Exhibit "H". The Grantee Conduit, and all other conduits in
which Grantee Fibers are located, shall meet the applicable specifications set
forth in Exhibit "H".
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8.02 Grantor will provide Regeneration Facilities and Opamp Facilities
to be located along the Grantor System, in each case consisting of and providing
space and amenities as described in Exhibit "I".
8.03 Grantor will undertake the Acceptance Testing of each of the
Segments.
8.04 Subject to Sections 7.02 and 7.07, Grantor will procure all
materials to be incorporated in and to become a permanent part of the Grantor
System (other than fibers to be installed in the Grantee Conduit which may be
procured by Grantee at Grantee's option).
8.05 Subject to the provisions of Article 6, Grantor will obtain and
maintain in full force and effect the Required Rights without default by Grantor
thereunder.
8.06 Grantor and Grantee will mutually consult with each other (on a
monthly basis and at such other times upon request of either party) to attempt
to coordinate construction of the Grantor System with other network construction
which may be undertaken by, or on behalf of, Grantee.
8.07 During the course of construction of each Segment, Grantor will
prepare and provide to Grantee (***) a construction schedule and progress
reports, including notice regarding whether Grantor reasonably believes that
such Segment may be subject to a Pinch Event. Subject to the terms and
provisions of any applicable Required Right, Grantee shall have the right, but
not the obligation, on at least twenty four (24) hours prior notice to Grantor,
to inspect and be present at the construction and installation of each Segment
(which may consist of continuous or regular on-site inspections by dedicated
representatives of Grantee), including the installation, splicing and testing of
the Grantee Fibers and the installation of the Grantee Conduit incorporated
therein; provided that no inspection or failure to inspect by Grantee shall
impair or invalidate any rights and remedies of Grantee under this Agreement or
modify, amend or otherwise affect any of the representations, warranties,
covenants or agreements of Grantor under this Agreement. If, during the course
of any such construction, installation, splicing or testing, any deviation from
the specifications set forth in any Exhibit hereto is discovered, the
construction or installation of the affected portion of the
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Segment shall be repaired promptly to such specifications in such Exhibit at
Grantor's sole cost and expense.
8.08 Grantor shall make available to Grantee for inspection by
Grantee copies of all information, documents, agreements, reports, permits,
drawings and specifications generated, obtained or acquired by Grantor in
performing its duties pursuant to this Article 8 that are material to the
grant of the IRU to Grantee, including the Required Rights, subject only to
the condition that the terms of each such document or the legal restrictions
applicable to such information or document permits disclosure to Grantee;
provided that Grantor will use its commercially reasonable best efforts to
obtain a waiver of any existing confidentiality and/or non-disclosure
restrictions, and to exempt Grantee from subsequent confidentiality and/or
non-disclosure restrictions, that would restrict Grantor's ability to make
such documents and/or information available to Grantee for inspection.
8.09 For purposes of the foregoing, Grantor shall be deemed to have
complied with any Exhibit notwithstanding deviations to such Exhibit, PROVIDED
that Grantor (i) notifies Grantee of such deviation (which may be given in a
general format at monthly intervals unless Grantee requests more specific
details), (ii) compliance was not or would not be commercially practicable and
(iii) such deviations do not diminish the value, utility, reliability or
expected useful life of the item or matter concerned or otherwise adversely
affect Grantee's rights or obligations under this Agreement.
8.10 The parties acknowledge that Grantee's contributions to the cost
of constructing the Grantor System are limited to the payment of the IRU
Contribution. Without limitation, Grantee will not have any obligation, over
and above payment of the IRU Contribution as contemplated hereunder, with
respect to Grantor's responsibilities set forth in Sections 8.01, 8.02, 8.03,
8.04 or 8.05.
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ARTICLE 9.
ACCEPTANCE TESTING
9.01 Grantor shall test the Grantee Fibers and the Grantee Conduit in
accordance with the procedures and standards specified in Exhibit "J"
("Acceptance Testing"). Acceptance Testing shall progress span by span along
each Segment as cable splicing progresses or, in the case of the Grantee
Conduit, as set forth in Exhibit "J", so that test results may be reviewed in a
timely manner. Grantor shall provide Grantee with at least 14 days' prior
notice of the date and time of each Acceptance Testing and Grantee shall have
the right, but not the obligation, to be present to observe the Acceptance
Testing.
9.02 When Grantor reasonably determines the Grantee Fibers and the
Grantee Conduit with respect to an entire Segment are installed and operating in
conformity with the applicable specifications set forth in Exhibits "G", "H",
and "J", and Grantor is otherwise in compliance with the other provisions of
this Agreement with respect to such Segment, Grantor shall provide written
notice of same to Grantee (a "Completion Notice"), together with a copy of the
results of the Acceptance Testing for such Segment. Grantee shall, within
fifteen (15) days of receipt of the Completion Notice, either accept or reject
the Completion Notice (specifying, if rejected, the defect or failure in such
Acceptance Testing and/or the items required to be remedied and/or replaced in
order for such Segment to be in conformity with the applicable specifications
set forth in Exhibit "J" and other provisions of this Agreement) by delivery of
written notice to Grantor. In the event Grantee rejects the Completion Notice,
Grantor shall promptly, and at no cost to Grantee, commence to remedy the defect
or failure. Thereafter, Grantor shall again give Grantee a Completion Notice
with respect to such Segment. The foregoing procedure shall apply again and
successively thereafter until Grantor has remedied all defects or failures. Any
failure by Grantee to timely reject a Completion Notice shall be deemed to
constitute acceptance for purposes of this Agreement, and in that event Grantee
shall be
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deemed to have delivered a notice of acceptance on the thirtieth day after
delivery of the Completion Notice. The successful completion of Acceptance
Testing, and the occurrence of an Acceptance Date, with respect to the Grantee
Fibers and the Grantee Conduit in accordance with this Article 9 shall not
relieve Grantor of its obligation to repair defects in the Grantor System in
accordance with Section 12.02.
ARTICLE 10.
ACCESS
10.01 Grantor shall provide Grantee with access to, and Grantee shall
have the right to interconnect with, the Grantee Fibers and the Grantee Conduit
at Segment End Points and, subject to the terms and provisions of the Required
Rights, at other technically feasible access points along the Grantor System
(the "Access Points"). The specific location of such Access Points shall be
determined by Grantor during the design, engineering and permitting phases of
construction and after consultation and coordination with Grantee, and, at a
minimum, Access Points will be provided at the intervals specified in Exhibit
"I".
10.02 Grantor may route the Grantee Fibers through Grantor's space in
the Regeneration Facilities or Opamp Facilities in its sole discretion (so long
as such routing does not materially adversely affect the security, safety or use
of the Grantee Fibers or the Associated Property). Grantee Fibers may, upon
Grantee's written consent (which shall not be unreasonably withheld), be routed
through Grantor's terminal, endlink or pop sites. In each case, Grantor shall
be responsible for all costs and expenses associated therewith.
10.03 Grantor shall have the right to control all activities concerning
the Grantor System at all of the Access Points, PROVIDED that after the
Acceptance Date for each Segment, Grantor shall not splice Grantee Fibers
located in any Segment or otherwise undertake any activities with respect to the
Grantee Fibers or the Grantee Conduit located in such Segment except in
connection with a relocation pursuant to Section 6.05, as required to perform
maintenance as described in Exhibit "K" or as otherwise directed by Grantee. In
the event Grantor shall undertake any such activities (including splicing)
related to the Grantee Fibers and/or Grantee Conduit at any Access Point at
Grantee's request, such activities shall be conducted in accordance with
requirements as agreed to
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by the parties and Grantee shall reimburse Grantor for all Costs incurred by
Grantor in connection with such activities.
10.04 Grantor shall determine the exact locations of the Regeneration
Facilities and Opamp Facilities after consultation and coordination with
Grantee. Grantee shall have access to the Regeneration Facilities and Opamp
Facilities 24 hours per day, 7 days per week, provided that Grantee shall comply
with such customary access requirements consistent therewith as provided in the
Required Rights.
10.05 Following the initial construction of the Grantor System in a
Segment, Grantor agrees to allow Grantee, subject to customary access and other
customary restrictions and limitations of any applicable Required Rights, to
establish additional technically feasible Access Points along the Grantor
System. Grantor agrees to use commercially reasonable good faith efforts to
obtain the consent or approval, if necessary, of a grantor or provider of any
applicable Required Right in connection with such additional Access Points. Any
additional Access Points shall be constructed or installed by Grantor and all
Costs associated therewith shall be paid by Grantee.
10.06 Grantor shall (i) make available to Grantee such dedicated space
and amenities (e.g., power, caging, lighting, etc.) in Regeneration Facilities
and Opamp Facilities (***) and (ii) cause such Regeneration and Opamp Facilities
to be located at such intervals as set forth on Exhibit "I" along the Grantor
System as are necessary to light the Initial Grantee Fibers using equipment
requiring facility space similar to industry-standard equipment like that used
by Grantor to provision similar capacity over the same number of fibers, (***).
10.07 If after the Acceptance Date for a Segment, Grantee requires
additional space within a Regeneration Facility or Opamp Facility in order to
utilize the Grantee Fibers (including any fibers which may be subsequently
installed in the Grantee Conduit), Grantor shall use commercially reasonable
best efforts to provide such additional space (which may include the
construction of new regeneration or opamp facilities or the
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enlargement of existing Regeneration Facilities and Opamp Facilities); provided,
in no event shall Grantor be required to provide Grantee with any additional
space which, with the initial Grantee space, is greater than the space required
by Grantor to provide similar capacity utilizing an equivalent number of its own
fibers, provided further that Grantor shall have no obligations under this
Section 10.07 for any additional space located outside Grantor System right of
way unless Grantee has no other commercially reasonable alternative. To the
extent any such additional space shall require the consent or approval of a
grantor or provider or a Required Right, Grantor will use commercially
reasonable best efforts to obtain such consent or approval. Grantee shall pay
all Costs relating to any such additional space.
10.08 The IRU granted hereunder shall include Grantee's right to install
equipment, or replace existing equipment, in the space located at the Opamp
Facilities and Regeneration Facilities made available to Grantee pursuant to
this Agreement. All such equipment shall be owned by Grantee and Grantor shall
have no right, title or interest therein.
ARTICLE 11.
OPERATIONS
11.01 Subject to Articles 6 and 15, Grantee shall have full and complete
control and responsibility for determining all matters with respect to the use
of the Grantee Fibersand the Grantee Conduit, including, without limitation, any
network and service configuration or designs, routing configurations, re-
grooming, rearrangement or consolidation of channels or circuits and all related
functions with regard to the use of the Grantee Fibers.
11.02 Grantee acknowledges and agrees that except for the items included
as a part of the Regeneration Facilities and Opamp Facilities as described on
Exhibit "I", Grantor is not supplying nor is Grantor obligated to supply to
Grantee any optronics or electronics or optical or electrical equipment or other
facilities, all of which are the sole
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responsibility of Grantee, nor is Grantor responsible for performing any work
other than as specified in this Agreement.
11.03 Following the Acceptance Date for any Segment, upon not less
than (***) days written notice from Grantor to Grantee, Grantor may at its
option, subject to Grantee's prior written approval (which approval shall not
be unreasonably delayed or withheld) substitute for the Initial Grantee Fibers
in any Segment or Segments, an equal number of alternative, newer fibers
within another conduit constituting part of the Grantor System (but not fibers
acquired from third parties unless the Grantee Fibers being substituted were
delivered pursuant to Section 2.05), PROVIDED that in any such event, such
substitution (i) shall be in accordance with Grantee's applicable operating
procedures, (ii) shall be effected at the sole cost of Grantor, including,
without limitation, all disconnect and reconnect costs, fees and expenses,
(iii) shall be constructed in accordance with the specifications and
procedures set forth in Exhibits "G" and "J", incorporate fiber and conduit
meeting the specifications set forth in Exhibit "H" and successfully tested in
accordance with the Acceptance Testing, (iv) shall not interrupt the operation
or adversely affect the use, operation or performance of Grantee's network or
business, or change any Segment End Points, Access Points, Regeneration
Facilities, node or switch facilities used by Grantee hereunder, all as
determined by Grantee in its reasonable discretion, (v) shall not modify
Grantor's obligations under Article 7 and (vi) Grantee shall be reasonably
satisfied that any such relocation shall not otherwise affect its rights,
privileges or costs under this Agreement.
ARTICLE 12.
MAINTENANCE AND REPAIR OF THE GRANTOR SYSTEM
12.01 From and after the Acceptance Date with respect to each Segment,
Grantor shall maintain such Segment, or cause such Segment to be maintained in
a workmanlike manner and, in accordance with the maintenance requirements and
procedures set forth in Exhibit "K" attached hereto, all applicable
manufacturer specifications, industry standards and building, construction and
safety codes, as well as any and all other applicable governmental laws,
codes, ordinances, statutes and regulations. The costs of
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all scheduled maintenance of the Grantee Fibers and/or Grantee Conduit shall
be paid by Grantor; provided, however, that Grantee shall reimburse Grantor
for its (***) of the Costs (excluding costs which Grantor would otherwise have
incurred as part of scheduled maintenance e.g., if personnel otherwise on
scheduled maintenance duty attend to the unscheduled situation) of any
unscheduled maintenance and repair of the Grantee Fibers and/or Grantee
Conduit as follows: (i) if the affected portion of the Grantor System includes
any conduits (whether or not occupied), the total Costs of repair of the
affected conduits shall be allocated pro rata among the conduits affected;
(ii) such Costs allocated to each affected conduit carrying the Grantee Fibers
shall be further allocated to Grantee (***).
12.02 Notwithstanding anything in this Agreement to the contrary, if,
at any time prior to the date that is (***) months after the Acceptance Date for
a Segment, Grantee shall notify Grantor in writing of its discovery of a
deviation from the specifications set forth in any Exhibit hereto with respect
to such Segment, the construction or installation of the affected portion of
such Segment shall be repaired promptly to such specification by Grantor at
Grantor's sole cost and expense.
ARTICLE 13.
RECURRING CHARGE
13.01 Except as expressly provided otherwise in this Agreement, Grantor
shall be responsible for the payment of all costs and expenses relating to the
Grantor System, including, without limitation, (i) all fees and charges payable
to the grantors or providers of the Required Rights, (ii) the costs of
constructing and maintaining the Grantor System, (iii) all charges and expenses
(including utility charges) associated with the operation of the Regeneration
Facilities and Opamp Facilities and (iv) all Impositions.
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13.02 In consideration of Grantor's responsibilities in Section 13.01
and otherwise under this Agreement, subject to the adjustments described in
Sections 7.04, 7.06 and 13.03 through 13.07, Grantee shall pay to Grantor each
year, with respect to each Segment, commencing with the Acceptance Date of such
Segment and continuing until the Term of the IRU with respect to such Segment
shall have expired or terminated, the following sums (the "Recurring Charge"):
(i) the product obtained when: (A) (***) is multiplied by (B) the number of
Route Miles in such Segment (the "ROW Charge"), plus (ii) the product obtained
when: (A) (***) is multiplied by (B) the number of Route Miles in such Segment
(the "Operating Expense Charge").
13.03 Commencing on the date of installation of any Grantee Fibers
within the Grantee Conduit, the ROW Charge shall be increased by the product
obtained when: (i) (***) is multiplied by (ii) the number of Route Miles where
Grantee Fibers have been installed in the Grantee Conduit.
13.04 (***).
13.05 (***).
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13.06 The Recurring Charge applicable to each Segment, as the same may
be adjusted from time to time pursuant to the foregoing provisions of this
Article 13, the Operating Expense Estimate and the sums described in
Section 13.03(i), 13.04(i)(A) and 13.04(ii)(A), shall be adjusted on each
anniversary of the Acceptance Date of such Segment by the change, if any, in the
Consumer Price Index, All Urban Consumers, U.S. City Average, published by the
United States Department of Labor, Bureau of Labor Statistics (the "CPI-U"), for
the preceding twelve month period (or, with respect to the Operating Expense
Charge, in the event such index shall cease to be computed or published, Grantor
and Grantee shall mutually designate a comparable successor index to be used in
determining the adjustment to such Charge); provided that (a) the ROW Charge for
a Segment shall only be adjusted pursuant to this Section 13.06 to the extent
the instrument governing the Required Right for such Segment explicitly provides
for an adjustment based on the CPI-U or a comparable index and (b) the Operating
Expense Charge and the Operating Expense Estimate shall only be adjusted
pursuant to this Section 13.06 if neither Grantee nor Grantor has performed an
audit for the preceding twelve-month periods in accordance with Section 13.05.
13.07 Grantee shall pay the Operating Expense Charge portion of the
Recurring Charge for a Segment monthly on the first day of each month of the
Term of the IRU respecting such Segment (with the Operating Expense Charge for
any partial calendar month prorated). Grantee shall pay the ROW Charge portion
of the Recurring Charge for all Segments in the aggregate on a monthly basis,
with the amount of each month's payment being equal to the amount obtained by
multiplying the total amount of ROW Charges due by Grantee on all Segments by a
fraction, the numerator of which is the total
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amount of Required Right Payments due by Grantor on all Segments during such
month and the denominator of which is the total amount of Required Right
Payments due by Grantor on all Segments during the calendar year.
13.08 Notwithstanding anything in this Agreement to the contrary, if
(i) any Segment is the subject of a Force Majeure Event which results in a
disruption of Grantee's operations or business and (ii) Grantor's obligation to
pay costs and expenses relating to such Segment of the type described in Section
13.01 is relieved or excused, in whole or in part, during the pendency of such
Force Majeure Event, then Grantee's obligation to pay Recurring Charges with
respect to such Segment during the pendency of such Force Majeure Event shall be
proportionately reduced.
13.09 In addition to Grantee's other rights and remedies under this
Agreement and under applicable law, Grantee shall have the right from time to
time, to the fullest extent permitted by law, to set off or deduct amounts owed
to Grantor hereunder (including, without limitations, amounts required to be
reimbursed to Grantee pursuant to Sections 6.02(c) and 14.07) from or against
any and all payments required to be made to Grantor pursuant to this Article 13.
ARTICLE 14.
IMPOSITIONS
14.01 Grantor and Grantee acknowledge and agree that it is their mutual
objective and intent to (i) minimize, to the extent feasible, the aggregate
Impositions payable with respect to the Grantor System and (ii) share such
Impositions according to their respective interests in the Grantor System, and
that they will cooperate with each other and coordinate their mutual efforts to
achieve such objectives in accordance with the provisions of this Article 14.
14.02 Grantor shall be responsible for and shall timely pay any and all
Impositions with respect to the Grantor System which Impositions are imposed or
assessed prior to the Acceptance Date of a Segment. Notwithstanding the
foregoing obligations, Grantor shall have the right to challenge any such
Impositions so long as the
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challenge of such Impositions does not adversely affect Grantee's rights or
interests hereunder.
14.03 After the Acceptance Date for each Segment, Grantor shall timely
pay, or cause to be paid, any and all Impositions imposed upon or with respect
to such Segment to the extent such Impositions (a) have not been separately
assessed or imposed upon or against the interest of Grantee in the Grantor
System or (b) consist of real property or ad valorem taxes relating to the
Grantor System, including, without limitation, real property or ad valorem
taxes on the Initial Grantee Fibers, the Grantee Conduit and the Regeneration
and Opamp Facilities (whether or not such Impositions have been separately
assessed or imposed upon or against the interest of Grantee in the Grantor
System), which real property or ad valorem taxes shall constitute part of the
Actual Operating Expenses and shall be subject to adjustment as described in
Article 13. Upon receipt of a notice of any Imposition after the Acceptance
Date for any Segment, Grantor shall promptly notify Grantee of such Imposition
and following payment of such Imposition by Grantor, Grantee shall, within
thirty (30) days of its receipt of an invoice from Grantor, reimburse Grantor
for its proportionate share of such Imposition (except for the Impositions
described in clause (b) of this Section 14.03, which Impositions shall
constitute part of Actual Operating Expenses and shall be paid in accordance
with Article 13), which share shall be determined (i) to the extent possible,
based upon the manner and methodology used by the particular authority
imposing such Impositions (E.G., on the cost of the relative property
interests, historic or projected revenue derived therefrom, or any combination
thereof); or (ii) if the same cannot be so determined, then based upon
Grantee's proportionate share of the total fiber count in the affected portion
of the Grantor System, provided that any such Imposition which was separately
assessed against Grantee or any other Person using the Grantor System shall be
taken into account in determining such proportionate share. Grantor shall
provide Grantee with reasonable supporting documentation for Impositions for
which Grantor seeks reimbursement. If any Imposition assessed upon Grantor or
Grantee is based on assets or business in any state in addition to its
interest in the Grantor System (i.e., central assessment), Grantor and Grantee
shall work together in good faith to allocate a proper portion of such
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assessment to such interests alone and if Grantor and Grantee are unable to
agree on such allocation within thirty (30) days from the date Grantor or
Grantee delivered notice to the other party regarding such allocation, such
allocation shall be determined by an arbitration procedure in accordance with
Section 24.01(iv).
14.04 Upon notice of the assertion or proposed assertion of any
Imposition described in Section 14.03, Grantor shall promptly and in good faith
consult with Grantee concerning the underlying facts and whether to contest or
to continue to contest such assertion or proposed assertion. Notwithstanding
any provision herein to the contrary, Grantor shall have the right to contest
any Imposition described in Section 14.03 above by any lawful and appropriate
means (including by nonpayment of such Imposition), provided such nonpayment
does not adversely affect the title (if applicable), rights or property
delivered or to be delivered to Grantee pursuant hereto. The out-of-pocket
costs and expenses (including reasonable attorney fees) incurred by Grantor in
any such contest shall be shared by Grantor and Grantee in the same proportion
as to which the parties would have shared in such Impositions, as they were
originally assessed. Any refunds or credits resulting from a contest brought
pursuant to this Section 14.04 shall be divided between Grantor and Grantee in
the same proportion as to which such refunded or credited Impositions were borne
by Grantor and Grantee. In any such event, Grantor shall provide timely notice
of such challenge to Grantee. If Grantor chooses to proceed with such challenge
after receipt of a written objection to the challenge from Grantee, Grantor
shall conduct such challenge at its own cost and expense, provided that Grantee
shall not receive the benefit of any refund or credit, if any, obtained as a
result of a successful challenge. If Grantor does not contest an Imposition,
Grantee shall have the right, after notice to Grantor, to contest such
Imposition as long as such contest does not adversely affect the title, property
or rights of Grantor. The out-of-pocket costs and expenses (including
reasonable attorney's fees) incurred by Grantee in any such contest shall be
shared by Grantee and Grantor in the same proportion as to which the parties
shared in such Imposition, as it was originally assessed. Any refunds or
credits resulting from a contest shall be divided between Grantee and Grantor in
the same proportion as to which such refunded or credited Imposition was borne
by Grantee and Grantor. If
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Grantee chooses to proceed with such contest after receipt of written objection
to the challenge from Grantor, Grantee shall conduct such challenge at its own
cost and expense, provided that Grantor shall not receive the benefit of any
refund or credit, if any, obtained as a result of a successful challenge;
provided, however, that notwithstanding anything to the contrary in this Article
14, Grantor shall have complete authority over and discretion to control
(including the authority to dismiss or not pursue) any contests relating to
Impositions based upon the computation of Grantor's taxable income under the
Internal Revenue Code or state income or franchise tax laws.
14.05 Following the Acceptance Date for each Segment, Grantor and
Grantee, respectively, shall be separately responsible for any and all
Impositions (except for the Impositions described in clause (b) of Section
14.03, which shall constitute a part of the Actual Operating Expenses and shall
be paid in accordance with Article 13) (i) expressly or implicitly imposed upon,
based upon, or otherwise measured by the gross receipts, gross income, net
receipts or net income received by or accrued to such party due to its
respective interest in or use of such Segment and/or the Grantee Fibers and/or
the Grantee Conduit located within such Segment, or (ii) which have been
separately assessed or imposed upon the respective interest of such party in
such Segment and/or the Grantee Fibers and/or the Grantee Conduit located within
such Segment.
14.06 Grantor and Grantee agree to cooperate fully in the preparation of
any returns or reports relating to the Impositions. Grantor and Grantee further
acknowledge and agree that the provisions of this Article 14 are intended to
allocate the Impositions expected to be assessed against or imposed upon the
parties with respect to the Grantor System based upon the procedures and methods
of computation by which Impositions generally have been assessed and imposed to
date, and that material changes in the procedures and methods of computation by
which such assessments are assessed and imposed could significantly alter the
fundamental economic assumptions underlying the transactions hereunder to the
parties. Accordingly, Grantor and Grantee agree that, if in the future the
procedures or methods of computation by which Impositions are assessed or
imposed against the parties change materially from the procedures or methods of
computation by which they are imposed as of the date hereof, the parties will
negotiate in
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good faith an amendment to the provisions of this Article 14 in order to
preserve, to the extent reasonably possible, the economic intent and effect of
this Article 14 as of the date hereof.
14.07 Notwithstanding anything in this Agreement to the contrary, in the
event that Grantor fails to pay any Imposition it is required to pay under this
Agreement Grantee may, at its option (i) pay such Imposition to the taxing
authority assessing such Imposition and (ii) pay all subsequent Impositions
assessed by such taxing authority, unless Grantee shall have received written
notice from Grantor the Grantee will pay timely all such Impositions. In the
event Grantee makes any payments pursuant to this Section 14.07, Grantor shall
reimburse Grantee promptly upon demand for any and all amounts paid by Grantee.
ARTICLE 15.
USE OF GRANTOR SYSTEM
15.01 Grantee represents and warrants that it will use the Grantee
Fibers and/or Grantee Conduit and the IRU hereunder in compliance with all
applicable government codes, ordinances, laws, rules and regulations. Grantor
represents and warrants that it will use the Grantor System, and shall obtain
from each other user of the Grantor System a representation and warranty that it
will use the Grantor System, in compliance with all applicable government codes,
ordinances, laws, rules and regulations.
15.02 Subject to the provisions of Article 6 and this Article 15,
Grantee may use the Grantee Fibers, the Grantee Conduit and the IRU for any
lawful purpose. Grantee acknowledges and agrees that it has no right to use
any fibers, other than the Grantee Fibers, included or incorporated in the
Grantor System, and that Grantee shall keep any and all of the Grantor System,
other than the Grantee Fibers, the Grantee Conduit and Grantee's interest in
and right to use the Associated Property, free from all Liens attributable to
Grantee. Grantor acknowledges and agrees that it (i) has no right to use the
Grantee Fibers or the Grantee Conduit, (ii) shall keep the portion of the
Grantor System in which Grantee shall receive the IRU free and clear of all
Liens attributable to
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Grantor (other than the Liens in favor of Grantee created pursuant to this
Agreement) and (iii) shall obtain an acknowledgment and agreement from each
other Person that uses the Grantor System that such Person has no right to
use the Grantee Fibers or the Grantee Conduit and shall keep the portion of
the Grantor System in which Grantee shall receive the IRU free and clear of
all Liens of any third party attributable to such person.
15.03 (***).
15.04 Neither Grantor nor Grantee shall use the Grantor System in a
way which physically interferes in any way with or otherwise adversely
affects the use of the fibers, cable or conduit of any other Person using the
Grantor System, PROVIDED that customary and normal telecommunications
activities will never be deemed to physically interfere with or otherwise
adversely affect the use of the fibers, cable or conduit of any Person and
Grantor shall obtain a similar agreement from each other Person that uses the
Grantor System.
15.05 Grantee and Grantor shall promptly notify each other of any
matters pertaining to, or the occurrence (or impending occurrence) of, any event
of which it is aware that could give rise to any damage or impending damage to
or loss of the Grantor System, or any impairment of Grantee's right of use or
other rights and privileges therein.
ARTICLE 16.
INDEMNIFICATION
16.01 Subject to the provisions of Section 3.04, Section 16.07, Article
17 and Section 22.03, Grantor hereby agrees to indemnify, defend, protect and
hold harmless Grantee, its Affiliates, the Designated Parties and their
Affiliates, and their respective employees, officers, directors, agents and
representatives (the "Grantee Indemnified Parties") from and against, and
assumes liability for, any and all claims, injuries, losses, expenses, damages
or liabilities of Grantee or any other Grantee Indemnified Party (including,
without limitation, reasonable attorneys' fees) (collectively, "Losses") which
arise out of or result from, directly or indirectly, in whole or in part: (i)
the breach by Grantor of any of its representations, covenants or other
obligations hereunder; (ii) the negligence or willful misconduct of Grantor, its
officers, employees, servants, Affiliates, agents, contractors, licensees,
invitees and vendors arising out of or in connection with the performance by
Grantor or such other Persons of their respective obligations under this
Agreement; (iii) any violation by Grantor or its Affiliates of any regulation,
rule, statute or court order of any Governmental Authority in connection with
the performance by Grantor of its obligations under this Agreement; and (iv) any
interference with or infringement of the rights of a third party as a result of
a Grantee Indemnified Party's use of the Grantor System in accordance with the
provisions of this Agreement.
16.02 Grantee hereby agrees to indemnify, defend, protect and hold
harmless Grantor and its Affiliates, and their respective employees, officers,
directors, agents and representatives (the "Grantor Indemnified Parties") from
and against, and assumes
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liability for, any and all Losses of Grantor or any other Grantor Indemnified
Party which arise out of or result from, directly or indirectly, in whole or in
part: (i) the breach by Grantee of any of its representations, covenants or
other obligations hereunder; (ii) the negligence or willful misconduct of
Grantee, its officers, employees, servants, Affiliates, agents, contractors,
licensees, invitees and vendors arising out of or in connection with the
performance by Grantee or such other Persons of their respective obligations
under this Agreement; and (iii) any violation by Grantee or its Affiliates of
any regulation, rule, statute or court order of any Governmental Authority in
connection with the performance by Grantee of its obligations under this
Agreement.
16.03 Grantor and Grantee agree to promptly provide each other with
notice of any claim which may result in an indemnification obligation hereunder,
provided, however, that the indemnifying party's obligations hereunder shall not
be affected by the failure to give such notice except to the extent that it can
demonstrate that it was materially prejudiced thereby. The indemnifying party
may defend such claim and, if it so elects, such defense shall be controlled by
the indemnifying party and all costs associated with such defense shall be borne
by the indemnifying party. In any such proceeding, the indemnified party shall
have the right to participate in such defense at its own expense, provided that
the indemnifying party shall pay the reasonable fees and expenses of counsel
retained by the indemnified party in the event that (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceedings (including any
impleaded parties) include both the indemnifying party and the indemnified party
and the representation of both parties by the same counsel would be
inappropriate, in the reasonable opinion of the indemnified party, due to
material, actual or potential differing interests between them. In the event
that the indemnified party retains separate counsel at the indemnified party's
expense in accordance with the foregoing sentence, the indemnified party and its
counsel will reasonably cooperate with the indemnifying party and its counsel in
order to minimize the indemnifying party's overall legal expenses relating to
the claim. In no event shall the indemnifying party be liable for more than one
firm of attorneys (in addition to local counsel with respect to any jurisdiction
in which
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local counsel may be required) for all indemnified parties in any one legal
action or group or related legal actions.
16.04 The indemnifying party shall have the right to settle or
compromise any such claim of which it has assumed the defense only upon the
receipt of written consent to such settlement or compromise from the indemnified
party, which consent shall not be unreasonably withheld or delayed; provided,
however, that the indemnified party shall not be obligated to consent to any
settlement unless it involves claims for money damages only or other relief not
involving or affecting the indemnified party, which are being paid or performed
in full by other than the indemnified party, and any such failure to consent
shall not be deemed unreasonable.
16.05 If the indemnifying party fails to assume the defense of a claim
pursuant to Section 16.03, then, upon twenty (20) days notice to the
indemnifying party setting forth the details thereof, the indemnified party
shall have the right to pay, compromise or defend any such claim (without
further notice to the indemnifying party) and to assert the amount of any
payment on such claim plus the expense of defense or settlement as an indemnity
claim. The indemnified party shall also have the right, exercisable in good
faith and upon reasonable prior notice to the indemnifying party, to take such
action as may be reasonably necessary to avoid a default prior to the assumption
of the defense of the claim by the indemnifying party and any expenses incurred
by so acting shall be paid by the indemnifying party.
16.06 Grantor and Grantee each expressly recognize and agree that its
obligation to indemnify, defend, protect and save the other harmless is not a
material obligation to the continuing performance of its obligations, if any,
hereunder. In the event that a party shall fail for any reason to so indemnify,
defend, protect and save the other harmless, the injured party hereby expressly
recognizes that its sole remedy in such event shall be the right to bring legal
proceedings against the other party for its damages as a result of the other
party's said failure to indemnify, defend, protect and save harmless. These
obligations shall survive the expiration or termination of this Agreement.
16.07 Notwithstanding the foregoing provisions of this Article 16, to
the extent Grantor is required under the terms and provisions of any Required
Right to indemnify
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the grantor or provider thereof from and against any and all claims, suits,
judgments, liabilities, losses and expenses arising out of the service
interruption, cessation or unreliability of the Grantor System, regardless of
whether such claims, suits, judgments, liabilities, losses or expenses arise
from the sole or partial negligence, actions or inaction of such grantor or
provider and its employees, servants, agents, contractors, sub-contractors or
other Persons using the property covered by such Required Right, Grantee hereby
releases such grantor or provider from, and hereby waives, all claims, suits,
judgments, liabilities, losses and expenses for which Grantor would be otherwise
be required to indemnify such Required Right grantor or provider (unless such
indemnification is not enforceable as a matter of law) arising out of the
service interruption, cessation or unreliability of the Grantor System
regardless of whether such claims, suits, judgments, liabilities, losses or
expenses arise from the sole or partial negligence, actions or inactions, of
such grantor or provider or its employees, servants, agents, contractors,
subcontractors or other Persons using the property covered by such Required
Right.
ARTICLE 17.
LIMITATION OF LIABILITY
Notwithstanding any provision of this Agreement to the contrary, neither
party shall be liable to the other party for any special, incidental, indirect,
punitive or consequential damages, whether foreseeable or not, arising out of,
or in connection with such party's failure to perform its respective obligations
hereunder, including, but not limited to, loss of profits or revenue (whether
arising out of transmission interruptions or problems, any interruption or
degradation of service or otherwise), or claims of customers, whether occasioned
by any construction, reconstruction, relocation, repair or maintenance performed
by, or failed to be performed by, the other party or any other cause whatsoever,
including breach of contract, breach or warranty, negligence and strict
liability, all claims for which damages are hereby specifically waived. Except
as set forth in Section 16.07, nothing contained herein shall operate as a
limitation on the right of
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either party hereto to bring an action for damages against any third party,
including claims for indirect, special or consequential damages, based on any
acts or omissions of such third party.
ARTICLE 18.
INSURANCE
18.01 During the term of this Agreement, each party shall obtain and
maintain, and shall require any of its permitted subcontractors to obtain and
maintain, the following insurance, naming the other party as an additional
insured: (i) not less than $5,000,000.00 combined single limit liability
insurance, on an occurrence basis, for personal injury and property damage,
including injury or damage arising from the operation of vehicles or equipment
and liability for completed operations; (ii) worker's compensation insurance in
amounts required by applicable law and employer's liability insurance with a
limit of at least $1,000,000.00 per occurrence; (iii) automobile liability
insurance covering death or injury to any person or persons, or damage to
property arising from the operation of vehicles of vehicles or equipment, with
limits of not less than $1,000,000.00 per occurrence; and (iv) any other
insurance coverages required under or pursuant to the Required Rights. Grantor
shall require its subcontractors who are engaged in connection with the
construction of the Grantor System to maintain insurance in the types and
amounts as would be obtained by a prudent person to provide adequate protection
against loss. In all circumstances, Grantor shall require its subcontractors to
carry a minimum of $1,000,000 in commercial general liability insurance.
Grantee shall be listed as an additional insured on all polices set forth above,
except workers' compensation. Grantor shall provide to Grantee a certificate of
insurance evidencing such insurance coverage. Evidence of insurance furnished
shall contain a clause stating Grantee "shall be notified in writing at least
thirty (30) days prior to any cancellation of, or any material change or new
exclusions in, the policy".
18.02 During the term of this Agreement: (i) Grantee shall obtain and
maintain "all risk" property insurance in an amount equal to the replacement
costs of all electronic,
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optronic and other equipment utilized by Grantee in connection with the Grantee
Fibers and/or Grantee Conduit, naming Grantor as an additional insured; and (ii)
Grantor shall obtain and maintain "all risk" property insurance in amount equal
to the replacement cost of the Regeneration and Opamp Facilities, naming Grantee
as an additional insured.
18.03 Both parties expressly acknowledge that a party shall be deemed to
be in compliance with the provisions of this Article if it maintains an approved
self-insurance program providing for a retention of up to $1,000,000.00. If
either party provides any of the foregoing coverages on a claims made basis,
such policy or policies shall be for at least a three (3) year extended
reporting or discovery period.
18.04 Unless otherwise agreed, all insurance policies shall be obtained
and maintained with companies rated "A" or better by Best's Key Rating Guide and
each party shall, upon request, provide the other party with an insurance
certificate confirming compliance with the requirements of this Article 18.
18.05 Grantee and Grantor shall each obtain from the insurance companies
providing the coverages required by this Agreement, the permission of such
insurers to allow such party to waive all rights of subrogation and such party
does hereby waive all rights of said insurance companies to subrogation against
the other party, its affiliates, subsidiaries, assignees, officers, directors
and employees.
18.06 In the event either party fails to maintain the required insurance
coverages and a claim is made or suffered, such party shall indemnify and hold
harmless the other party from any and all claims for which the required
insurance would have provided coverage. In addition, in the event of any such
failure which continues after seven (7) days' written notice thereof by the
other party, such other party may, but shall not be obligated to, obtain such
insurance and shall have the right to be reimbursed for the cost of such
insurance by the party failing to obtain such insurance.
18.07 In no event shall either Grantee or Grantor be required to obtain
or maintain insurance against loss or damage to the Grantee Fibers or Grantee
Conduit.
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ARTICLE 19.
FORCE MAJEURE
Except as may be otherwise specifically provided in this Agreement,
neither party shall be in default under this Agreement if and to the extent
that any failure or delay in such party's performance of one or more of its
obligations hereunder is caused by any of the following conditions, and such
party's performance of such obligation or obligations shall be excused and
extended for and during the period of any such delay: acts of God, war,
strikes and other similar catastrophic events beyond such party's control (***).
The party claiming relief under this Article shall notify the other in writing
of the existence of the event relied on, the steps it is taking or proposing to
take to remedy such event and the cessation or termination of said event.
ARTICLE 20.
ADDITIONAL COVENANTS
20.01 Grantor and Grantee shall be entitled, to the extent permitted
under applicable law, to jointly participate in any condemnation proceedings
regarding the Grantor System, the Grantee Fibers, the Grantor Conduit, any
Sublease or the Required Rights and to seek compensation by either joint or
separate awards for the economic value of their respective interests in the
portion of the Grantor System subject to such condemnation proceeding. If
Grantor shall receive compensation with respect to any such condemnation
proceeding under circumstances where Grantee does not, to the extent such
compensation is not applied to relocate the affected portion of the Grantor
System under Section 6.05, Grantee shall be entitled to a portion of the Grantor
award commensurate with Grantee's rights under this Agreement. Grantor shall
notify Grantee immediately upon receipt of a formal notice of condemnation or
taking or of any similar threatened condemnation proceeding regarding the
Grantor System, the Grantee Fibers, the Grantee Conduit, or the Required Rights.
Grantor shall not sell the Grantor System
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(or any portion thereof) or any Required Rights to an acquiring agency authority
or other party in lieu of condemnation without prior written notice of at least
thirty (30) days to Grantee. Grantee's rights under this Section 20.01 shall be
in addition to, not in substitution of, Grantee's rights under Section 6.05.
20.02 All transactions between Grantor and any of its Affiliates
relating to this Agreement (including, without limitation, transactions relating
to the maintenance of the Grantor System) shall be upon fair and reasonable
terms that are no less favorable to Grantor than those which would have been
obtained in a comparable arm's-length transaction with a Person not an
Affiliate. Grantor shall provide Grantee with prompt written notice, including
a reasonably detailed summary of the economic terms, of all such transactions.
20.03 Except to the extent prohibited by any Required Right, Grantor
agrees, upon request of Grantee, to execute, acknowledge and deliver such
documents or instruments as Grantee shall deem necessary or appropriate to
evidence or safeguard the IRU, the transfer of title contemplated by this
Agreement, any Sublease and the security interest provided for in Section 3.03.
If Grantor files any documents on its own behalf, it will simultaneously file
documents in the same location for Grantee at Grantee's cost, if so requested.
20.04 To the extent that the Hart-Scott-Rodino AntiTrust Improvements
Act of 1976, as amended (the "HSR Act"), applies to any of the transactions
contemplated by this Agreement, Grantee and Grantor shall take promptly all
actions necessary to make any filings required under the HSR Act with respect to
such transactions and to resolve any investigation or other inquiry concerning
such transactions commenced by the Federal Trade Commission or the AntiTrust
Division of the United States Department of Justice or any state attorneys
general. Notwithstanding anything in this Agreement to the contrary, in the
event the HSR Act is applicable to any of the transactions contemplated by this
Agreement, then this Agreement shall not become effective (except for the
provisions of Articles 20, 21 and 23 through 31), and no payments shall be due
hereunder, until the requirements of the HSR Act and any similar antitrust law
applicable
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to such transactions shall have been satisfied and the waiting period thereunder
shall have expired or been terminated.
20.05 On and after the date hereof, Grantor's obligations under this
Agreement shall be guaranteed by Level 3 Communications, Inc., (or, subject to
the consent of Grantee, which consent shall not be unreasonably withheld, any
other entity) pursuant to a guaranty in the form of Exhibit "N" attached hereto.
20.06 On and after the date hereof, Grantee's obligations under this
Agreement shall be guaranteed by NEXTLINK Communications, Inc., Eagle River
Investments, LLC or Nextel Communications, Inc. (or, subject to the consent of
Grantor, which consent shall not be unreasonably withheld, any other entity)
(each, a "Permitted Guarantor"), pursuant to one or more guaranties in the form
of Exhibit "O" attached hereto. From time to time after the date hereof, (i) a
Permitted Guarantor which has not previously delivered such a guaranty may
execute and deliver such a guaranty to Grantor and (ii) a Permitted Guarantor
may cancel a guaranty previously delivered by such Permitted Guarantor or reduce
or increase the percentage of such obligations guaranteed by such Permitted
Guarantors' guaranty, PROVIDED that at all times after the date hereof 100% of
such obligations in the aggregate are guaranteed by one or more of the Permitted
Guarantors and PROVIDED further that without the consent of Grantor, which shall
not be unreasonably withheld, the percentage of such obligations guaranteed by
any Permitted Guarantor's guaranty shall not be increased if such Permitted
Guarantor has suffered a material adverse change in its financial condition or
prospects relative to such condition or prospects on the date hereof.
ARTICLE 21.
ASSIGNMENT
21.01 Neither party shall assign, encumber or otherwise transfer this
Agreement to any other Person without the prior written consent of the other
party, which consent shall not be unreasonably withheld; provided, each party
shall have the right, without the other party's consent, but with prior written
notice to the other party, to assign or
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otherwise transfer this Agreement, in whole or in part, (i) as collateral to
any institutional lender of such party subject to the prior rights and
obligations of the parties hereunder, (ii) in the case of Grantor, to an
Affiliate of Grantor, or to any entity with which Grantor may be merged or
consolidated, or which purchases all or substantially all of the assets of
Grantor, or (iii) in the case of Grantee, to any Designated Party; provided
that in each of clauses (i) through (iii) above, such party shall not be
released from its obligations hereunder. Any assignee or transferee shall be
subject to all of the provisions of this Agreement (except that any lender
referred to in clause (i) above shall not be restricted from exercising any
right of enforcement or foreclosure with respect to any related security
interest or lien, so long as the purchaser in foreclosure is subject to the
provisions of this Agreement (whether before or after foreclosure) and neither
Grantor's nor Grantee's rights and obligations hereunder are otherwise
impaired or adversely affected).
21.02 Any and all additional fees, charges, costs or expenses which
result under the Required Rights or otherwise as a result of any permitted
assignment or transfer of this Agreement by a party shall be paid by such party.
21.03 This Agreement and each of the parties' respective rights and
obligations under this Agreement, shall be binding upon and shall inure to the
benefit of the parties hereto and each of their respective permitted successors
and assigns.
21.04 Nothing contained in this Article 21 shall be deemed or construed
to prohibit Grantor from selling, leasing, granting indefeasible rights of use
or entering into similar agreements or arrangements with other Persons
respecting any fibers and conduit constituting a part of the Grantor System,
provided that no such sale, lease, grant, agreement or arrangement shall impair
or otherwise adversely affect Grantee's rights and privileges hereunder and
Grantor complies with all of its obligations hereunder in connection therewith.
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ARTICLE 22.
REPRESENTATIONS AND WARRANTIES
22.01 Each party represents and warrants that: (i) it is a corporation
or limited liability company duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or formation;
(ii) it is duly qualified and in good standing as a foreign corporation in each
other jurisdiction in which it owns or leases property or in which the conduct
of its business requires it to so qualify or be licensed except where the
failure to so qualify or be licensed is not reasonably likely to have a material
adverse effect on its business, operations, condition (financial or otherwise)
or properties or Grantee's or Grantor's rights and obligations hereunder; (iii)
has the full right and authority to enter into, execute, deliver and perform its
obligations under this Agreement; (iv) it has taken all requisite corporate
action to approve the execution, delivery and performance of this Agreement; (v)
this Agreement constitutes a legal, valid and binding obligation enforceable
against such party in accordance with its terms, subject to bankruptcy,
insolvency, creditors' rights and general equitable principles; and (vi) its
execution, delivery and performance of this Agreement shall not violate any
applicable existing regulations, rules, statutes or court orders of any
Governmental Authority and shall not conflict with or result in the breach of,
or constitute a default under (a) in the case of Grantor, any contract, loan
agreement, indenture, mortgage, deed of trust, lease, Required Right agreement,
indefeasible right of use agreement or other agreement binding on or affecting
Grantor or any of its properties, or (b) in the case of Grantee, any contract,
loan agreement, indenture, mortgage, deed of trust, lease, or other agreement
binding on or affecting Grantee or any of its properties.
22.02 [Intentionally omitted]
22.03 Grantor represents and warrants that the Segments of the Grantor
System that it delivers pursuant hereto shall be constructed in accordance with
the specifications set forth in the applicable Exhibit attached hereto and in
Section 8.01; provided Grantee's
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sole rights and remedies against Grantor with respect to any breach of such
representation shall be those set forth in Sections 8.07 and 12.02 of this
Agreement.
22.04 EXCEPT AS SET FORTH IN THE FOREGOING SECTIONS 22.01 and 22.03,
GRANTOR MAKES NO WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE GRANTEE
FIBERS, THE GRANTEE CONDUIT, THE ASSOCIATED PROPERTY OR THE GRANTOR SYSTEM,
INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE, AND
ALL SUCH WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED.
22.05 Grantee acknowledges and agrees that Grantor shall have no
liability with respect to any defect in or failure of the Grantee Fibers and/or
Grantee Conduit to perform in accordance with the vendor's or manufacturer's
warranties applicable to such Grantee Fibers and/or the Grantee Conduit,
PROVIDED that such defect or failure is not attributable to any breach by
Grantor of its obligations under this Agreement. Grantor shall (i) provide
Grantee with copies of all manufacturer's, vendor's, contractor's or other
warranties applicable to the Grantee Fibers and/or the Grantee Conduit within
each Segment, (ii) use commercially reasonable best efforts to cause all such
warranties to be in effect for at least twelve months after the Acceptance Date
for such Segment and to use commercially reasonable best efforts to obtain
additional warranty coverage after such 12-month period, (iii) to the extent the
assignment of any such warranty is not prohibited by the terms thereof, assign
all such warranties with respect to the Grantee Fiber or Grantee Conduit to
Grantee on or prior to the Acceptance Date of such Segment, and (iv) to the
extent assignment of any such warranty is prohibited by the terms thereof and
any maintenance or repairs to the Grantor System are required as a result of a
breach of any such warranty, Grantor shall pursue all remedies against such
manufacturers, contractors or vendors on behalf of Grantee and other Persons
having the right of use of the Grantor System, and Grantor shall reimburse
Grantee's costs for any maintenance Grantee has incurred as a result of any
breach of warranty to the extent the manufacturer, contractor or vendor pays
such costs.
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22.06 Grantor and Grantee acknowledge and agree that for purposes of
federal, state and local law, (i) the grant of the IRU to the Grantee in the
Grantee Fibers, the Grantee Conduit and the Associated Property for each Segment
hereunder shall be treated by each of them as an executed grant to Grantee of
an interest in real property with respect to such Segment, (ii) to the extent
that ownership of the Grantee Fibers and the Grantee Conduit is transferred to
Grantee hereunder, such grant shall constitute a transfer of title of real
property and to the extent that ownership of the Grantee Fibers and the
Grantee Conduit is not transferred to Grantee hereunder, such grant shall
constitute a leasehold interest in real property, (iii) no material obligation
of either Grantee or Grantor shall remain to be performed with respect to such
grant or Segment and (iv) with respect to each such grant, this Agreement is
not intended as an executory contract or unexpired lease subject to assumption,
rejection or assignment by the trustee in bankruptcy of any party to this
Agreement, including, without limitation, assumption, rejection or assignment
under Section 365 of the Bankruptcy Code.
22.07 The representations of Grantor and Grantee under Section 22.01
shall be deemed to have been made on the date hereof and on each date on which
Grantee is required to make an IRU Contribution or Recurring Charge payment
hereunder.
ARTICLE 23.
CONFIDENTIALITY
23.01 Grantor and Grantee hereby agree that if either party provides
confidential or proprietary information to the other party ("Proprietary
Information"), such Proprietary Information shall be held in confidence, and
the receiving party shall afford Proprietary Information the same care and
protection as it affords generally to its own confidential and proprietary
information (which in any case shall be not less than reasonable care) in
order to avoid disclosure to or unauthorized use by any third party. The
parties acknowledge and agree that all information disclosed by either party
to the other in connection with or pursuant to this Agreement shall be deemed
to be Proprietary Information provided that written information is clearly
marked in a conspicuous place as
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being confidential or proprietary and verbal information is indicated as being
confidential or proprietary when given and promptly confirmed in writing as
such thereafter. All Proprietary Information, unless otherwise specified in
writing, shall remain the property of the disclosing party, shall be used by
the receiving party only for the intended purpose, and such written
Proprietary Information, including all copies thereof, shall be returned to
the disclosing party or destroyed after the receiving party's need for it has
expired or upon the request of the disclosing party. Proprietary Information
shall not be reproduced except to the extent necessary to accomplish the
purpose and intent of this Agreement, or as otherwise may be permitted in
writing by the disclosing party.
23.02 The foregoing provisions of Section 23.01 shall not apply to any
Proprietary Information which (i) becomes publicly available other than
through the disclosing party; (ii) is required to be disclosed by a
governmental or judicial law, order, rule or regulation; (iii) is
independently developed by the receiving party; or (iv) becomes available to
the receiving party on a non-confidential basis from a third party which is
not actually known by the receiving party to be bound by a confidentiality
agreement or obligation. If any Proprietary Information is required to be
disclosed pursuant to the foregoing clause (ii), the party required to make
such disclosure shall promptly inform the other party of the requirements of
such disclosure.
23.03 Notwithstanding anything in this Article 23 to the contrary,
either party may disclose Proprietary Information to its employees, agents, and
legal and financial advisors and providers (including its existing and
prospective lenders, joint venture partners and other financiers) to the extent
necessary or appropriate in connection with the negotiation and/or performance
of this Agreement or in obtaining financing, provided that each such party is
notified of the confidential and proprietary nature of such Proprietary
Information and is subject to or agrees to be bound by similar restrictions on
its use and disclosure.
23.04 The parties shall (i) maintain in confidence both the fact that
this Agreement has been entered into and its contents and (ii) without limiting
the foregoing clause (i), not refer to this Agreement or the other party in any
press release, marketing materials, governmental filing or other documents or
publications, in each case without
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the consent of such other party (which consent shall not be unreasonably
withheld), except in each case (a) to the extent required by law (and in such
case, only after reasonable prior written notice to the other party), (b) in
the case of Grantee, to customers or potential customers of Grantee, (c) to
employees, agents and legal and financial advisors and providers as provided
in Section 23.03 and (d) in connection with public filings made pursuant to
Section 23.02.
23.05 The provisions of this Article 23 shall survive expiration or
termination of this Agreement.
ARTICLE 24.
DISPUTE RESOLUTION.
24.01 If the parties are unable to resolve any dispute arising under or
relating to this Agreement, including, without limitation, any disagreement as
to the appropriate reduction of the IRU Contribution and/or Recurring Charge
described in Article 7, the parties shall resolve such disagreement or dispute
as follows:
(i) The matter shall first be referred by either party to the
chief executive officers or the chief operating officers of the parties by
written notice to the other party (the "Dispute Notice"). Within fifteen (15)
days after delivery of the Dispute Notice such officers of both parties shall
meet at a mutually acceptable time and place to exchange all relevant
information in an attempt to resolve the dispute. All negotiations conducted by
such officers shall be confidential and shall be treated as compromise and
settlement negotiations for purposes of federal and state rules of evidence.
(ii) If the matter has not been resolved within thirty (30) days
after delivery of the Dispute Notice, or if such officers fail to meet within
fifteen (15) days after delivery of such Dispute Notice, either party may
initiate mediation and, if applicable, arbitration in accordance with the
procedures set forth in (iii) and (iv) below.
(iii) If such officers are unable to resolve the dispute or have
failed to meet, the parties agree to participate in a non-binding mediation
procedure as follows: (A) a mediator will be selected by having counsel for each
party agree on a single person
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to act as mediator. The parties' counsel as well as up to three
representatives of each of the parties will appear before the mediator at a
time and place determined by the mediator, but not more than sixty (60) days
after delivery of the Dispute Notice. The fees of the mediator and other
costs of the mediation will be shared equally by the parties. (B) Each party
will present a review of the matter and its position with respect to such
matter. At the conclusion of both presentations the parties may ask questions
of each other. Either party may abandon the mediation procedure at the end of
the presentation and question periods and the mediation procedure shall not be
binding on either party.
(iv) If the matter is not resolved after attempts at mediation
as set forth above, or if either party refuses to take part in the mediation
process, the parties hereby agree to submit all such matters to arbitration in
Wilmington, Delaware according to the commercial rules and practices of the
American Arbitration Association from time to time in effect. Arbitration shall
be by three independent and impartial arbitrators. Such arbitrators shall have
experience in the subject matter involved in the dispute, unless both parties
agree in writing to waive any such requirement. Each of the parties shall
appoint one arbitrator within fifteen (15) days after initiation of arbitration
and the two arbitrators so appointed shall select a third arbitrator within ten
(10) days of their appointment, which third arbitrator shall be the chair of the
panel. In the event the parties or the arbitrators fail to select arbitrators
as required herein, the American Arbitration Association shall select such
arbitrators. The arbitrators shall conduct a hearing no later than sixty (60)
days after initiation of the matter to arbitration and a decision shall be
rendered by the arbitrators within thirty (30) days of the hearing. At the
hearing the parties shall present such evidence and witnesses as they may chose
with or without counsel. Adherence to formal rules of evidence shall not be
required but the arbitration panel shall consider any evidence and testimony it
determines to be relevant in accordance with procedures it determines to be
appropriate. Consistent with the expedited nature of arbitration provided in
this Agreement, each party shall, upon the written request of the other party,
promptly provide the other with copies of documents relevant to issues raised by
any claim or counterclaim submitted to arbitration. Any dispute regarding the
relevance or scope of discovery shall be determined by the chair of
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the arbitration panel, whose determination shall be conclusive. All discovery
shall be commenced promptly after the initiation of arbitration and shall be
completed no less than ten (10) days before the scheduled arbitration date.
The arbitration determination shall be in writing and shall specify the
factual and legal bases for the determination. The parties agree to abide by
all decisions and determinations rendered in such proceedings and such
decisions and determinations shall be final and binding on the parties. The
arbitrators shall have the power, if requested by any party in connection with
an arbitration hereunder, to order any preliminary and/or final injunctive
relief or equitable relief requested by a party and deemed appropriate by the
arbitrators solely to carry out the provision of this Agreement. All such
decisions and determinations may be filed for confirmation in any federal
court located in the State of Delaware. The arbitrators, fees and other costs
of arbitration (including, without limitation, attorneys' fees) shall be borne
by the party against whom the award is rendered except as the arbitration
panel may otherwise provide.
24.02 Notwithstanding anything in this Agreement to the contrary, and
without first complying with the dispute resolution procedures set forth in this
Article 24, Grantee may apply to any court of competent jurisdiction where the
Grantor System is located for preliminary injunctive relief or specific
performance in accordance with Section 24.03, in the event that Grantee's use of
the Grantee Fibers, Grantee Conduit and Associated Property, or its rights and
privileges hereunder, are jeopardized by virtue of an alleged breach by Grantor
of its obligations hereunder.
24.03 Subject to Sections 3.04 and 7.02, Grantor acknowledges and agrees
that, in light of the unique derivative nature of Grantee's rights hereunder
and the importance of the Grantor System to Grantee's business operations as
well as the provisions of Article 17 limiting certain claims for monetary
liability, Grantee would not have an adequate remedy at law for money damages if
any of the covenants or agreements contained in this Agreement were not
performed in accordance with their terms and therefore agrees that Grantee shall
be entitled to specific enforcement of such covenants and agreements in any
arbitration proceeding pursuant to Section 24.01 or any judicial proceeding
pursuant to Section 24.02.
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ARTICLE 25.
NOTICES
All notices or other communications which are required or permitted
herein shall be in writing and sufficient if delivered personally, sent by
nationally recognized prepaid overnight air courier, or sent by registered or
certified mail, postage
prepaid, return receipt requested, addressed as follows:
IF TO GRANTOR: Level 3 Communications, LLC
1450 Infinite Drive
Louisville, CO 80027
Attention: Dan Caruso
with a copy to: Level 3 Communications, LLC
3555 Farnam Street, Ste.200
Omaha, NE 68131
Attention: General Counsel
IF TO GRANTEE: INTERNEXT, LLC
c/o NEXTLINK Communications, Inc.
500 108th Avenue, NE, Ste. 2200
Bellevue, WA 98004
Attention: General Counsel
with a copy to: NEXTLINK Communications, Inc.
1730 Rhode Island Avenue, NW Ste. 1000
Washington, DC 20036
Attention: Counsel
or at such other address as the party to whom notice is be given may have
furnished to the other party in writing in accordance herewith. Any such
communication shall be deemed to have been given when delivered personally, on
the business day after dispatch if sent by overnight air courier, or on the
seventh business day after posting if sent by mail.
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ARTICLE 26.
ENTIRE AGREEMENT; AMENDMENT; HEADINGS
This Agreement constitutes the entire and final agreement and
understanding between the parties with respect to the subject matter hereof and
supersedes all prior agreements relating to the subject matter hereof, which are
of no further force or effect. The Exhibits referred to herein are integral
parts hereof and are hereby made a part of this Agreement. This Agreement may
only be modified or supplemented by an instrument in writing executed by a duly
authorized representative of each party. The title and headings of this
Agreement and its various Articles are for convenience of reference only and
shall not affect the meaning or interpretation of this Agreement.
ARTICLE 27.
RELATIONSHIP OF THE PARTIES
The relationship between Grantee and Grantor shall not be that of
partners, agents, or joint venturers for one another, and nothing contained in
this Agreement shall be deemed to constitute a partnership or agency agreement
between them for any purposes, including but not limited to federal income tax
purposes.
ARTICLE 28.
COUNTERPARTS
This Agreement may be executed in one or more counterparts, all of
which taken together shall constitute one and the same instrument.
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ARTICLE 29.
GOVERNING LAW, VENUE AND JURISDICTION
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of Delaware, without regard to conflict of law
principles. Except as provided in Article 24, any litigation based hereon, or
arising out of or in connection with a default by either party in the
performance of its obligations hereunder, shall be brought and maintained
exclusively in the courts of the State of Delaware or in the United States
District Court for the District of Delaware, and each party hereby irrevocably
submits to the jurisdiction of such courts for the purpose of any such
litigation and waives any objection based on forum non conveniens or otherwise.
ARTICLE 30.
SEVERABILITY
If any term, covenant or condition contained herein shall, to any extent,
be invalid or unenforceable in any respect under the laws governing this
Agreement, the remainder of this Agreement shall not be affected thereby, and
each term, covenant or condition of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
ARTICLE 31.
NO THIRD PARTY BENEFICIARIES
Nothing in this Agreement shall confer any rights upon any Person other
than the parties hereto and their respective heirs, successors or assigns and
the Persons entitled to indemnification under Article 16 hereof.
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ARTICLE 32.
FURTHER ASSURANCES
Each party shall take such other actions as may from time to time be
necessary or appropriate in order to carry out the intent and purpose of this
Agreement and the transactions contemplated hereby.
IN WITNESS WHEREOF, Grantor and Grantee have executed this IRU Agreement
as of the date first above written.
LEVEL 3 COMMUNICATIONS, LLC, a
Delaware limited liability company
By /s/ Kevin J. O'Hara
-----------------------------
Title: President
INTERNEXT, LLC, a
Delaware limited liability company
By /s/ Wayne Perry
-----------------------------
Title: Manager
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EXHIBIT "A-2"
CITY LIST
<TABLE>
<CAPTION>
No. Major Cities
--- ------------
<S> <C>
1 New York City
2 Boston
3 Washington, D.C.
4 Philadelphia
5 Chicago
6 Denver
7 Detroit
8 Seattle
9 Houston
10 Dallas
11 Atlanta
12 Los Angeles
13 San Francisco
14 San Diego
15 San Jose
16 Newark
17 Baltimore
18 Miami
19 Tampa
20 Orlando
21 Toronto
22 St. Louis
23 Cincinnati
24 Pittsburgh
25 Portland
Non-Major Cities
----------------
26 Phoenix
27 Cleveland
28 Stamford
29 White Plains
30 Princeton
31 Richmond
32 Charlotte
33 Sacramento
34 Raleigh
35 Kansas City
36 Hartford
37 Austin
38 Memphis
39 Nashville
40 Omaha
41 Salt Lake City
<PAGE>
42 San Antonio
43 Vancouver
44 Indianapolis
45 Jacksonville
46 Montreal
47 New Orleans
48 Louisville
49 Wilmington
50 Las Vegas
</TABLE>
In the event Grantor elects not to construct Phase Three, Toronto, Vancouver and
Montreal shall be removed from the above City List and Grantee may (i) move a
city from the Non-Major Cities list to the Major Cities list, and (ii) designate
up to three of the following cities as Non-Major Cities: El Paso, Stratford,
Fort Worth, Albany or Buffalo.
<PAGE>
EXHIBIT "N"
GUARANTY AGREEMENT
GUARANTY AGREEMENT, dated as of July __, 1998, between Level 3
Communications, Inc., a _______ corporation ("Guarantor"), and ________, a
_______ [Grantee]("Beneficiary").
W I T N E S S E T H :
WHEREAS, Guarantor is, directly or indirectly, the owner of 100%
of the issued and outstanding membership interests in Level 3 Communications,
LLC, a Delaware limited liability company ("Grantor");
WHEREAS, Beneficiary and Grantor have entered into an IRU Agreement,
dated as of July 18, 1998 (the "IRU Agreement"), providing for the grant to
Beneficiary of ownership of and/or an indefeasible right to use certain
facilities in the Grantor System (as defined in the IRU Agreement); and
WHEREAS, pursuant to the terms of the IRU Agreement, Grantor's
obligations under the IRU Agreement are required to be guaranteed by Guarantor.
NOW, THEREFORE, in consideration of the premises and the covenants herein
contained, the parties hereto agree as follows:
1. DEFINED TERMS. Capitalized terms used herein without other
definition shall have the respective meanings ascribed to them in the IRU
Agreement.
2. GUARANTY. Guarantor hereby unconditionally and irrevocably
guarantees to Beneficiary (a) the due, prompt and complete payment by Grantor of
all amounts due to Beneficiary under the IRU Agreement, when and as the same
shall become due and payable and (b) the due, prompt and faithful performance
of, and compliance with, all other covenants, undertakings and obligations of
Grantor set forth in the IRU Agreement (the obligations referred to in clauses
(a) and (b) of this Section 2 are herein referred to collectively as the
"Guaranteed Obligations").
This guaranty is a guaranty of payment, performance and compliance and
not of collectibility and is in no way conditioned or contingent upon any
attempt to collect from or enforce performance or compliance by Grantor or upon
any other event or condition whatsoever. If for any reason whatsoever Grantor
shall fail or be unable duly, punctually and fully to pay such amounts as and
when the same shall become due and payable or to perform or comply with any
other Guaranteed Obligation, Guarantor will forthwith pay or cause to be paid
the Guaranteed Obligations to Beneficiary, in lawful money of the United States,
or perform or comply with such Guaranteed Obligations or cause such
<PAGE>
Guaranteed Obligations to be performed or complied with. Guarantor, promptly
after demand, will reimburse Beneficiary for all costs and expenses of
collecting such amounts or otherwise enforcing this Agreement, including,
without limitation, the fees and expenses of counsel. Notwithstanding any
other provision of this Agreement to the contrary, Guarantor shall have all
rights of Grantor under IRU Agreement with respect to the determination of
amounts due and determination of other obligations, including, without
limitation, the provisions of Article 24 of the IRU Agreement, except to the
extent that such rights have been exhausted or waived by Grantor.
3. REPRESENTATIONS AND WARRANTIES. Guarantor hereby
represents and warrants as follows:
(a) ORGANIZATION, GOOD STANDING, ETC. Guarantor is a
corporation duly organized and validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to own and operate its properties, to carry on its business as now
conducted and as proposed to be conducted, and to enter into and to carry out
the terms of this Agreement.
(b) AUTHORIZATION AND ENFORCEABILITY. The execution and
delivery by Guarantor of this Agreement and all other agreements and documents
to be executed and delivered by it in connection herewith, the performance by
Guarantor of its obligations hereunder and thereunder, and the consummation of
the transactions contemplated hereby and thereby have been duly and validly
authorized by all requisite corporate acts and other proceedings of Guarantor.
This Agreement and all other agreements and documents to be executed and
delivered by Guarantor in connection herewith have been duly and validly
executed and delivered by Guarantor and constitute legal, valid and binding
obligations of Guarantor, enforceable against it in accordance with their
respective terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, rearrangment, fraudulent transfers,
conservatorship or other laws (including court decisions) affecting the
enforcement of creditors' rights generally.
(c) RELATIONSHIP TO COMPANY. Guarantor owns, directly
or indirectly, 100% of the issued and outstanding membership interests in
Grantor.
(d) COMPLIANCE WITH OTHER INSTRUMENTS, ETC. The
execution and delivery by Guarantor of, and performance of the obligations of
Guarantor under, this Agreement will not result in any violation of or be in
conflict with or constitute a default under any term of any agreement or
instrument to which it is a party or by which it is bound or any term of any
applicable law, ordinance, rule or regulation of any governmental authority or
any term of any applicable order, judgment or decree of any court, arbitrator or
governmental authority or result in the creation of (or impose any obligation on
Guarantor to create) any lien upon any of the properties or assets of Guarantor
pursuant to any such term, which violation, conflict, default or lien might have
a materially adverse effect on the business, operations, condition (financial or
physical), properties, net assets or liabilities of Guarantor or upon the
ability of Guarantor to perform its obligations under this Agreement.
<PAGE>
(e) GOVERNMENTAL CONSENT. No consent, approval or
authorization of, or declaration or filing with, any governmental authority, on
the part of Guarantor is required for the valid execution and delivery of this
Agreement and the due performance of the obligations of Guarantor under this
Agreement.
4. GUARANTOR'S OBLIGATIONS UNCONDITIONAL. The obligations
of Guarantor under this Agreement are primary, absolute and unconditional
obligations of Guarantor, are not subject to any counterclaim, set-off,
deduction, diminution, abatement, recoupment, suspension, deferment or defense
based upon any claim Guarantor or any other person may have against Grantor,
Beneficiary or any other person, and shall remain in full force and effect
without regard to, and shall not be released, discharged or in any way
affected by, any circumstance or condition whatsoever (whether or not
Guarantor or Grantor shall have any knowledge or notice thereof), including,
without limitation:
(a) any amendment of or change in, or termination or
waiver of, the IRU Agreement;
(b) any furnishing, acceptance or release of, or any
defect in any security for, any of the Guaranteed Obligations;
(c) any waiver of the payment, performance or observance
of any of the obligations, conditions, covenants or agreements contained in the
IRU Agreement, or any other waiver, consent, extension, indulgence, compromise,
settlement, release or other action or inaction under or in respect of the IRU
Agreement;
(d) any failure, omission or delay on the part of
Beneficiary to enforce, assert or exercise any right, power or remedy conferred
on it in this Agreement;
(e) any voluntary or involuntary bankruptcy, insolvency,
reorganization, arrangement, readjustment, assignment for the benefit of
creditors, composition, receivership, conservatorship, custodianship,
liquidation, marshalling of assets and liabilities or similar proceedings with
respect to Grantor or any other person or any of their respective properties or
creditors, or any action taken by any trustee or receiver or by any court in any
such proceeding;
(f) any discharge, termination, cancellation,
frustration, irregularity, invalidity or unenforceability, in whole or in part,
of the IRU Agreement;
(g) any merger or consolidation of Grantor or Guarantor
into or with any other corporation, or any sale, lease or transfer of any of the
assets of Grantor or Guarantor to any other person;
(h) any change in the ownership of any membership
interests in Grantor, or any change in the corporate relationship between
Grantor and Guarantor, or any termination of such relationship; or
<PAGE>
(i) any other occurrence, circumstance, happening or
event whatsoever, whether similar or dissimilar to the foregoing, whether
foreseen or unfore seen, and any other circumstance which might otherwise
constitute a legal or equitable defense or discharge of the liabilities of a
guarantor or surety or which might otherwise limit recourse against Guarantor.
5. FULL RECOURSE OBLIGATIONS. The obligations of Guarantor
set forth herein constitute the full recourse obligations of Guarantor
enforceable against it to the full extent of all its assets and properties.
6. WAIVER. Guarantor unconditionally waives, to the extent
permitted by applicable law, (a) notice of any of the matters referred to in
Section 4, (b) notice to Guarantor of the incurrence of any of the Guaranteed
Obligations, notice to Guarantor or Grantor of any breach or default by
Grantor with respect to any of the Guaranteed Obligations or any other notice
that may be required, by statute, rule of law or otherwise, to preserve any
rights of Beneficiary against Guarantor, (c) presentment to or demand of
payment from Grantor or Guarantor with respect to any Guaranteed Obligation or
protest for nonpayment or dishonor, (d) any right to the enforcement,
assertion, exercise or exhaustion by Beneficiary of any right, power,
privilege or remedy conferred in the IRU Agreement or otherwise, (e) any
requirement of diligence on the part of Beneficiary, (f) any requirement to
mitigate the damages resulting from any default under the IRU Agreement, (g)
any notice of any sale, transfer or other disposition of any right, title to
or interest in the IRU Agreement, (h) any release of Guarantor from its
obligations hereunder resulting from any loss by it of its rights of
subrogation hereunder and (i) any other circumstance whatsoever which might
otherwise constitute a legal or equitable discharge, release or defense of a
guarantor or surety or which might otherwise limit recourse against Guarantor.
7. SUBROGATION. Upon the payment and performance in full of
all Guaranteed Obligations, Guarantor shall be subrogated to the rights of
Beneficiary in respect of any payment or other obligation with respect to
which an amount has been payable by Guarantor hereunder. Guarantor shall not
seek to exercise any rights of subrogation, reimbursement or indemnity arising
from payments made by Guarantor pursuant to the provisions of this Agreement
until the full and complete payment or performance and discharge of the
Guaranteed Obligations.
8. EFFECT OF BANKRUPTCY PROCEEDINGS, ETC. This Guaranty
shall continue to be effective or be automatically reinstated, as the case may
be, if at any time any payment made by any person on account of any of the
sums due Beneficiary pursuant to the terms of the IRU Agreement is rescinded
or must otherwise be restored or returned by such holder upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of Grantor or any other
person, or upon or as a result of the appointment of a custodian, receiver,
trustee or other officer with similar powers with respect to Grantor or other
person or any substantial part of its property, or otherwise, all as though
such payment had not been made.
<PAGE>
9. TERM OF AGREEMENT. This Agreement and all guarantees,
covenants and agreements of Guarantor contained herein shall continue in full
force and effect and shall not be discharged until such time as all of the
Guaranteed Obligations and other independent payment obligations of Guarantor
under this Agreement shall be paid and performed in full and all of the
agreements of Guarantor hereunder shall be duly paid and performed in full.
10. NOTICES. All notices under the terms and provisions
hereof shall be in writing, and shall be delivered or sent by telex or telecopy
or mailed by first-class mail, postage prepaid, addressed, (a) if to
Beneficiary, at the address set forth in Article 25 of the IRU Agreement, or at
such other address as Beneficiary shall from time to time designate in writing
to Guarantor and (b) if to Guarantor, at __________________, or at such other
address as Guarantor shall from time to time designate in writing to
Beneficiary. Any notice so addressed shall be deemed to be given when so
delivered or sent or, if mailed, on the third business day after being so
mailed.
11. AMENDMENTS, ETC. No amendment, alteration, modification
or waiver of any term or provision of this Agreement, nor consent to any
departure by Guarantor therefrom, shall in any event be effective unless the
same shall be in writing and signed by Beneficiary, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
12. SUBMISSION TO JURISDICTION. Guarantor, for itself and
its successors and assigns, hereby irrevocably (a) agrees that any legal or
equitable action, suit or proceeding against Guarantor arising out of or
relating to this Agreement or any transaction contemplated hereby or the
subject matter of any of the foregoing may be instituted in any state or
federal court in the State of Delaware, (b) waives any objection which it may
now or hereafter have to the venue of any action, suit or proceeding, (c)
irrevocably submits itself to the nonexclusive jurisdiction of any state or
federal court of competent jurisdiction in the State of Delaware for purposes
of any such action, suit or proceeding. Guarantor waives personal service of
process and consents that service of process upon it may be made by certified
or registered mail, return receipt requested, at its address specified or
determined in accordance with the provisions of Section 10, and service so
made shall be deemed completed on the third business day after mailing.
Nothing contained in this Section 12 shall be deemed to affect the right of
Beneficiary to serve process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against Guarantor in any
jurisdiction.
13. WAIVER OF JURY TRIAL. EACH OF GUARANTOR AND BENEFICIARY
IRREVOCABLY AND UNCONDITIONALLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LEGAL
OR EQUITABLE ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY OR THE SUBJECT
MATTER OF ANY OF THE FOREGOING.
<PAGE>
14. SURVIVAL. All warranties, representations and covenants
made by Guarantor herein or in any certificate or other instrument delivered
by it or on its behalf hereunder shall be considered to have been relied upon
by Beneficiary and shall survive the execution and delivery of this Agreement,
regardless of any investigation made by Beneficiary or on its behalf. All
statements in any such certificate or other instrument shall constitute
warranties and representations by Guarantor hereunder.
15. MISCELLANEOUS. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction. To the
extent permitted by applicable law, Guarantor hereby waives any provision of
law that renders any provisions hereof prohibited or unenforceable in any
respect. The terms of this Agreement shall be binding upon, and inure to the
benefit of, Guarantor and Beneficiary and their respective successors and
assigns. No term or provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed
by Guarantor and Beneficiary. The section and paragraph headings in this
Agreement and the table of contents are for convenience of reference only and
shall not modify, define, expand or limit any of the terms or provisions
hereof, and all references herein to numbered sections, unless otherwise
indicated, are to sections in this Agreement. This Agreement shall in all
respects be governed by, and construed in accordance with, the laws of the
State of Delaware, without giving effect to applicable principles of conflicts
of law.
16. SPECIAL COVENANTS. Guarantor, as issuer, and IBJ
Schroder Bank and Trust Company, as trustee, are parties to a certain
Indenture dated as of April 28, 1998 respecting $2,000,000,000 9-1/8% Senior
Notes due 2008 (the "Indenture"). Sections 801, 1005, 1016 and 1018
(including related definitions) of the Indenture, as the same may be amended
or modified from time to time shall be deemed incorporated herein by reference
and deemed obligations of Guarantor to Beneficiary for and during the period
commencing with the date hereof and ending on the final completion of the
Grantor System (excluding any Segments terminated by Beneficiary or otherwise
undelivered by Grantor pursuant to Section 3.04 of the IRU Agreement),
following which, the covenants and agreements of Guarantor in this Section 16
shall terminate and such sections of the Indenture shall no longer be deemed
incorporated herein by reference. Guarantor shall deliver to Beneficiary on
request (but not more than once per year), a brief certificate from the
principal executive officer, principal financial officer or principal
accounting officer as to his or her knowledge of Guarantor's compliance during
the period covered by such report with all conditions and covenants of this
Agreement.
17. QUALIFICATION TO SPECIAL COVENANTS.. The provisions of
section 16 of this Agreement shall be of no force or effect during any period
that, if Guarantor has publicly-traded common stock, the total market value of
Guarantor's outstanding common stock as determined on the basis of closing
price (or, if Guarantor is privately held, the total value of its outstanding
common stock, as demonstrated to the reasonable satisfaction of Beneficiary)
exceeds $1.5 billion.
<PAGE>
IN WITNESS WHEREOF, Guarantor and Beneficiary have each caused
this Agreement to be duly executed as of the day and year first above written.
LEVEL 3 COMMUNICATIONS, INC.,
as Guarantor
By
---------------------------------------
Title:
-----------------------------------------
as Beneficiary
By
--------------------------------------
Title:
<PAGE>
EXHIBIT "O"
GUARANTY AGREEMENT
GUARANTY AGREEMENT, dated as of _____ __, ____, between [Name of
Permitted Guarantor], a _______ corporation ("Guarantor"), and Level 3
Communications, LLC, a Delaware Limited Liability Company ("Beneficiary").
W I T N E S S E T H :
WHEREAS, Guarantor is, directly or indirectly, the owner of [__]%
of the issued and outstanding [membership interests in][capital stock of]
INTERNEXT, LLC a Delaware limited liability company ("Grantee");
WHEREAS, Beneficiary and Grantee have entered into an IRU
Agreement, dated as of July 18, 1998 (the "IRU Agreement"), providing for the
grant to Grantee of an indefeasible right to use and/or ownership of certain
facilities in the Grantor System (as defined in the IRU Agreement);
WHEREAS, pursuant to the terms of the IRU Agreement, Grantee's
obligations under the IRU Agreement are required to be guaranteed from time to
time by one or more of the Permitted Guarantors (as defined in the IRU
Agreement); and
WHEREAS, Guarantor is a Permitted Guarantor.
NOW, THEREFORE, in consideration of the premises and the covenants herein
contained, the parties hereto agree as follows:
1. DEFINED TERMS. Capitalized terms used herein without other
definition shall have the respective meanings ascribed to them in the IRU
Agreement. In addition, the following terms shall have the following meanings:
(a) "Guaranteed Obligations" shall mean, as of any date of
determination, an amount equal to (but not exceeding) __% of the the IRU
Obligations, provided that any IRU Obligations (including, without limitation,
interest and penalty obligations) resulting from or relating to another
Permitted Guarantor's failure to make any payment under such Permitted
Guarantor's guaranty shall be excluded for purposes of determining Guaranteed
Obligations.
(b) "IRU Obligations" shall mean (i) the due, prompt and complete
payment of all amounts due to Beneficiary by Grantee under the IRU Agreement,
when and as the same shall become due and payable and (ii) the due, prompt and
faithful performance of, and compliance with, all other covenants, undertakings
and obligations of Grantee set forth in the IRU Agreement.
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2. GUARANTY. Guarantor hereby unconditionally and irrevocably
guarantees to Beneficiary the Guaranteed Obligations. This guaranty is a
guaranty of payment, performance and compliance and not of collectibility and is
in no way conditioned or contingent upon any attempt to collect from or enforce
performance or compliance by Grantee or upon any other event or condition
whatsoever. If for any reason whatsoever Grantee shall fail or be unable duly,
punctually and fully to pay such amounts as and when the same shall become due
and payable or to perform or comply with any other Guaranteed Obligation,
Guarantor will forthwith pay or cause to be paid the Guaranteed Obligations to
Beneficiary, in lawful money of the United States, or perform or comply with
such Guaranteed Obligations or cause such Guaranteed Obligations to be performed
or complied with. Guarantor, promptly after demand, will reimburse Beneficiary
for all costs and expenses of collecting such amounts or otherwise enforcing
this Agreement, including, without limitation, the fees and expenses of counsel.
Notwithstanding any other provision of this Agreement to the contrary, Guarantor
shall have all rights of Grantee under IRU Agreement with respect to the
determination of amounts due and determination of other obligations, including,
without limitation, the provisions of Article 24 of the IRU Agreement, except to
the extent that such rights have been exhausted or waived by Grantee.
3. REPRESENTATIONS AND WARRANTIES. Guarantor hereby
represents and warrants as follows:
(a) ORGANIZATION, GOOD STANDING, ETC. Guarantor is a
corporation duly organized and validly existing and in good standing under the
laws of the State of _______ and has all requisite corporate power and authority
to own and operate its properties, to carry on its business as now conducted and
as proposed to be conducted, and to enter into and to carry out the terms of
this Agreement.
(b) AUTHORIZATION AND ENFORCEABILITY. The execution and
delivery by Guarantor of this Agreement and all other agreements and documents
to be executed and delivered by it in connection herewith, the performance by
Guarantor of its obligations hereunder and thereunder, and the consummation of
the transactions contemplated hereby and thereby have been duly and validly
authorized by all requisite corporate acts and other proceedings of Guarantor.
This Agreement and all other agreements and documents to be executed and
delivered by Guarantor in connection herewith have been duly and validly
executed and delivered by Guarantor and constitute legal, valid and binding
obligations of Guarantor, enforceable against it in accordance with their
respective terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, rearrangment, fraudulent transfers,
conservatorship or other laws (including court decisions) affecting the
enforcement of creditors' rights generally.
(c) RELATIONSHIP TO COMPANY. Guarantor owns, directly or
indirectly [__]% of the issued and outstanding [membership interests in][capital
stock of] Grantee.
(d) COMPLIANCE WITH OTHER INSTRUMENTS, ETC. The execution and
delivery by Guarantor of, and performance of the obligations of Guarantor under,
this
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Agreement will not result in any violation of or be in conflict with or
constitute a default under any term of any agreement or instrument to which it
is a party or by which it is bound or any term of any applicable law,
ordinance, rule or regulation of any governmental authority or any term of any
applicable order, judgment or decree of any court, arbitrator or governmental
authority or result in the creation of (or impose any obligation on Guarantor
to create) any lien upon any of the properties or assets of Guarantor pursuant
to any such term, which violation, conflict, default or lien might have a
materially adverse effect on the business, operations, condition (financial or
physical), properties, net assets or liabilities of Guarantor or upon the
ability of Guarantor to perform its obligations under this Agreement.
(e) GOVERNMENTAL CONSENT. No consent, approval or
authorization of, or declaration or filing with, any governmental authority, on
the part of Guarantor is required for the valid execution and delivery of this
Agreement and the due performance of the obligations of Guarantor under this
Agreement.
4. GUARANTOR'S OBLIGATIONS UNCONDITIONAL. The obligations of
Guarantor under this Agreement are primary, absolute and unconditional
obligations of Guarantor, are not subject to any counterclaim, set-off,
deduction, diminution, abatement, recoupment, suspension, deferment or defense
based upon any claim Guarantor or any other person may have against Grantee,
Beneficiary or any other person, and shall remain in full force and effect
without regard to, and shall not be released, discharged or in any way affected
by, any circumstance or condition whatsoever (whether or not Guarantor or
Grantee shall have any knowledge or notice thereof), including, without
limitation:
(a) any amendment of or change in, or termination or waiver of,
the IRU Agreement;
(b) any furnishing, acceptance or release of, or any defect in
any security for, any of the Guaranteed Obligations;
(c) any waiver of the payment, performance or observance of any
of the obligations, conditions, covenants or agreements contained in the IRU
Agreement, or any other waiver, consent, extension, indulgence, compromise,
settlement, release or other action or inaction under or in respect of the IRU
Agreement;
(d) any failure, omission or delay on the part of Beneficiary
to enforce, assert or exercise any right, power or remedy conferred on it in
this Agreement;
(e) any voluntary or involuntary bankruptcy, insolvency,
reorganization, arrangement, readjustment, assignment for the benefit of
creditors, composition, receivership, conservatorship, custodianship,
liquidation, marshalling of assets and liabilities or similar proceedings with
respect to Grantee or any other person or any of their respective properties or
creditors, or any action taken by any trustee or receiver or by any court in any
such proceeding;
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(f) any discharge, termination, cancellation, frustration,
irregularity, invalidity or unenforceability, in whole or in part, of the IRU
Agreement;
(g) any merger or consolidation of Grantee or Guarantor into or
with any other corporation, or any sale, lease or transfer of any of the assets
of Grantee or Guarantor to any other person;
(h) any change in the ownership of any [membership interests
in][capital stock of] Grantee, or any change in the corporate relationship
between Grantee and Guarantor, or any termination of such relationship; or
(i) any other occurrence, circumstance, happening or event
whatsoever, whether similar or dissimilar to the foregoing, whether foreseen or
unforeseen, and any other circumstance which might otherwise constitute a legal
or equitable defense or discharge of the liabilities of a guarantor or surety or
which might otherwise limit recourse against Guarantor.
5. FULL RECOURSE OBLIGATIONS. The obligations of Guarantor
set forth herein constitute the full recourse obligations of Guarantor
enforceable against it to the full extent of all its assets and properties.
6. WAIVER. Guarantor unconditionally waives, to the extent
permitted by applicable law, (a) notice of any of the matters referred to in
Section 4, (b) notice to Guarantor of the incurrence of any of the Guaranteed
Obligations, notice to Guarantor or Grantee of any breach or default by Grantee
with respect to any of the Guaranteed Obligations or any other notice that may
be required, by statute, rule of law or otherwise, to preserve any rights of
Beneficiary against Guarantor, (c) presentment to or demand of payment from
Grantee or Guarantor with respect to any Guaranteed Obligation or protest for
nonpayment or dishonor, (d) any right to the enforcement, assertion, exercise or
exhaustion by Beneficiary of any right, power, privilege or remedy conferred in
the IRU Agreement or otherwise, (e) any requirement of diligence on the part of
Beneficiary, (f) any requirement to mitigate the damages resulting from any
default under the IRU Agreement, (g) any notice of any sale, transfer or other
disposition of any right, title to or interest in the IRU Agreement, (h) any
release of Guarantor from its obligations hereunder resulting from any loss by
it of its rights of subrogation hereunder and (i) any other circumstance
whatsoever which might otherwise constitute a legal or equitable discharge,
release or defense of a guarantor or surety or which might otherwise limit
recourse against Guarantor.
7. SUBROGATION. Upon the payment and performance in full of
all Guaranteed Obligations, Guarantor shall be subrogated to the rights of
Beneficiary in respect of any payment or other obligation with respect to which
an amount has been payable by Guarantor hereunder. Guarantor shall not seek to
exercise any rights of subrogation, reimbursement or indemnity arising from
payments made by Guarantor pursuant to the provisions of this Agreement until
the full and complete payment or performance and discharge of the Guaranteed
Obligations.
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8. EFFECT OF BANKRUPTCY PROCEEDINGS, ETC. This Guaranty shall
continue to be effective or be automatically reinstated, as the case may be, if
at any time any payment made by any person on account of any of the sums due
Beneficiary pursuant to the terms of the IRU Agreement is rescinded or must
otherwise be restored or returned by such holder upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of Grantee or any other
person, or upon or as a result of the appointment of a custodian, receiver,
trustee or other officer with similar powers with respect to Grantee or other
person or any substantial part of its property, or otherwise, all as though such
payment had not been made.
9. TERM OF AGREEMENT. This Agreement and all guarantees,
covenants and agreements of Guarantor contained herein shall continue in full
force and effect and shall not be discharged until such time as all of the
Guaranteed Obligations and other independent payment obligations of Guarantor
under this Agreement shall be paid and performed in full and all of the
agreements of Guarantor hereunder shall be duly paid and performed in full.
Notwithstanding anything in this Agreement to the contrary, this Agreement may
be terminated, replaced or amended in the manner contemplated by, and subject to
the provisions of, Section 20.06 of the IRU Agreement.
10. NOTICES. All notices under the terms and provisions hereof
shall be in writing, and shall be delivered or sent by telex or telecopy or
mailed by first-class mail, postage prepaid, addressed, (a) if to Beneficiary,
at the address set forth in Article 25 of the IRU Agreement, or at such other
address as Beneficiary shall from time to time designate in writing to Guarantor
and (b) if to Guarantor, at _______________________, or at such other address as
Guarantor shall from time to time designate in writing to Beneficiary. Any
notice so addressed shall be deemed to be given when so delivered or sent or, if
mailed, on the third business day after being so mailed.
11. AMENDMENTS, ETC. Except as provided in Section 9, no
amendment, alteration, modification or waiver of any term or provision of this
Agreement, nor consent to any departure by Guarantor therefrom, shall in any
event be effective unless the same shall be in writing and signed by
Beneficiary, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
12. SUBMISSION TO JURISDICTION. Guarantor, for itself and its
successors and assigns, hereby irrevocably (a) agrees that any legal or
equitable action, suit or proceeding against Guarantor arising out of or
relating to this Agreement or any transaction contemplated hereby or the subject
matter of any of the foregoing may be instituted in any state or federal court
in the State of Delaware, (b) waives any objection which it may now or hereafter
have to the venue of any action, suit or proceeding, (c) irrevocably submits
itself to the nonexclusive jurisdiction of any state or federal court of
competent jurisdiction in the State of Delaware for purposes of any such action,
suit or proceeding. Guarantor waives personal service of process and consents
that service of process upon it may be made by certified or registered mail,
return receipt requested, at its address specified or determined in accordance
with the provisions of Section 10, and
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service so made shall be deemed completed on the third business day after
mailing. Nothing contained in this Section 12 shall be deemed to affect the
right of Beneficiary to serve process in any other manner permitted by law or
to commence legal proceedings or otherwise proceed against Guarantor in any
jurisdiction.
13. WAIVER OF JURY TRIAL. EACH OF GUARANTOR AND BENEFICIARY
IRREVOCABLY AND UNCONDITIONALLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LEGAL
OR EQUITABLE ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY OR THE SUBJECT
MATTER OF ANY OF THE FOREGOING.
14. SURVIVAL. All warranties, representations and covenants
made by Guarantor herein or in any certificate or other instrument delivered by
it or on its behalf hereunder shall be considered to have been relied upon by
Beneficiary and shall survive the execution and delivery of this Agreement,
regardless of any investigation made by Beneficiary or on its behalf. All
statements in any such certificate or other instrument shall constitute
warranties and representations by Guarantor hereunder.
15. MISCELLANEOUS. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, Guarantor hereby waives any provision of law that renders any
provisions hereof prohibited or unenforceable in any respect. The terms of this
Agreement shall be binding upon, and inure to the benefit of, Guarantor and
Beneficiary and their respective successors and assigns. No term or provision
of this Agreement may be changed, waived, discharged or terminated orally, but
only by an instrument in writing signed by Guarantor and Beneficiary. The
section and paragraph headings in this Agreement and the table of contents are
for convenience of reference only and shall not modify, define, expand or limit
any of the terms or provisions hereof, and all references herein to numbered
sections, unless otherwise indicated, are to sections in this Agreement. This
Agreement shall in all respects be governed by, and construed in accordance
with, the laws of the State of Delaware, without giving effect to applicable
principles of conflicts of law.
16. SPECIAL COVENANTS. Guarantor hereby covenants and agrees
as follows:
(a) For purposes of this Section 16, the following terms are
defined:
(1) "Board of Directors" means the board of directors of
Guarantor.
(2) "Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of
corporate stock or
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other equity participations, including partnership interests, whether
general or limited, of such Person and any rights (other than debt
securities convertible or exchangeable into an equity interest), warrants
or options to acquire an equity interest in such Person.
(3) "Consolidated Net Worth" of any Person means the
stockholders' equity of such Person, determined on a consolidated basis
in accordance with generally accepted accounting principles.
(4) "Fair Market Value" means, with respect to any Property,
the price that could be negotiated in an arm's-length free market
transaction, for cash, between a willing seller and a willing buyer,
neither of whom is under pressure or compulsion to complete the
transaction. Unless otherwise specified herein, Fair Market Value shall
be determined by the Board of Directors acting in good faith and shall be
evidenced by a Board of Directors resolution.
(5) "Property" means, with respect to any Person, any interest
of such Person in any kind of property or asset, whether real, personal
or mixed, or tangible or intangible, including Capital Stock in, and
other securities of, any other Person.
(6) "Subsidiary" of any Person means (i) a corporation more
than 50% of the combined voting power of the outstanding Voting Stock of
which is owned, directly or indirectly, by such Person or by one or more
other Subsidiaries of such Person or by such Person and one or more
Subsidiaries thereof or (ii) any other Person (other than a corporation)
in which such Person, or one or more other Subsidiaries of such Person or
such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and power to direct the
policies, management and affairs thereof.
(7) "Voting Stock" of any Person means Capital Stock of such
Person which ordinarily has voting power for the election of directors
(or persons performing similar functions) of such Person, whether at all
times or only for so long as no senior class of securities has such
voting power by reason of any contingency.
(b) Guarantor shall not, in a single transaction or a series of
related transactions, (i) consolidate with or merge into any other Person
or Persons or permit any other Person to consolidate with or merge into
Guarantor or (ii) directly or indirectly, transfer, sell, lease, convey
or otherwise dispose of all or substantially all its assets to any other
Person or Persons, unless:
(1) in a transaction in which Guarantor is not the surviving
Person or in which Guarantor transfers, sells, leases, conveys or
otherwise disposes of all or substantially all of its assets to any other
Person, the resulting, surviving or transferee Person (the "successor
entity") is organized under the laws of the
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United States or any State thereof or the District of Columbia and shall
expressly assume all of Guarantor's obligations under this Agreement;
(2) immediately after giving effect to such transaction, the
Consolidated Net Worth of Guarantor (or the successor entity) is equal to
or greater than that of Guarantor immediately prior to the transaction;
and
(3) in the case of a transfer, sale, lease, conveyance or other
disposition of all or substantially all of the assets of Guarantor, such
assets shall have been transferred as an entirety or virtually as an
entirety to one Person and such Person shall have complied with all the
provisions of (1) and (2) above.
(c) Guarantor shall cause all properties owned by Guarantor or
any Subsidiary or used or held for use in the conduct of its business or
the business of any Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary
equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the
judgment of Guarantor may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all
times; provided that nothing contained herein shall prevent Guarantor or
any Subsidiary from discontinuing the maintenance of any of such
properties if such discontinuance is, in the judgment of Guarantor,
desirable in the conduct of its business or the business of any
Subsidiary and not disadvantageous in any material respect to
Beneficiary.
(d) Guarantor shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, sell, lease, transfer or
otherwise dispose of any material portion of its Property to, or purchase
any material portion of Property from, or enter into any material
contract, agreement, understanding, loan, advance, guarantee or
transaction (including the rendering of services) with or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless such Affiliate Transaction or series of Affiliate Transactions is
(i) in the best interest of Guarantor or such Subsidiary and (ii) on
terms that are no less favorable to Guarantor or such Subsidiary than
those that would have been obtained in a comparable arm's-length
transaction by Guarantor or such Subsidiary with a Person that is not an
Affiliate (or, in the event that there are no comparable transactions
involving Persons who are not Affiliates of Guarantor or the relevant
Subsidiary to apply for comparative purposes, is otherwise on terms that,
taken as a whole, Guarantor has determined to be fair to Guarantor or the
relevant Subsidiary). Notwithstanding the foregoing, the following shall
not be deemed Affiliate Transactions: (i) any employment agreement
entered into by Guarantor or any of its Subsidiaries in the ordinary
course of business and consistent with industry practice; (ii) any
agreement or arrangement with respect to the compensation of a director
or officer of Guarantor or any Subsidiary approved by a majority of the
disinterested members of the Board of Directors and consistent with
industry practice; (iii) transactions between or among the
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Company and its Subsidiaries, provided that no more than 5% of the
Voting Stock (on a fully diluted basis) of any such Subsidiary is owned
by an Affiliate of Guarantor (other than a Subsidiary); (iv)
transactions pursuant to the terms of any agreement or arrangement as
in effect on the date hereof; and (v) transactions with respect to
wirelink or wireless transmission capacity, the lease or sharing or
other use of cable or fiber optic lines, equipment, rights-of-way or
other access rights, between Guarantor (or any Subsidiary) and any
other Person.
(e) Guarantor shall not, and shall not permit any Subsidiary
to, sell, transfer or dispose of any of its Property with a Fair Market
Value of $5,000,000 or more outside the ordinary course of its business
(excluding any sale, transfer or disposition of Property that is obsolete
or no longer used by or useful to Guarantor or any Subsidiary) unless:
(1) Guarantor or the Subsidiary, as the case may be, receives
consideration for such disposition at least equal to the Fair Market
Value for the Property sold or disposed of.
(2) the consideration received in connection therewith is used
by Guarantor or such Subsidiary within 360 days of receipt for the
payment of expenses in the ordinary course of business, for the payment
of debt of Guarantor or such Subsidiary, or for reinvestment in the
business of Guarantor or such Subsidiary.
(f) Guarantor shall deliver to Beneficiary on request (but not
more than once per year), a brief certificate from the principal
executive officer, principal financial officer or principal accounting
officer as to his or her knowledge of Guarantor's compliance during the
period covered by such report with all conditions and covenants of this
Agreement.
The covenants and agreements contained in this Section 16 shall terminate
effective as of the date of full and complete payment of the IRU Fee to
Beneficiary in accordance with the terms and provisions of the IRU Agreement.
17. QUALIFICATION TO SPECIAL COVENANTS. Any Guarantor
maintaining an indenture qualified under the Trust Indenture Act of 1939, as
amended, with at least $100 million of indebtedness outstanding pursuant thereto
shall have the right, in its sole discretion, to re-execute and redeliver this
Agreement to Beneficiary omitting section 16 and substituting in its place a
covenant substantially equivalent to section 16 of the similar agreement
executed by Level 3 Communications, Inc. as Guarantor, except referencing one of
its public indentures and the sections thereof equivalent to the matters
addressed in the current version of section 16 of this Agreement. In addition,
the provisions of section 16 of this Agreement or of any redelivered Agreement
shall be of no force or effect during any period that, if Guarantor has
publicly-traded common stock, the total market value of Guarantor's outstanding
common stock as determined on the basis of closing price (or, if Guarantor is
privately held, the total value of its outstanding
9
<PAGE>
common stock, as demonstrated to the reasonable satisfaction of Beneficiary)
exceeds the amount obtained when $1.5 billion is multiplied by the percentage
set forth in paragraph 1(a) of this Agreement.
IN WITNESS WHEREOF, Guarantor and Beneficiary have each caused
this Agreement to be duly executed as of the day and year first above written.
[Name of Permitted Guarantor],
as Guarantor
By
---------------------------------------
Title:
LEVEL 3 COMMUNICATIONS, LLC,
as Beneficiary
By
---------------------------------------
Title:
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 392,350
<SECURITIES> 784,493
<RECEIVABLES> 29,525
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,261,633
<PP&E> 511,204
<DEPRECIATION> 62,654
<TOTAL-ASSETS> 2,026,178
<CURRENT-LIABILITIES> 101,389
<BONDS> 1,503,263
543,258
0
<COMMON> 352,018
<OTHER-SE> (489,846)
<TOTAL-LIABILITY-AND-EQUITY> 2,026,178
<SALES> 0
<TOTAL-REVENUES> 96,392
<CGS> 0
<TOTAL-COSTS> 235,292
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99,050
<INCOME-PRETAX> (181,834)
<INCOME-TAX> 0
<INCOME-CONTINUING> (181,834)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (181,834)
<EPS-PRIMARY> (4.18)
<EPS-DILUTED> (4.18)
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