<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1997.
REGISTRATION NO. 333-33653
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
METROMEDIA FIBER NETWORK, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4813 11-3168327
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
110 East 42nd Street
Suite 1502
New York, NY 10017
(212) 687-9177
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
STEPHEN A. GAROFALO
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
METROMEDIA FIBER NETWORK, INC.
110 EAST 42ND STREET
SUITE 1502
NEW YORK, NY 10017
(212) 687-9177
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
JAMES M. DUBIN, ESQ. JOHN W. WHITE, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON CRAVATH, SWAINE & MOORE
1285 AVENUE OF THE AMERICAS WORLDWIDE PLAZA
NEW YORK, NEW YORK 10019-6064 825 EIGHTH AVENUE
(212) 373-3000 NEW YORK, NEW YORK 10019-7475
(212) 474-1000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE (1)(2) REGISTRATION FEE(3)
<S> <C> <C>
Class A Common Stock, par value $.01 per share.............. $115,000,000 $34,848.48
</TABLE>
(1) Includes shares which may be purchased by the Underwriters solely to cover
over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee.
(3) Calculated pursuant to Rule 457(o). The registration fee was wired to the
Securities and Exchange Commission in connection with the initial filing.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of Prospectus to be used in
connection with the U.S. Offering and the International Offering, respectively,
as described herein and collectively comprising the Offerings. The Prospectus to
be used in connection with the U.S. Offering (the "U.S. Prospectus") is set
forth in full following this Explanatory Note. The Prospectus to be used in
connection with the International Offering is identical to the U.S. Prospectus
except that the outside front cover, the back cover and the section entitled
"Underwriting" are replaced with alternative versions included herein following
the U.S. Prospectus.
<PAGE>
SUBJECT TO COMPLETION
DATED SEPTEMBER 23, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
6,600,000 SHARES
METROMEDIA FIBER NETWORK, INC.
CLASS A COMMON STOCK
($.01 PAR VALUE)
All of the shares of Class A Common Stock, par value $.01 per share (the "Class
A Common Stock") offered hereby are being sold by Metromedia Fiber Network, Inc.
("MFN" or the "Company"). Of the 6,600,000 shares of Class A Common Stock
offered hereby, 5,610,000 shares of Class A Common Stock are being offered by
the U.S. Underwriters (as defined herein) in the United States and Canada (the
"U.S. Offering") and 990,000 shares of Class A Common Stock are being offered by
the International Underwriters (as defined herein) in a concurrent international
offering outside the United States and Canada (the "International Offering" and,
together with the U.S. Offering, the "Offerings"), subject to transfers between
the U.S. Underwriters and the International Underwriters (collectively, the
"Underwriters"). The initial public offering price and the aggregate
underwriting discount per share will be identical for the Offerings. See
"Underwriting." The closing of the U.S. Offering and the International Offering
are conditioned upon each other. Each share of Class A Common Stock entitles its
holder to one vote, whereas each share of the Company's Class B Common Stock,
par value $.01 per share (the "Class B Common Stock"), entitles its holder to
ten votes per share. In addition, holders of the Class B Common Stock vote as a
separate class to elect at least 75% of the members of the Company's Board of
Directors. Metromedia Company and its partners beneficially own all of the
outstanding shares of Class B Common Stock.
Prior to the Offerings, there has been no public market for the Class A Common
Stock. It is currently anticipated that the initial public offering price will
be between $14.00 and $16.00 per share of Class A Common Stock. See
"Underwriting" for information relating to the factors considered in determining
the initial public offering price. An application to list the Class A Common
Stock on the Nasdaq National Market under the symbol "MFNX" has been made.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1)
Per Share......................... $ $ $
<S> <C> <C> <C>
Total(2).......................... $ $ $
</TABLE>
(1) Before deducting offering expenses payable by the Company, estimated at
$1,000,000.
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of 990,000 additional shares of Class A Common Stock at the
Price to Public, less the Underwriting Discount, solely to cover
over-allotments, if any. If the Underwriters exercise such option in full,
the total Price to Public, Underwriting Discount and Proceeds to Company
will be $ , $ and $ , respectively. See
"Underwriting."
The shares of Class A Common Stock are offered subject to receipt and acceptance
by the Underwriters, to prior sale and to the Underwriters' right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the shares of Class A Common Stock
offered hereby will be made at the office of Salomon Brothers Inc, Seven World
Trade Center, New York, New York, or through the facilities of The Depository
Trust Company, on or about , 1997.
SALOMON BROTHERS INC
DONALDSON, LUFKIN & JENRETTE
SECURITIES
CORPORATION
The date of this Prospectus is , 1997.
<PAGE>
[Artwork]*
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF CLASS A COMMON
STOCK FOLLOWING THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION
IN THE CLASS A COMMON STOCK OR FOR THE PURPOSE OF MAINTAINING OR STABILIZING THE
PRICE OF THE CLASS A COMMON STOCK, PASSIVE MARKET MAKING AND THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
*To be filed by amendment.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY AND SHOULD BE READ IN
CONJUNCTION WITH THE MORE DETAILED INFORMATION, INCLUDING THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES THERETO, AND OTHER FINANCIAL DATA APPEARING
ELSEWHERE IN THIS PROSPECTUS. AS USED IN THIS PROSPECTUS, UNLESS THE CONTEXT
REQUIRES OTHERWISE, THE TERMS "COMPANY" AND "MFN" REFER TO METROMEDIA FIBER
NETWORK, INC. AND ITS SUBSIDIARIES. UNLESS OTHERWISE INDICATED, ALL INFORMATION
INCLUDED IN THIS PROSPECTUS (I) ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT OPTION
WILL NOT BE EXERCISED, (II) HAS BEEN ADJUSTED TO REFLECT THE RECLASSIFICATION OF
THE COMPANY'S COMMON STOCK, PAR VALUE $.01 PER SHARE (THE "OLD COMMON STOCK"),
PURSUANT TO WHICH EACH SHARE OF OLD COMMON STOCK WILL BECOME ONE SHARE OF CLASS
A COMMON STOCK (THE "COMMON STOCK RECLASSIFICATION"), (III) HAS BEEN ADJUSTED TO
REFLECT THE RECLASSIFICATION AND EXCHANGE OF EACH SHARE OF THE COMPANY'S SERIES
B CONVERTIBLE PREFERRED STOCK, PAR VALUE $.01 PER SHARE (THE "SERIES B PREFERRED
STOCK") FOR 507 SHARES OF CLASS B COMMON STOCK (THE "SERIES B RECLASSIFICATION"
AND TOGETHER WITH THE COMMON STOCK RECLASSIFICATION, THE "RECLASSIFICATIONS")
AND (IV) HAS BEEN ADJUSTED TO GIVE EFFECT TO A REVERSE STOCK SPLIT OF THE
COMPANY'S CLASS A COMMON STOCK, PURSUANT TO WHICH EACH SHARE OF CLASS A COMMON
STOCK BECAME .507 SHARES OF CLASS A COMMON STOCK (THE "REVERSE STOCK SPLIT").
THE CLASS A COMMON STOCK AND THE CLASS B COMMON STOCK ARE COLLECTIVELY REFERRED
TO AS THE "COMMON STOCK." SEE THE "GLOSSARY" APPEARING ELSEWHERE HEREIN FOR
DEFINITIONS OF CERTAIN TECHNICAL TERMS USED IN THIS PROSPECTUS.
THE COMPANY
GENERAL
The Company is a facilities-based provider of technologically advanced,
high-bandwidth, fiber optic communications infrastructure to carrier and
corporate/government customers. The Company is expanding its existing network to
encompass approximately 229,000 fiber miles or 643 route miles, concentrated in
the northeastern United States, a market which the Company believes is
characterized by significant demand for and limited supply of fiber optic
capacity. The fiber infrastructure leased by MFN to its customers provides
high-bandwidth capacity for customers that seek to establish secure
communications networks for the transmission of large amounts of voice, data and
video. For example, a pair of MFN fiber optic strands can transmit up to 8.6
gigabits of data per second or the equivalent of approximately 129,000
simultaneous voice conversations.
The Company tailors the amount of fiber capacity leased to the needs of its
customers. Certain customers that lease fiber optic capacity from the Company
connect their own transmission equipment to the leased fiber, thereby obtaining
a fixed-cost, secure communications alternative to the metered communications
services offered by traditional providers. Other customers that require lesser
amounts of transmission capacity will have the option to lease such broadband
capacity on the Company's network, whereby the Company effectively divides a
single strand of fiber into multiple smaller communications channels. The
Company believes that it will have installation, operating and maintenance cost
advantages per fiber mile relative to its competitors because MFN installs as
many as 432 fibers per route mile as compared to a generally lower number of
fibers in existing competitive networks.
The Company was formed in 1993 and currently operates a 54 route mile fiber
optic communications network in the New York/New Jersey metropolitan area (the
"NY Network"), consisting of 7,188 fiber miles, approximately two-thirds of
which are currently available for lease. Within the next two years the Company
plans to complete an expansion of the NY Network to increase its coverage within
the New York/New Jersey metropolitan area. In addition, the Company intends to
construct intra-city fiber networks in Washington, D.C., Chicago and
Philadelphia and an inter-city fiber optic route between New York City and
Washington, D.C. The Company currently intends to expand its network in order to
connect the NY Network with other major domestic metropolitan areas, in part
through the exchange of fiber capacity with other carriers, and to extend its
network to link the NY Network to London, England, thereby providing a valuable
connection between two of the world's most important financial centers. See
"Business -- Build-out of Networks," and "Risk Factors -- Risks Associated with
Growth Strategy."
3
<PAGE>
The Company's NY Network supports a self-healing SONET architecture that
minimizes the risk of downtime in the event of a fiber cut and provides MFN's
customers with high security and reliability. It is expected that the Company's
other Intra-City Networks will also support a self-healing SONET architecture.
Most of the Company's fiber is installed inside high density polyethylene
conduit to protect the cable and, where practicable, MFN installs additional
unused conduits to accommodate future network expansion.
MFN is focused on providing its broadband communications infrastructure to
two main customer groups: communications carriers and corporate/government
customers located in selected Tier I markets. Carrier customers targeted by the
Company include a broad range of communications companies such as incumbent
local exchange carriers ("ILECs"), competitive local exchange carriers
("CLECs"), long distance companies/interexchange carriers ("IXCs"), paging,
cellular and PCS companies, cable companies, and Internet service providers
("ISPs"). These carrier customers typically would lease fiber optic capacity
with which they would develop their own communications networks as a low-cost
alternative to building their own infrastructure or purchasing metered services
from ILECs or CLECs. The Company's corporate and government customers would
typically lease fiber optic infrastructure and other broadband services on a
point-to-point basis for high-bandwidth, secure voice and data networks. The
Company believes that it will be well-positioned to penetrate the corporate and
government markets since it plans to continue to install most of its fiber in
Tier I markets. See "Business -- Customers."
MFN intends to capitalize on the increasing demand for high-bandwidth
communications services and the limited supply of transmission capacity. Based
on management experience and industry reports, the Company believes that demand
for the broadband communications infrastructure afforded by its network will
continue to increase as a result of the following factors: (i) the rapid growth
of communications traffic, such as data traffic which industry research
indicates is growing by 35% annually; (ii) the large number of new carriers
which will require significant transmission capabilities in all sectors of the
communications industry, due in large part to industry deregulation facilitated
by the Telecommunications Act of 1996 (the "1996 Act"), (iii) the fact that the
RBOCs will likely need to upgrade to fiber optic networks with infrastructure
similar to the Company's; and (iv) the advent of new communications services
requiring large amounts of transmission capacity, such as intranet and video
services. According to an industry report, the total 1995 market for
communications services in the United States was approximately $282 billion and
is expected to grow to approximately $457 billion by the year 2000. In addition,
the Company believes there will be increased demand for its infrastructure due
to its ability to offer fixed-cost pricing which is generally more economical
for high volume users than traditional usage-based pricing.
On April 30, 1997, Metromedia Company, a partnership owned and controlled by
John W. Kluge and Stuart Subotnick ("Metromedia"), and certain of its affiliates
made a substantial equity investment in the Company (the "Metromedia
Investment"). Metromedia and its partners own all of the outstanding shares of
Class B Common Stock which is entitled to 10 votes per share and to vote
separately to elect at least 75% of the members of the Company's Board of
Directors (the "Board"). As a result, Metromedia and its partners own and
control approximately 26% of the common equity of the Company (on a fully
diluted basis, without giving effect to the Offerings) and approximately 76% of
the outstanding voting power (on a fully diluted basis, without giving effect to
the Offerings). Metromedia and its predecessor have successfully invested in and
operated numerous businesses in the communications industry, including cellular,
paging, long distance and media companies. In connection with the Metromedia
Investment, John W. Kluge and Stuart Subotnick, who bring considerable
management and corporate governance experience to the Company, joined MFN's
Board of Directors. See "Certain Relationships and Related Transactions." In
addition, David Rockefeller has agreed to join the Board shortly after
consummation of the Offerings. Mr. Rockefeller will bring considerable
management and investing experience to the Company.
4
<PAGE>
BUSINESS STRATEGY
The Company's objective is to become the preferred facilities-based provider
of broadband communications infrastructure to communications carriers,
corporations and government agencies, primarily in the northeastern United
States. The following are the key elements of MFN's strategy to achieve this
objective:
ESTABLISH THE COMPANY AS THE PREFERRED CARRIERS' CARRIER OF BROADBAND
COMMUNICATIONS INFRASTRUCTURE.
MFN leases broadband communications infrastructure on a fixed-cost basis to
various communications carriers, thus enabling them to compete in markets which
were previously difficult to penetrate due to limited and/or costly access to
high-bandwidth communications infrastructure. Specifically, the Company plans to
lease local transmission capacity within its target Tier I markets thereby
enabling its carrier customers to bypass the ILECs and CLECs. The Company
believes that it is currently the only provider of local transmission
infrastructure on a fixed-cost basis. Additionally, the Company plans to lease
capacity on its high-bandwidth, long-haul Inter-City Network (as defined herein)
to provide seamless connectivity between its various Intra-City Networks (as
defined herein). The Company's fixed-cost, long-term contracts allow its carrier
customers to access certain Tier I markets without incurring the high capital
expenditures and long lead times usually associated with building their own
networks. Carriers may be more likely to lease capacity from MFN rather than
from a competitor since MFN currently has no plans to offer communications
infrastructure services on a metered basis, choosing instead to position itself
as a non-competing provider of infrastructure alternatives for IXCs, ILECs,
CLECs, etc. See "Business -- Customers."
POSITION THE COMPANY AS THE PREFERRED PROVIDER OF BROADBAND COMMUNICATIONS
INFRASTRUCTURE TO CORPORATE AND GOVERNMENT CUSTOMERS.
The Company's fiber optic network is expected to serve Tier I markets in
which there are a large number of corporations and government agencies that the
Company believes have significant demand for communications capacity which has
not been satisfied. These customers typically lease broadband communications
infrastructure from the Company on a point-to-point basis, creating secure
networks for voice, video or data communications. Customers with significant
transmission needs or who require a high degree of security are potential
candidates for leasing MFN's fiber. Customers seeking lesser amounts of
broadband transmission capacity will have the option of leasing smaller amounts
of capacity from the Company. By providing leased capacity on a fixed-cost
rather than a metered basis, MFN's network, as currently planned, will be more
economical for MFN's corporate and government customers, while also providing
enhanced reliability and security. See "Business -- Customers."
STRENGTHEN MFN'S COMPETITIVE POSITION BY EXPANDING THE MFN NETWORK.
The Company seeks to enhance its attractiveness as a communications provider
by enlarging its network according to a three-part plan: (i) expanding the NY
Network to increase coverage of the New York/New Jersey metropolitan area to
approximately 61,000 fiber miles covering 179 route miles, (ii) constructing
fiber optic intra-city telecommunications networks in Washington, D.C., Chicago
and Philadelphia (the "Intra-City Networks") and (iii) constructing a fiber
optic backbone between New York City and Washington, D.C. (the "Inter-City
Network") to link certain of its Intra-City Networks. Once completed, MFN's
domestic fiber optic network infrastructure, as currently planned, will consist
of approximately 229,000 fiber miles covering 643 route miles (the "MFN
Network").
UTILIZE STRATEGIC RELATIONSHIPS TO EXPAND THE REACH OF THE MFN NETWORK.
Another part of MFN's strategy is to enter into agreements with other
communications companies to expand the reach of the MFN Network. MFN has signed
a letter of cooperation with a leading global voice and data communications
provider in the United Kingdom. A definitive agreement, if entered into, would
expand the reach of MFN's network to the United Kingdom and provide seamless
connectivity
5
<PAGE>
between two leading financial centers, New York City and London. The Company
believes that its presence in Tier I markets will continue to provide similar
partnering opportunities. The Company will continue to evaluate opportunities,
including potential fiber swaps, along specific additional routes in order to
speed the build-out of the MFN Network and reduce costs.
CREATE A LOW COST POSITION.
The Company believes it will be able to establish a low cost position
relative to its competitors primarily for the following reasons: (i) the Company
currently installs trunks of up to 432 fibers per route mile, which the Company
believes is substantially more fiber than many of its competitors install,
thereby reducing the per fiber mile cost to construct and operate the MFN
Network, (ii) the Company owns a newly-constructed network with advanced fiber
optic technology which offers operating and maintenance cost advantages, (iii)
the Company believes that certain of its rights-of-way and franchises are
valuable assets that will be costly and difficult for others to procure in the
future and (iv) MFN, where practicable, installs spare conduit which will allow
for expanded fiber optic capacity at a cost significantly below the cost of new
construction. The Company's low cost position will allow it to remain price
competitive with other providers of fiber optic infrastructure and to lease its
fiber infrastructure at a price which customers will find more attractive than
the cost of constructing their own networks.
INSTALL A TECHNOLOGICALLY ADVANCED NETWORK.
The Company believes that the advanced technical characteristics of its
network will allow it to provide high levels of reliability, security and
capacity that its target customers typically demand. The NY Network is, and
future extensions of the Intra-City Networks will be, capable of supporting a
SONET ring architecture, which prevents interruption in service to its clients
by instantaneously rerouting traffic in the event of a fiber cut. The Company
will also continuously monitor and maintain high quality control of its network
on a 24-hour basis through its network operations center. The Company's network
is capable of using the highest commercially available capacity transmission
(OC-192) and thereby can support advanced, capacity-intensive data applications
such as Frame Relay, ATM, multimedia and Internet-related applications.
BUILD ON MANAGEMENT EXPERIENCE AND METROMEDIA RELATIONSHIP.
The Company's management team and Board of Directors include individuals
with communications industry expertise and extensive experience in network
design, construction, operations and sales. MFN's Chief Executive Officer and
founder, Stephen A. Garofalo, has approximately 25 years of experience in the
cable installation business, having managed the installation of over one half
billion dollars in electrical and communications cable in New York City. In
April 1997, the Company hired Howard Finkelstein as President and Chief
Operating Officer. From 1984 to 1993, Mr. Finkelstein served as President of
Metromedia Communications Corporation, Metromedia's long distance telephone
enterprise, until its merger with WorldCom, Inc. in 1993. In his most recent
position, Mr. Finkelstein was the Chief Operating Officer and an Executive Vice
President of Metromedia International Telecommunications, Inc., an international
telecommunications and media company. He has also served in various capacities
at Metromedia and its affiliated companies over a period of 16 years. The
Company also expects to benefit from the communications industry expertise and
corporate governance experience of John W. Kluge, Stuart Subotnick and David
Rockefeller. As the owner of all of the Class B Common Stock, Metromedia and its
general partners will control the Board and all stockholder decisions and, in
general, determine the outcome of any corporate transaction or other matter
submitted to the stockholders for approval. See "Risk Factors--Control by and
Reliance Upon Metromedia Company" and "Certain Relationships and Related
Transactions."
MFN is a Delaware corporation and the principal executive offices of the
Company are located at 110 East 42nd Street, Suite 1502, New York, New York
10017. The Company's telephone number at such address is (212) 687-9177.
6
<PAGE>
<TABLE>
<CAPTION>
THE OFFERINGS
<S> <C>
Common Stock offered hereby:
U.S. Offering...................... 5,610,000 shares of Class A Common Stock
International Offering............. 990,000 shares of Class A Common Stock
---------------------------------------------------
6,600,000 shares of Class A Common Stock
Total (1)........................
Common Stock outstanding after the
Offerings (1)(2)
20,464,778 shares
Class A Common Stock...............
4,221,159 shares
Class B Common Stock...............
24,685,937 shares of Common Stock
Total............................
The net proceeds of the Offerings, estimated to be
Use of Proceeds........................ approximately $91.1 million (approximately $104.9
million if the Underwriters' over-allotment option
is exercised in full), will be used by the Company
for capital expenditures associated with the
build-out of the Company's network, the development
and introduction of new services and general
corporate and working capital purposes. See "Use of
Proceeds."
The holders of Class A Common Stock generally have
Voting Rights.......................... rights identical to holders of Class B Common
Stock, except that holders of Class A Common Stock
are entitled to one vote per share and holders of
Class B Common Stock are entitled to ten votes per
share on all matters submitted to a vote of the
Company's stockholders. Holders of Class A Common
Stock and Class B Common Stock will vote as a
single class on most matters except that holders of
Class B Common Stock will vote as a separate class
to elect at least 75% of the members of the Board
of Directors.
Proposed Nasdaq National Market MFNX
symbol...............................
</TABLE>
- ------------------------
(1) Does not include up to an aggregate of 990,000 shares of Class A Common
Stock subject to an over-allotment option granted to the Underwriters. See
"Underwriting."
(2) Based on the number of shares outstanding as of September 23, 1997 after
giving effect to (i) the Reverse Stock Split, (ii) the Reclassifications and
(iii) the assumed exercise of all outstanding options and warrants to
acquire 4,260,511 shares of Class A Common Stock at a weighted average
exercise price of $3.10. Excludes options to acquire shares of Class A
Common Stock to be granted under the 1997 Incentive Stock Plan.
RISK FACTORS
See "Risk Factors" beginning on page 9 for a discussion of certain factors
that should be considered by potential investors.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary consolidated financial data presented below as of and for the
periods ended December 31, 1994, 1995 and 1996 have been derived from the
Consolidated Financial Statements of the Company, and the notes related thereto,
included elsewhere in this Prospectus. The Financial Statements of the Company
for the year ended December 31, 1994 have been audited by Richard A. Eisner &
Company, LLP, independent auditors, the Consolidated Financial Statements of the
Company for the year ended December 31, 1995 have been audited by M.R. Weiser &
Co. LLP, Certified Public Accountants, and the Consolidated Financial Statements
of the Company as of and for the year ended December 31, 1996 have been audited
by Ernst & Young LLP, independent auditors. The summary financial data for the
period ended December 31, 1993, have been derived from the unaudited financial
statements of the Company which, in the opinion of management, include all
adjustments necessary for a fair presentation of the financial condition and
results of operations for the Company for such period. The summary consolidated
financial data and balance sheet data as of and for the six months ended June
30, 1997 and the summary consolidated financial data as of and for the six
months ended June 30, 1996 have been derived from the unaudited Consolidated
Financial Statements of the Company, and the notes related thereto, included
elsewhere in this Prospectus, which, in the opinion of management, include all
adjustments necessary for a fair presentation of the financial condition and
results of operations of the Company for such periods. The results of operations
for interim periods are not necessarily indicative of a full year's operations.
The following information should be read in conjunction with "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and the Consolidated Financial Statements of the Company
and the notes related thereto, and the other financial data appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 8, 1993
(DATE OF YEAR ENDED SIX MONTHS
INCEPTION) TO DECEMBER 31, ENDED JUNE 30,
DECEMBER 31, ------------------------------------- ------------------------
1993 1994 1995 1996 1996 1997
-------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.............................. $ -- $ -- $ 56,149 $ 236,082 $ 82,035 $ 541,886
Expenses:
Cost of sales...................... -- -- -- 698,793 265,029 1,081,677
Selling, general and
administrative................... 188,000 874,000 3,886,568 2,070,345 1,276,853 2,186,291
Depreciation and amortization...... -- -- 161,576 612,530 292,319 372,935
Consulting and employment
incentives(a).................... -- -- -- 3,652,101 3,651,442 13,419,900
-------------- ----------- ----------- ----------- ----------- -----------
Loss from operations................. 188,000 874,000 3,991,995 6,797,687 5,403,608 16,518,917
Interest expense, net................ -- -- 327,106 3,561,010 1,807,956 475,252
-------------- ----------- ----------- ----------- ----------- -----------
Net loss............................. $ 188,000 $ 874,000 $ 4,319,101 $10,358,697 $ 7,211,564 $16,994,169
-------------- ----------- ----------- ----------- ----------- -----------
-------------- ----------- ----------- ----------- ----------- -----------
Net loss applicable to common
stockholders per share............. $ 0.04 $ 0.10 $ 0.48 $ 0.87 $ 0.66 $ 1.36
-------------- ----------- ----------- ----------- ----------- -----------
-------------- ----------- ----------- ----------- ----------- -----------
Number of shares of Common Stock
assumed outstanding(b)............. 4,408,237 8,721,210 9,094,472 11,851,801 10,993,990 12,599,295
-------------- ----------- ----------- ----------- ----------- -----------
-------------- ----------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
AS OF
JULY 31, 1997
--------------------
<S> <C>
OPERATING DATA:
Route miles of fiber installed................................................................ 54
Fiber miles of fiber installed................................................................ 7,188
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(C)
----------- ----------------
BALANCE SHEET DATA:
Current assets.................................................................... $23,509,306 $ 114,579,306
Working capital................................................................... 21,027,781 112,097,781
Property and equipment, net....................................................... 7,354,768 7,354,768
Total assets...................................................................... 31,651,111 122,721,111
Long-term debt.................................................................... -- --
Total liabilities................................................................. 12,608,260 12,608,260
Stockholders' equity.............................................................. 19,042,851 110,112,851
</TABLE>
- ------------------------
(a) Represents value of common stock, warrants and options issued to consultants
and officers to provide services to the Company.
(b) Based upon the weighted average shares outstanding; see Note 1 to "Notes to
Consolidated Financial Statements."
(c) Adjusted to give effect to the Offerings and the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
8
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements (as such term is defined
in the Private Securities Litigation Reform Act of 1995 (the "Reform Act")),
including statements regarding, among other items, (i) the Company's growth
strategy, (ii) the Company's intention to expand its fiber optic network to
other markets and (iii) the Company's intention to market its network to new
customers. These forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties, certain of
which are beyond the Company's control. Actual results could differ materially
from these forward-looking statements as a result of the facts described in
"Prospectus Summary," "Risk Factors" and "Business" including, among others, (i)
changes in the competitive marketplace, including the introduction of new
technologies or strategic and/or pricing changes by the Company's competitors
and (ii) changes in the economy. Other factors which may materially affect
actual results include, among others, the following: general economic and
business conditions; industry capacity; uncertainty regarding and changes in
customer preferences; demographic changes; competition; changes in methods of
marketing and technology; changes in political, social and economic conditions;
and regulatory factors and various other factors beyond the Company's control.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained in this Prospectus will
in fact transpire. The "safe-harbor" protections of the Reform Act are generally
not available to initial public offerings, including the Offerings.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION AND FINANCIAL DATA SET FORTH ELSEWHERE
IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE SHARES OF CLASS A
COMMON STOCK OFFERED HEREBY.
LIMITED HISTORY OF OPERATIONS; NET LOSSES AND NEGATIVE CASH FLOW FROM
OPERATIONS; EXPECTED FUTURE NET LOSSES AND NEGATIVE CASH FLOW FROM OPERATIONS
The Company was formed in April 1993 and has a limited operating history,
with a limited number of customers as of June 30, 1997. Accordingly, prospective
investors have limited historical financial information upon which to base an
evaluation of the Company's performance and an investment in shares of Class A
Common Stock. The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development.
Since inception, the Company has not generated significant revenue, has
incurred substantial net losses and has never generated positive cash flow from
operations. The Company had net losses of $10.4 million, $4.3 million, $0.9
million, and $0.2 million for the periods ended December 31, 1996, 1995, 1994,
and 1993 and a net loss of $17.0 million for the six months ended June 30, 1997.
There can be no assurance that the Company will be able to achieve or sustain
profitability or positive cash flow in the future.
The Company believes that losses will continue while the Company
concentrates on the development and construction of additional fiber optic
networks and until its networks have established a sufficient revenue-generating
customer base. Accordingly, the Company expects to continue experiencing net
operating losses and negative cash flows for the foreseeable future. The Company
will also incur losses during the initial start-up phases of the services that
it may provide. There can be no assurance that an adequate revenue base will be
established or that these services will generate profitability or positive cash
flow. Continued losses and negative cash flow may prevent the Company from
pursuing its strategies for growth.
9
<PAGE>
RISKS ASSOCIATED WITH GROWTH STRATEGY; MANAGEMENT OF EXPANSION
The future of the Company depends, to a large extent, on its ability to
implement its business strategy and proposed expansion, without which the
Company would be unable to create the new business and revenue opportunities
described in this Prospectus. The proposed expansion (including the development
of the Intra-City Networks, the Inter-City Network and the proposed expansion to
additional areas including the United Kingdom) requires that the Company obtain
access to markets, design fiber network backbone routes, install facilities,
acquire rights-of-way and building access, obtain required governmental
authorizations and permits and continue to implement and improve its
operational, financial and accounting systems, all in a timely manner at
reasonable costs and on conditions acceptable to the Company. Successful
implementation will depend on numerous factors beyond the Company's control,
including economic, competitive and other conditions and uncertainties, the
ability to obtain licenses, franchises and rights-of-way on reasonable terms and
conditions and hire and retain qualified management personnel. In addition,
construction of future networks entails significant risks, including
management's ability to effectively control and manage such projects, shortages
of materials or skilled labor, unforeseen engineering, environmental or
geological problems, work stoppages, weather interference, floods and
unanticipated cost increases. No assurance can be given that the budgeted costs
of the Company's current and future projects will not be exceeded or that any
such projects will commence operations within the contemplated schedules, if at
all. The failure to obtain necessary licenses, permits and authorizations could
prevent or delay the completion of construction of all or part of such networks
or increase completion costs. Moreover, no assurance can be given that the
Company will be successful in implementing its business strategy and in managing
expansion effectively, on time or at all.
The Company will need to expand its marketing efforts and staff to handle
future marketing and sales requirements. Failure to obtain significant,
widespread commercial and public acceptance of its networks and access to
sufficient buildings in a market could jeopardize the Company's viability in
that market. There can be no assurance that the Company will be able to secure
customers for the commercial use of its proposed networks or access to such
buildings in each market.
The Company's ability to implement its business plan is, to a significant
degree, dependent upon the Company's ability to secure a market for its leased
fiber capacity and obtain and maintain contractual and other relationships with
communications carriers and corporate and government customers. The practice of
leasing dark fiber is not widespread and there can be no assurance that such a
market will develop or that the Company will be able to enter into contracts,
comply with the terms of such contracts or maintain relationships with
communications carriers and corporate and government customers, that any such
contracts or relationships will be on economically favorable terms or that such
communications carriers and corporate and government customers will not choose
to compete against, rather than cooperate with, the Company. The Company's
inability to enter into contracts, comply with the terms of such contracts or
maintain relationships with these constituencies would materially and adversely
affect the Company's business, financial condition and results of operations.
The Company cannot predict whether providing services to governments will
evolve into a significant market. Existing rights-of-way are typically
controlled by governments and are often used to create leverage in "shared
resources projects" whereby the government obtains communications capacity in
exchange for providing a private communications carrier access to government
controlled rights-of-way for fiber installation. In addition, governments often
build their own communications infrastructure because they already control the
necessary rights-of-way. Accordingly, there can be no assurance that the market
for government customers will develop to any significant extent.
A number of the Company's current contracts to supply leased fiber capacity
permit the lessee to terminate such contracts and/or provide for liquidated
damages if the Company does not supply such fiber capacity by a specified time.
Certain of these contracts are currently terminable on this basis. The
10
<PAGE>
termination of any such contracts could adversely affect the Company's business,
financial condition and results of operations.
The Company may expand the range of services that it offers. Such plans may
include assisting customers with the integration of their leased dark fiber with
appropriate electronic and optronic equipment by facilitating the involvement of
third party suppliers, vendors and contractors. There can be no assurance that a
market will develop for new services offered by the Company, that the Company's
implementation of the services will be technically or economically feasible,
that the Company will be able to successfully develop or market them or that the
Company will be able to operate and maintain its new services profitably.
NEED FOR ADDITIONAL FINANCING
The net proceeds from the Offerings will not be sufficient to enable the
Company to complete the build-out of its planned fiber optic network and meet
its long-term business strategies. The completion of the Company's planned fiber
optic communications networks will require substantial capital investment. The
Company's ability to arrange financing and the cost of such financing are
dependent upon numerous factors, including general economic and capital market
conditions, conditions in the communications market, regulatory developments,
credit availability from banks or other lenders, investor confidence in the
industry and the Company, the success of the Company's fiber optic
communications networks, and provisions of tax and securities laws that are
conducive to raising capital. There can be no assurance that financing for the
expansion of the Company's fiber optic communications networks will be available
to the Company on acceptable terms in the future or that, if the form of any
such future financing is through the issuance and sale of equity securities,
investors in the Offerings will not be diluted.
COMPETITIVE INDUSTRY
The Company faces substantial competition from ILECs, which currently
dominate their local telecommunications markets, and CLECs, most of which have
greater financial, research and development and other resources than the
Company. In addition to ILECs and CLECs, potential competitors capable of
offering services similar to those offered by the Company include IXCs, other
facilities-based communications service providers, cable television companies,
electric utilities, microwave carriers, satellite carriers, wireless telephone
system operators and large end-users with private networks. There can be no
assurance that such entities will not compete with the Company. See "Business--
Competition."
Various communications carriers already own fiber optic cables as part of
their telecommunications networks. Accordingly, any of these carriers, some of
which already have franchise agreements with the City of New York and
substantially greater resources and more experience than the Company, could
compete directly with the Company in the market for leasing fiber capacity,
provided that these competitors are willing to offer this capacity to all their
customers. The Company's franchise agreement with the City of New York is not
exclusive. Potential competitors with greater resources and more experience than
the Company could enter into franchise agreements with the City of New York and
compete directly with the Company. The Company's Inter-City Network will also
face competition from other communications companies, including Qwest
Communications International Inc. ("Qwest"), that are in the process of
constructing extensive inter-city networks.
In addition, some communications carriers and local cable companies have
extensive networks in place that could be upgraded to fiber optic cable, as well
as numerous personnel and substantial resources to undertake the requisite
construction to so equip their networks. To the extent that communications
carriers and local cable companies decide to equip their networks with fiber
optic cable, they are potential significant competitors of the Company.
11
<PAGE>
There is no reason to believe that other companies will not choose to
compete with the Company in any market, inside or outside of New York City, by
leasing fiber capacity (including dark fiber) to the Company's targeted
customers. Any such additional competition could materially adversely affect the
Company's business, financial condition and results of operations.
EXTENSIVE REGULATION
Existing and future governmental regulations will greatly influence the
viability of the Company. However, the Company cannot predict the future
regulatory status of its business.
FEDERAL
Federal telecommunications law directly shapes the market in which the
Company competes. Consequently, undesirable regulatory changes could adversely
affect the Company's business, financial conditions and results of operations.
Federal telecommunications law imposes special legal requirements on "common
carriers" who engage in "interstate or foreign communication by wire or radio."
The Company believes that the leasing of dark fiber facilities does not
constitute engaging in "communication by wire or radio" and therefore is not
subject to these legal requirements. In any event, the Company does not intend
to offer its dark fiber facilities as a common carrier. Common carriers are
those who offer services directly to the public, or to all potential users on an
indiscriminate basis subject to standardized rates, terms or conditions. The
Company does not intend to offer its dark fiber services in this manner, but
instead intends to enter into individualized negotiations on a selective basis
with prospective lessees of its dark fiber facilities to determine whether and
on what terms to serve each potential lessee. The Company therefore does not
believe that its dark fiber offerings are subject to the common carrier
provisions of the Federal Communications Commission ("FCC") or to the common
carrier provisions of the Communications Act of 1934, as amended (the
"Communications Act").
Federal telecommunications law also imposes special legal requirements on
"telecommunications carriers." The law essentially defines "telecommunications
carriers" as those offering certain telecommunication services "directly to the
public" or to all potential users. The Company therefore believes that a Company
has to be a common carrier in order to be considered a telecommunications
carrier. For the reasons stated above, the Company believes that it is neither a
common carrier nor a telecommunications carrier with respect to its dark fiber
service. Nevertheless, the law is not entirely clear as to, and the FCC has not
definitively addressed whether, the term "telecommunications carriers" is meant
to encompass only common carriers, and therefore whether a provider of dark
fiber facilities on an individualized basis, like the Company, is a
"telecommunications carrier." The FCC has been petitioned by certain railroad,
power and telecommunications associations, none of which are affiliated with the
Company, to clarify the status of dark fiber providers in this respect, and if
the agency decides that such companies are telecommunications carriers, then the
Company would be subject to certain additional regulatory requirements. These
requirements may have a material adverse effect on the Company.
If the Company's offering of dark fiber facilities were deemed to constitute
a "telecommunications service," then its revenues from such leases to end users
(but not to other telecommunication carriers) would become subject to assessment
for the FCC's Universal Service Fund, a fund that was established by the FCC
pursuant to the Telecom Act to assist in ensuring the universal availability of
basic telecommunications services at affordable prices. Such assessments could
create a liability equal to a percentage of these gross revenues (the Company
anticipates that the rate of assessment will be approximately 4.5% of gross
interstate end-user revenues for the year 1997, and may be higher in subsequent
years).
With respect to its offering of telecommunications transmission services,
however, the Company will likely operate as a common carrier and therefore will
be subject to the regulatory requirements applicable to common carriers and to
telecommunications carriers. For example, the Company will be required,
12
<PAGE>
with respect to its transmission services, to (1) provide such services
indiscriminately upon any reasonable request; (2) charge rates and adopt
practices, classifications and regulations that are just and reasonable; and (3)
avoid unreasonable discrimination in charges, practices, regulations, facilities
and services. The Company may also be required to file tariffs setting forth the
rates for its services. Under current FCC policies, these regulatory
requirements should not impose any substantial burdens on the Company. The FCC
has recently determined, for example, that providers of "access" services (that
is, intracity transmission services used to originate and/or terminate
interstate and foreign communications) need not file tariffs and may offer such
services to customers on a private, contractual basis. Although the FCC's
policies may be subject to change in the future due to regulatory, judicial, or
legislative actions, and such changes could have a material adverse effect on
the Company, the Company does not believe that regulation of its services at the
federal level will have any detrimental effect on its competitiveness.
ILECs, CLECs and IXCs are subject to various federal telecommunications
laws. Accordingly, federal telecommunications law may affect the Company's
business by virtue of the inter-relationships that exist among the Company and
many of these regulated telecommunications entities. For example, the FCC
recently issued an order requiring, among other things, that access fees charged
to IXCs, which previously amounted to more than just the recovery of the RBOCs'
investment in fixed assets, shift from being usage driven to a fixed flat
cost-based structure. While it is not possible to predict the precise effect
this change will have on the Company's business or financial condition, the
reforms will reduce access charges paid by IXCs, likely eliminating one of the
principal disincentives for use of ILEC and CLEC facilities by IXCs, which could
have a material adverse effect on the use of the Company's fiber optic
telecommunications networks by IXCs.
STATE
In arbitrating interconnection agreements under the 1996 Act between ILECs
and their potential competitors, some state commissions have considered whether
dark fiber should be considered an unbundled network element. For example, the
New York Public Service Commission determined that it would not require NYNEX
Corporation ("NYNEX") to provide dark fiber as an unbundled network element.
State commissions, including those in Florida, Maryland, North Carolina, and
Virginia, also have either refused to require the ILECs to offer dark fiber to
competitors, or have stated that the issue would be addressed at a later time.
On the other hand, state commissions in Illinois, Massachusetts, Arizona,
Georgia, Minnesota, Ohio, Oregon and Tennessee have found dark fiber to be a
network element and required the ILECs to offer it on an unbundled basis to
CLECs. There can be no assurance that these requirements, and the associated
pricing methodologies, where applicable, will not reduce the demand for dark
fiber provided by the Company.
Each state (and the District of Columbia, which is treated as a state for
the purpose of regulation of telecommunications services) has its own statutory
scheme for regulating providers of certain telecommunications-related services
as "common carriers," as "public utilities," or under similar rubrics. The
Company believes that the offering of dark fiber facilities is not subject to
this type of regulation in Illinois, New York, Pennsylvania, or the District of
Columbia. However, the Company's offering of transmission services (as distinct
from dark fiber capacity) likely will be subject to regulation in each of these
jurisdictions to the extent that these services are offered for intrastate use.
Even though many of the Company's facilities will be physically intrastate, the
Company anticipates that most customers will use its facilities and services for
the purpose of originating and/or terminating interstate and foreign
communications. Under current FCC policies, any dedicated transmission service
or facility that is used more than 10% of the time for the purpose of interstate
or foreign communication is subject to FCC jurisdiction to the exclusion of any
state regulation.
Regulation of the telecommunications industry is changing rapidly, and the
regulatory environment varies substantially from state to state. At present, the
Company does not anticipate that the regulatory
13
<PAGE>
requirements to which it will be subject in Illinois, New York, Pennsylvania,
and the District of Columbia will have any material adverse effect on its
operations, although the Company will incur certain costs to comply with
regulatory requirements such as the filing of tariffs, submission of periodic
financial and operational reports to regulators, and payment of regulatory fees
and assessments. In some jurisdictions, the Company's pricing flexibility for
intrastate services may be limited because of regulation, although the Company's
direct competitors will be subject to similar restrictions. However, there can
be no assurance that future regulatory, judicial, or legislative action will not
have a material adverse effect on the Company.
LOCAL
In addition to federal and state laws, local governments exercise legal
authority that may impact the Company's business. For example, local
governments, such as the City of New York, typically retain the ability to
license public rights-of-way, subject to the limitation that local governments
may not prohibit persons from providing telecommunications services. Local
authorities affect the timing and costs associated with the Company's use of
public rights-of-way. These regulations may have an adverse effect on the
Company's business.
INTERNATIONAL
Various regulatory requirements and limitations also will influence the
Company's business as it attempts to enter international markets.
Although the Company has not fully determined its international business
strategy, the Company is currently negotiating an agreement with a foreign firm
that contemplates jointly acquiring and selling international, facilities-based
telecommunications capacity between the U.S. and the United Kingdom. Depending
on the Company's specific business plan in this arrangement, it is possible that
the Company will become a U.S. international common carrier subject to U.S.
regulation under Title II of the Communications Act. Under current FCC rules,
international carriers that do not exercise market power and that are not
affiliated with dominant foreign carriers are subject to relatively relaxed U.S.
regulation as nondominant international carriers. As a common carrier, the
Company would be subject to, among other policies, the common carrier
obligations of nondiscrimination. In addition, FCC rules prohibit U.S. carriers
from bargaining for special concessions from foreign partners. The Company would
also be required, under Section 214 of the Communications Act, to obtain
authority and file an international service tariff containing rates, terms and
conditions prior to initiating service. As a nondominant carrier, the Company
would be eligible to seek "global" authority to operate as facilities-based
and/or resale carrier in an application subject to the FCC's streamlined
processing rules. International carriers are also subject to certain annual fees
and filing requirements including the requirement to file contracts with other
carriers including foreign carrier agreements, and reports setting forth
international circuit, traffic and revenue data service. Failure to obtain an
appropriate U.S. license for international service or the revocation of a
license could have a material adverse effect on the future operations of the
Company.
If the Company operates as an international common carrier, it will also be
required to comply with FCC's rules regarding the International Settlements
Policy (the "ISP") which defines the permissible boundaries for U.S. carriers
and their foreign correspondents to settle the cost of terminating each other's
traffic over their respective networks. The ISP is designed to eliminate a
foreign carrier's opportunity to discriminate among different U.S. carriers by
bargaining for accounting rates or other terms that benefit the foreign carrier
but is inconsistent with the U.S. public interest. The ISP generally provides
that U.S. carriers may only enter into foreign carrier agreements for the
exchange of traffic that contain the same accounting rate and settlement rate
(typically one-half of the accounting rate) offered to all other U.S. carriers.
The ISP also requries U.S. carriers to adhere to the principle of proportionate
return so that competing U.S. carriers have comparable opportunities to receive
the return traffic that reduces the marginal cost of providing international
service.
14
<PAGE>
The FCC continues to refine its international service rules to promote
competition, reflect and encourage liberalization in foreign countries, and
reduce accounting rates toward cost. Indeed, the FCC recently established
reduced "benchmark" rates for the amounts U.S. carriers will be allowed to pay
to foreign carriers for terminating U.S.-originated traffic. Effective January
1, 1998, U.S. carriers will have one year to ensure that the rate paid to
terminate traffic in the U.K. does not exceed $.15/minute.
In addition, in connection with the proposed transaction between MCI
Communications and British Telecom and in other decisions, the FCC has
recognized the advent of competition in the U.K. market by designating the U.K.
as a country that offers "equivalent opportunities" for the resale of
international private line services and "effectively competitive opportunities."
Those decisions have relaxed or eliminated regulatory limitations on certain
U.S. carrier services between the U.S. and the U.K. and permitted U.K. carriers
to enter the U.S. market through affiliations with U.S. carriers. In addition,
the FCC has determined that it would permit U.S. carriers to enter into
"flexible" international termination arrangements where such arrangements
promote competition and has proposed to amend its rules to reflect the U.S.
participation in the World Trade Organization ("WTO") Agreement on Basic
Telecommunications Services in which 69 countries agreed to eliminate barriers
to competition in their markets for basic telecommunications service. Under the
proposed amendments, the FCC would, among other things, relax or eliminate
current rules that restrict or impose more stringent regulation on U.S. carriers
with affiliations with carriers from WTO-member countries.
Regulation of the international telecommunications industry is changing
rapidly. The Company is unable to predict how the FCC will resolve the various
pending international policy issues and the effect of such resolutions on the
Company.
The Company's international services would also be subject to regulation in
the United Kingdom. U.K. regulation, as well as policies and regulations on the
European Union level, would impose separate licensing, service and other
conditions on the Company's international service operations, and these
requirements may have a material adverse impact on the Company.
RISK OF CANCELLATION OR NON-RENEWAL OF FRANCHISES, LICENSES OR PERMITS
The Company operates its NY Network based on a franchise agreement entered
into between the Company and the City of New York on December 20, 1993 (the "NYC
Franchise Agreement"). Both the City of New York and the Company have the right,
at any time after December 2000, upon six months notice, to renegotiate certain
terms of the NYC Franchise Agreement, including the annual franchise fee payable
by the Company, based on changes in technological, regulatory or market
conditions which may occur after the effective date of the NYC Franchise
Agreement. In the event either party calls for renegotiation, both the City of
New York and the Company are required to negotiate any such changes in good
faith. In the event an agreement cannot be reached upon any such renegotiation,
the NYC Franchise Agreement will be subject to early termination on a date which
would be one half of the number of days between the date of the notice to
renegotiate and January 1, 2009. Termination of the NYC Franchise Agreement
would have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business--Franchise, License and
Related Agreements--New York City Franchise Agreement." The Company will also
need to obtain additional franchises, licenses and permits for its planned
Intra-City Networks and Inter-City Network. There can be no assurance that the
Company will be able to maintain its existing franchises, licenses or permits or
to obtain and maintain the other franchises, licenses or permits needed to
implement its strategy on acceptable terms.
NEED TO OBTAIN AND MAINTAIN RIGHTS-OF-WAY
The Company must obtain additional rights-of-way and other permits from
railroads, utilities, state highway authorities, local governments and transit
authorities to install underground conduit for the expansion of the NY Network
and the Company's planned Intra-City Networks and Inter-City Network.
15
<PAGE>
There can be no assurance that the Company will be successful in obtaining and
maintaining such right-of-way agreements or obtaining such agreements on
acceptable terms. Some of these agreements may be short-term or revocable at
will, and there can be no assurance that the Company will have continued access
to existing rights-of-way after their expiration or termination. If any of these
agreements were terminated or could not be renewed and the Company were forced
to remove its fiber optic cable from under the streets or abandon its networks,
such termination would have a material adverse effect on the Company's business,
results of operations and financial condition.
More specifically, the Company's NY Network relies upon, and its planned
expansions into Long Island and Westchester County will rely upon, right-of-way
agreements between the Company and NYNEX and its subsidiary, Empire City Subway
Company (Ltd.) ("ECS"). The current agreements are subject to termination at any
time without cause upon three months' notice. In case of termination, the
Company may be required to remove its fiber optic cable from the conduits or
poles of NYNEX. Such termination would have a material adverse effect on the
Company's business, financial condition and results of operations.
RAPID TECHNOLOGICAL CHANGE
The communications industry is subject to rapid and significant changes in
technology that could materially affect the continued use of fiber optic cable.
The effect of technological changes on the business of the Company cannot be
predicted, and there can be no assurance that technological changes in the
communications industry will not have a material adverse effect on the Company's
business, results of operations and financial condition.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
There are certain risks inherent in doing business on an international
level, including regulatory limitations restricting or prohibiting the provision
of the Company's services, unexpected changes in regulatory requirements,
tariffs, customs, duties and other trade barriers, difficulties in staffing and
managing foreign operations, longer payment cycles, problems in collecting
accounts receivable, political risks, fluctuations in currency exchange rates,
technology export and import restrictions or prohibitions, delays from customs
brokers or government agencies, and potentially adverse tax consequences
resulting from operating in multiple jurisdictions with different tax laws.
Furthermore, international rates charged to customers are likely to decrease in
the future for a variety of reasons, including increased competition between
existing carriers, new entrants into geographic markets in which the Company
operates or intends to operate and additional strategic alliances or joint
ventures among large international carriers that facilitate targeted pricing and
cost reductions. See "--Extensive Regulation-- International" and
"Business--Regulation."
RISKS ASSOCIATED WITH ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES
The Company may, in the future, acquire or engage in efforts to acquire
customer bases and businesses from, make investments in, or enter into strategic
alliances with, companies which have customer bases, switching capabilities or
existing networks in the Company's current markets or in areas into which the
Company intends to expand the MFN Network. Although the Company is currently
evaluating several potential strategic opportunities, it does not have any
present definitive commitment or agreement with respect to any material
acquisition, investment, strategic alliance or related effort. Any future
acquisitions, investments, strategic alliances or related efforts will be
accompanied by the risks such as the difficulty of identifying appropriate
acquisition candidates, the difficulty of assimilating the operations of the
respective entities, the potential disruption of the Company's ongoing business,
the inability of management to capitalize on the opportunities presented by
acquisitions, investments, strategic alliances or related efforts, the failure
to successfully incorporate licensed or acquired technology and rights into the
Company's services, the inability to maintain uniform standards, controls,
16
<PAGE>
procedures and policies and the impairment of relationships with employees and
customers as a result of changes in management. There can be no assurance that
the Company would be successful in overcoming these risks or any other problems
encountered with such acquisitions, investments, strategic alliances or related
efforts. See "--Risks Associated with Growth Strategy; Management of Expansion"
and "Business--Business Strategy--Utilize Strategic Relationships to Expand the
Reach of the MFN Network."
PRICING PRESSURES AND INDUSTRY CAPACITY
The long distance transmission industry has generally been characterized as
having overcapacity and declining prices since shortly after the AT&T
divestiture in 1984. Although the Company believes that, in the last several
years, increasing demand has resulted in a shortage of capacity and slowed the
decline in prices, the Company anticipates that prices for its services
specifically, and long distance services in general, will continue to decline
over the next several years due primarily to (i) price competition as various
network providers continue to install networks that might compete with the MFN
Network, (ii) recent technological advances that permit substantial increases in
the transmission capacity of both new and existing fiber and (iii) strategic
alliances or similar transactions, such as long distance capacity purchasing
alliances among certain RBOCs, that increase the parties' purchasing power. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RELIANCE ON KEY PERSONNEL; CONCENTRATION OF VOTING POWER BY PRINCIPAL
STOCKHOLDERS; ANTI-TAKEOVER EFFECTS OF TWO CLASSES OF STOCK
The Company's business is managed by a small number of key management and
operating personnel, the loss of certain of whom could have a material adverse
effect on the Company's business, results of operations and financial condition.
The Company believes that its future success will depend in large part on its
ability to attract and retain highly skilled and qualified personnel and to
expand, train and manage its employee base. None of the Company's key
executives, other than Stephen A. Garofalo, Chief Executive Officer, Secretary
and Chairman of the Board, and Howard Finkelstein, President and Chief Operating
Officer, is presently a party to an employment or non-competition agreement with
the Company. See "Management--Employment Agreements."
The holders of Class A Common Stock are entitled to one vote per share.
Holders of Class B Common Stock are entitled to ten votes per share and vote as
a separate class to elect at least 75% of the members of the Board of Directors.
Each share of Class B Common Stock is convertible at any time into one share of
Class A Common Stock, and with limited exceptions converts automatically upon
any transfer thereof. Stephen A. Garofalo currently controls approximately 57%
of the outstanding shares of Class A Common Stock. Metromedia and certain of its
affiliates currently own 100% of the Class B Common Stock, and represent
approximately 76% of the Company's total voting power (on a fully diluted basis,
without giving effect to the Offerings). Accordingly, Metromedia will be able to
control the Board of Directors and all shareholders decisions and, in general,
to determine (without the consent of the Company's other stockholders) the
outcome of any corporate transaction or other matter submitted to the
stockholders for approval, including mergers, consolidations and the sale of all
or substantially all of the Company's assets. In addition, Metromedia has the
power to prevent or cause a change in control of the Company. See "Description
of Capital Stock," "Principal Shareholders" and "Certain Relationships and
Related Transactions."
CONTROL BY AND RELIANCE UPON METROMEDIA COMPANY
Metromedia and its general partners currently own all of the Class B Common
Stock, each entitled to 10 votes per share, representing approximately 76% of
the Company's total voting power (on a fully diluted basis, without giving
effect to the Offerings). In addition, since holders of Class B Common Stock
17
<PAGE>
are entitled to vote as a separate class to elect at least 75% of the members of
the Board, Metromedia will be able to control the Board and all stockholder
decisions and, in general, to determine (without the consent of the Company's
other stockholders) the outcome of any corporate transaction or other matter
submitted to the stockholders for approval, including mergers, consolidations
and the sale of all or substantially all of the Company's assets. Metromedia
also has the power to prevent or cause a change in control of the Company. In
addition, over the past year, Metromedia has made available to the Company
approximately $8.0 million in debt financing and has consummated the Metromedia
Investment. There can be no assurance that Metromedia will provide any
additional financing to the Company. See "--Reliance on Key Personnel;
Concentration of Voting Power by Principal Stockholders; Anti-takeover Effects
of Two Classes of Stock," "Description of Capital Stock," "Principal
Shareholders" and "Certain Relationships and Related Transactions."
ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK
PRICE
Prior to the Offerings, there has been no public market for the Class A
Common Stock. The initial public offering price of the Class A Common Stock will
be determined by negotiations among the Company and the Representatives of the
Underwriters (each as defined herein), and may bear no relationship to the price
at which the Class A Common Stock will trade after completion of the Offerings.
The Class A Common Stock has been approved for listing, subject to notice of
issuance, on the Nasdaq National Market; however, there can be no assurance that
an active trading market will develop or be maintained for the Class A Common
Stock following the Offerings or that the Class A Common Stock will trade in the
public market at or above the initial public offering price. For factors
considered in determining the initial public offering price, see "Underwriting."
After completion of the Offerings, the market price of the Class A Common Stock
will be subject to fluctuations in response to various factors and events,
including the liquidity of the market for the Class A Common Stock, variations
in the Company's quarterly operating results, regulatory or other changes, both
domestic and international, affecting the communications industry generally or
the Company specifically, announcements of business developments by the Company
or its competitors, changes in operating results and changes in general market
conditions. See "--Limited History of Operations; Negative Losses and Negative
Cash Flow from Operations; Expected Future Net Losses and Negative Cash Flow
from Operations", "--Extensive Regulation", "--Risk of Cancellation or
Non-Renewal of Franchises, Licenses or Permits" and "-- Competitive Industry."
SHARES ELIGIBLE FOR FUTURE SALE; POTENTIAL ADVERSE EFFECT ON STOCK PRICE;
REGISTRATION RIGHTS
Sales of a substantial number of shares of Class A Common Stock in the
public market, or the perception that such sales may occur could adversely
effect prevailing market prices for the Class A Common Stock and the ability of
the Company to raise capital in the future. Upon completion of the Offerings,
the Company will have outstanding 16,204,267 shares of Class A Common Stock. Of
such shares, the 6,600,000 shares of Class A Common Stock being sold in the
Offerings (together with any shares sold upon exercise of the Underwriters'
over-allotment option) will be immediately eligible for sale in the public
market without restriction, except for shares purchased by or issued to any
affiliate (an "Affiliate") of the Company (within the meaning of the Securities
Act of 1933, as amended (the "Securities Act")). For so long as any stockholder
remains an Affiliate of the Company, any shares of Class A Common Stock held by
such person will only be available for public sale if such shares are registered
under the Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144 ("Rule 144") of the Securities Act, and any sales
by an Affiliate under Rule 144 would be subject to the volume and other
limitations under such rule. shares of Class A Common Stock which are
"restricted securities", as that term is defined in Rule 144, owned by persons
who are neither Affiliates of the Company nor subject to lock-up agreements with
the Underwriters are currently eligible for sale under Rule 144. Upon the
expiration or waiver of certain lock-up agreements with the Underwriters,
approximately additional shares of Class A Common Stock will be eligible
for sale in the public
18
<PAGE>
market pursuant to Rule 144. Pursuant to lock-up agreements with the
Underwriters, the Company and executive officers and directors of the Company
have agreed not to offer, sell, contract to sell or otherwise dispose of,
directly or indirectly, any shares of Class A Common Stock or any securities of
the Company that are substantially similar to the Class A Common Stock,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Class A Common Stock
or any such substantially similar securities (other than pursuant to employee or
director stock or stock option plans existing on the date of this Prospectus)
for a period of 180 days after the date of this Prospectus without the prior
written consent of Salomon Brothers Inc, except for the shares of Class A Common
Stock offered in connection with the Offerings. See "Certain Relationships and
Related Transactions," "Description of Capital Stock" and "Shares Eligible for
Future Sale." In addition, 4,260,511 shares are issuable upon the exercise of
outstanding options and warrants.
LITIGATION AGAINST THE COMPANY
The Company, Stephen A. Garofalo, Metromedia, Peter Sahagen, Peter
Silverman, and Silverman, Collura, Chernis & Balzano, P.C. are currently
defendants in an action brought by Howard Katz, Realprop Capital Corp. and
Evelyn Katz in the United States District Court for the Southern District of New
York (the "Katz Litigation"). On May 28, 1997, the plaintiffs filed an amended
complaint and on September 15, 1997, the plaintiffs filed a second amended
complaint. The complaint, as amended, alleges causes of action for, among other
things, common law fraud, violations of Section 10(b) of the Securities Exchange
Act of 1934 and Rule 10b-5 promulgated thereunder, breach of fiduciary duty and
negligent misrepresentation for alleged misrepresentations and omissions made in
connection with the repurchase of the Katz Securities (as defined below under
"Certain Relationships and Related Transactions"). The complaint, as amended,
also contains allegations of corporate waste against the Company and Mr.
Garofalo. Plaintiffs seek, among other things, compensatory damages of not less
than $12 million, punitive damages in the amount of $100 million and, in the
alternative, rescission of the purchase by the Company of 264,631 shares of
Class A Common Stock and 207,883 warrants to acquire shares of Class A Common
Stock. On June 11, 1997, various defendants, including the Company and Stephen
A. Garofalo, moved to dismiss the complaint and the motion is still pending.
While the Company currently intends to vigorously defend itself against these
allegations based on its belief that MFN acted appropriately in connection with
the matters at issue in this litigation, no assurance can be made that the
Company will not determine that the advantages of entering into a settlement
outweigh the risks and expense of protracted litigation or that ultimately the
Company will be successful in its defense of the allegations. If the Company is
unsuccessful in its defense of the allegations, an award of the magnitude being
sought by the plaintiffs in the Katz Litigation could have a material adverse
effect on the Company's financial condition or results of operations. See
"Business--Legal Proceedings."
LIMITED NATURE OF COMPANY'S CURRENT SERVICES
The Company is a facilities-based provider of technologically advanced,
high-bandwidth, fiber optic communications infrastructure, and it is not
currently engaged in the transmission of voice, data or video services and does
not provide switched voice and data services. Accordingly, at the present time,
the Company, unlike other telecommunications companies, receives no revenues
from providing such services, and instead derives substantially all of its
revenues from the leasing of fiber optic capacity to its customers, many of whom
transmit voice, data and/or video information or provide switched voice and data
services. While the Company may in the future decide to provide such services,
the limited nature of the Company's current services could limit potential
revenues and result in the Company having lower revenues than competitors which
provide a wider array of services. See "Business--Customers" and
"Business--Competition."
19
<PAGE>
ABSENCE OF DIVIDENDS
The Company anticipates that all of its earnings in the foreseeable future
will be retained to finance the continued growth and expansion of its business
and has no current intention to pay cash dividends on its Class A Common Stock.
See "Dividend Policy."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Class A Common Stock in the Offerings will experience
immediate and substantial dilution of $9.62 per share in the net tangible book
value per share of outstanding Class A Common Stock. See "Dilution."
20
<PAGE>
USE OF PROCEEDS
The net proceeds from the Offerings are estimated to be approximately $91.1
million (approximately $104.9 million if the Underwriters' over-allotment option
is exercised in full) after deducting estimated expenses of the Offerings
payable by the Company. Such net proceeds will be used primarily for capital
expenditures associated with the build-out of the MFN Network, the development
and introduction of new services and for general corporate and working capital
purposes. See "Business."
There can be no assurance that the Company's actual application of the
proceeds will not vary substantially from the Company's current plans. Moreover,
the Company will need additional capital to (i) finance the completion of its
planned network, (ii) fund working capital needs and future debt service
obligations, (iii) take advantage of unanticipated opportunities, including more
rapid international expansion, acquisitions of businesses, investments in, or
strategic alliances with, companies that are complementary to the Company's
current operations, (iv) develop or expand into new services or (v) otherwise
respond to unanticipated competitive pressures. See "Risk Factors--Competitive
Industry," "--Risks Associated with Acquisitions, Investments and Strategic
Alliances" and "Business--Business Strategy."
Pending application of the net proceeds of the Offerings, the Company
expects that it will place such net proceeds in interest-bearing bank accounts
or invest such proceeds in United States government securities or other
short-term, interest bearing, investment grade securities. The Company is not
currently, and does not expect as a result of the Offerings to become, subject
to the registration requirements of the Investment Company Act of 1940.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Class A
Common Stock and does not expect to do so in the foreseeable future. The Company
anticipates that all future earnings, if any, generated from operations will be
retained to finance the expansion and continued development of its business. Any
future determination with respect to the payment of dividends will be within the
sole discretion of the Company's Board and will depend upon, among other things,
the Company's earnings, capital requirements, the terms of then existing
indebtedness, applicable requirements of the Delaware General Corporation Law
(the "DGCL"), general economic conditions and such other factors considered
relevant by the Company's Board. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
21
<PAGE>
DILUTION
As of June 30, 1997, the net tangible book value of the Company was
approximately $19 million, or $1.38 per share of outstanding Common Stock
(taking into account the Reverse Stock Split and the Reclassifications). Net
tangible book value per share of Common Stock represents the total amount of
tangible assets of the Company, less the total amount of liabilities of the
Company, divided by the number of shares of Common Stock outstanding. After
giving effect to Reverse Stock Split, Reclassifications and the sale by the
Company of the 6,600,000 shares of Class A Common Stock offered hereby at an
assumed initial offering price of $15.00 per share (the midpoint of the range of
prices set forth on the cover page of this Prospectus) and assuming no exercise
of the Underwriters' over-allotment option and the application of the net
proceeds therefrom (after deducting estimated offering expenses payable by the
Company and estimated underwriting discounts and commissions), the pro forma net
tangible book value of the Company as of June 30, 1997 would have been
approximately $110 million, or $5.38 per share of Common Stock, representing an
immediate increase in net tangible book value of approximately $4.00 per share
of Common Stock to existing stockholders and an immediate dilution in net
tangible book value of approximately $9.62 per share to new investors purchasing
shares of Class A Common Stock in the Offerings. The following table illustrates
this per share dilution to the new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1)............. $ 15.00
Net tangible book value per share of Common Stock at June 30,
1997 (adjusted for the Reverse Stock Split and the
Reclassifications but excluding the Offerings)............... 1.38
Increase in net tangible book value per share of Common Stock
attributable to net proceeds of the Offerings................ 4.00
Pro forma net tangible book value per share of Common Stock
after giving effect to the Offerings......................... 5.38
-------------
Dilution per share to new investors of Class A Common Stock in
the Offerings................................................ $ 9.62
-------------
-------------
</TABLE>
- ------------------------
(1) Before deduction of underwriting discounts and offering expenses.
The following table sets forth, on a pro forma basis as of June 30, 1997,
and after giving effect to the Reclassifications and the Reverse Stock Split,
the number of shares of Class A Common Stock purchased from the Company, the
total consideration paid to the Company and the average price per share of
Common Stock paid by existing stockholders and to be paid by new investors,
assuming that shares purchased in the Offerings are sold at $15.00 per share
(the midpoint of the range of prices set forth on the cover page of this
Prospectus) before deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company:
<TABLE>
<CAPTION>
AVERAGE
PRICE
SHARES PURCHASED TOTAL CONSIDERATION PER SHARE
------------------------ --------------------------- -----------
<S> <C> <C> <C> <C> <C>
NUMBER PERCENT AMOUNT PERCENT
------------- --------- ---------------- ---------
Existing Stockholders......................... 13,825,426 67.7% $ 38,781,023 28.1% $ 2.80
New Investors................................. 6,600,000 32.3 99,000,000 71.9 $ 15.00
------------- --------- ---------------- ---------
Total....................................... 20,425,426 100.0% $ 137,781,023 100.0%
------------- --------- ---------------- ---------
------------- --------- ---------------- ---------
</TABLE>
The above tables assume no exercise of any outstanding options or warrants.
As of the date hereof, options and warrants to purchase 4,260,511 shares of
Class A Common Stock, exercisable at prices ranging from $1.97 to $9.00 per
share, have been issued and are outstanding. To the extent options and warrants
are exercised, there will be further dilution to new investors. See
"Management--Executive Compensation" and "Capitalization."
22
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the Company's actual capitalization as
of June 30, 1997 after giving effect, retroactively, to the Reverse Stock Split
and (ii) the capitalization of the Company at such date, as adjusted, after
giving effect to the Reclassifications, the Reverse Stock Split and the issuance
of shares of Class A Common Stock offered hereby. This table should be read in
conjunction with the Consolidated Financial Statements of the Company, including
the notes thereto, and the other financial data included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
--------------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
-------------- ----------------
Cash and cash equivalents....................................................... $ 22,893,466 $ 113,963,466
-------------- ----------------
-------------- ----------------
Stockholders' equity (deficit):
Class A Common Stock, par value $.01 per share; 180,000,000 shares authorized;
no shares issued and outstanding actual; 16,204,267 as adjusted............. $ -- $ 162,043
Class B Common Stock, par value $.01 per share; 20,000,000 shares authorized;
no shares issued and outstanding actual; 4,221,159 as adjusted.............. -- 42,212
Preferred Stock, par value $.01 per share, 2,000,000 shares authorized;
8,403.325 shares of Series B Preferred Stock issued and outstanding actual;
none as adjusted............................................................ 84 --
Common Stock, par value $.01 per share; 60,000,000 shares authorized;
9,564,940 shares of Old Common Stock issued and outstanding actual; none as
adjusted.................................................................... 95,649 --
Additional paid-in capital.................................................... 52,904,837 143,866,315
Accumulated deficit........................................................... (33,957,719) (33,957,719)
-------------- ----------------
Total stockholders' equity................................................ 19,042,851 110,112,851
-------------- ----------------
Total capitalization.................................................... $ 19,042,851 $ 110,112,851
-------------- ----------------
-------------- ----------------
</TABLE>
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected consolidated financial data presented below as of and for the
years ended December 31, 1994, 1995 and 1996 have been derived from the
Consolidated Financial Statements of the Company and the notes related thereto
included elsewhere in this Prospectus. The Financial Statements of the Company
for the year ended December 31, 1994 have been audited by Richard A. Eisner &
Company, LLP, independent auditors, the Consolidated Financial Statements of the
Company as of and for the year ended December 31, 1995 have been audited by M.R.
Weiser & Co. LLP, Certified Public Accountants, and the Consolidated Financial
Statements of the Company as of and for the year ended December 31, 1996 have
been audited by Ernst & Young LLP, independent auditors. The selected financial
data as of and for the period ended December 31, 1993, have been derived from
the unaudited financial statements of the Company which, in the opinion of
management, include all adjustments necessary for a fair presentation of the
financial condition and results of operations for the Company for such period.
The selected consolidated financial data and balance sheet data as of and for
the six months ended June 30, 1997 and the summary consolidated financial data
as of and for the six months ended June 30, 1996 have been derived from the
unaudited Consolidated Financial Statements of the Company, and the notes
related thereto, included elsewhere in this Prospectus, which, in the opinion of
management, include all adjustments necessary for a fair presentation of the
financial condition and results of operations of the Company for such periods.
The results of operations for interim periods are not necessarily indicative of
a full year's operations. The following information should be read in
conjunction with "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and the Consolidated
Financial Statements of the Company and the notes thereto, and other financial
data appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 8, 1993 SIX MONTHS
(DATE OF YEAR ENDED DECEMBER 31, ENDED JUNE 30,
INCEPTION) TO --------------------------------------- -------------------------
DECEMBER 31, 1993 1994 1995 1996 1996 1997
------------------ --------- -------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue.................... $ -- $ -- $ 56,149 $ 236,082 $ 82,035 $ 541,886
Expenses:
Cost of sales............ -- -- -- 698,793 265,029 1,081,677
Selling, general and
administrative......... 188,000 874,000 3,886,568 2,070,345 1,276,853 2,186,291
Depreciation and
amortization........... -- -- 161,576 612,530 292,319 372,935
Consulting and employment
incentives(a).......... -- -- -- 3,652,101 3,651,442 13,419,900
---------- --------- -------------- ------------ ----------- ------------
Loss from operations....... 188,000 874,000 3,991,995 6,797,687 5,403,608 16,518,917
Interest expense, net...... -- -- 327,106 3,561,010 1,807,956 475,252
---------- --------- -------------- ------------ ----------- ------------
Net loss................... $ 188,000 $ 874,000 $ 4,319,101 $ 10,358,697 $ 7,211,564 $ 16,994,169
---------- --------- -------------- ------------ ----------- ------------
---------- --------- -------------- ------------ ----------- ------------
Net loss applicable to
common stockholders per
share.................... $ 0.04 $ 0.10 $ 0.48 $ 0.87 $ 0.66 $ 1.36
---------- --------- -------------- ------------ ----------- ------------
---------- --------- -------------- ------------ ----------- ------------
Number of shares of common
stock assumed
outstanding(b)........... 4,408,237 8,721,210 9,094,472 11,851,801 10,993,990 12,599,295
---------- --------- -------------- ------------ ----------- ------------
---------- --------- -------------- ------------ ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
AS OF
JULY 31, 1997
---------------------
<S> <C>
OPERATING DATA:
Route miles of fiber installed............................................................... 54
Fiber miles of fiber installed............................................................... 7,188
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
----------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(C)
----------- ---------------
BALANCE SHEET DATA:
Current assets..................................................................... $23,509,306 $ 114,579,306
Working capital.................................................................... 21,027,781 112,097,781
Property and equipment, net........................................................ 7,354,768 7,354,768
Total assets....................................................................... 31,651,111 122,721,111
Long-term debt..................................................................... -- --
Total liabilities.................................................................. 12,608,260 12,608,260
Stockholders' equity............................................................... 19,042,851 110,112,851
</TABLE>
- ------------------------
(a) Represents value of common stock, warrants and options issued to consultants
and officers to provide services to the Company.
(b) Based upon the weighted average shares outstanding; see Note 1 to "Notes to
Consolidated Financial Statements."
(c) Adjusted to give effect to the Offerings and the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH "SELECTED
CONSOLIDATED FINANCIAL AND OTHER DATA" AND THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE COMPANY, INCLUDING THE NOTES RELATED THERETO, AND THE OTHER FINANCIAL
DATA APPEARING ELSEWHERE IN THIS PROSPECTUS.
STATEMENT ON FORWARD-LOOKING INFORMATION
CERTAIN INFORMATION INCLUDED HEREIN CONTAINS STATEMENTS THAT CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE REFORM ACT. SUCH FORWARD
LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER
FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE
COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH
FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING: GENERAL ECONOMIC AND BUSINESS
CONDITIONS; INDUSTRY CAPACITY; UNCERTAINTY REGARDING AND CHANGES IN CUSTOMER
PREFERENCES; DEMOGRAPHIC CHANGES; COMPETITION; CHANGES IN METHODS OF MARKETING
AND TECHNOLOGY; CHANGES IN POLITICAL, SOCIAL AND ECONOMIC CONDITIONS AND
REGULATORY FACTORS AND VARIOUS OTHER FACTORS BEYOND THE COMPANY'S CONTROL. THE
"SAFE-HARBOR" PROTECTIONS OF THE REFORM ACT ARE GENERALLY NOT AVAILABLE TO
INITIAL PUBLIC OFFERINGS, INCLUDING THE OFFERINGS.
GENERAL
The Company is a facilities-based provider of technologically advanced,
high-bandwidth fiber optic communications infrastructure to carrier and
corporate/government customers, primarily in the form of leased fiber optic
cables and circuits. The Company currently derives all of its revenues in
connection with leasing dark fiber on the NY Network. Fees paid to the Company
by communications carriers and corporate and government customers are on an
unmetered basis. The costs associated with the initial development and
construction of the NY Network include engineering, installation, conduit, fiber
cable and easement costs. A substantial portion of these costs are incurred
before the realization of revenues and result in negative cash flow. The
Company's other operating expenses consist of selling, general and
administrative expenses ("SG&A"), as well as depreciation and amortization. The
franchise fees were included in Cost of Sales for the year ended December 31,
1996, while for the years ended December 31, 1994 and 1995 such fees were
classified as SG&A. The franchise fee payable to the City of New York is
currently 6% of Gross Revenues, and for 1998 and thereafter for the remainder of
the term of the franchise, the fee will be 5% of Gross Revenues. See
"Business--Franchise, License and Related Agreements--New York City Franchise
Agreement". "Gross Revenues" is defined in the NYC Franchise Agreement as all
revenues received directly or indirectly by the Company or any affiliate of the
Company from or in connection with telecommunications services which originate
in, terminate in, or transit New York City. Revenues that are generated from
transmissions which transit New York City, but also include transmission through
other areas, are to be pro-rated. The minimum franchise fee payable to the City
of New York is $200,000 per annum.
The Company's proposed business strategy includes the expansion of the NY
Network, construction of intra-city networks in Washington, D.C., Chicago and
Philadelphia and construction of an inter-city network between New York City and
Washington, D.C. Revenues will continue to be derived from fixed unmetered
charges for the provision of fiber optic capacity. If the Company does not
complete certain construction by a specified time, some of these contracts may
be terminated. There can be no assurance that the Company will complete the
expansion of the NY Network in a timely manner or that certain contracts will
not be terminated. The Company anticipates that as its expansion progresses
revenues derived from carrier customers as opposed to corporate and government
customers will constitute an increasing percentage of the Company's revenue base
due to the larger volume of capacity typically required by carriers. The
expansion of the NY Network and the construction of additional networks will
require additional expenditures. Expenses for the planned expansion consist of
engineering, installation, conduit, fiber cable and easement costs. These
expenses will result in negative cash flow until an adequate customer base is
established. Once its networks are completed and such a
26
<PAGE>
customer base is established, the Company expects that incremental revenues can
be added with relatively low additional expense, due to the predominantly fixed
nature of the Company's costs.
To date, the Company has signed certain of its customers to long term leases
which require an upfront payment rather than recurring monthly payments over the
term of a lease. The Company intends to continue this practice in the future to
the extent that it is economically practical. If the Company continues to sign
up new leases on these terms, the incoming cash flows from such upfront payments
in the early years, when the use of capital is greatest, may be greater than the
revenue recognized on an accrual basis. The Company also intends to attempt to
have customers fund a portion of the Company's construction expenses. To the
extent this occurs in future leases, incoming cash flows in the early years may
be greater than the revenue recognized on an accrual basis and the opposite will
be true in the later years of such leases.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
REVENUES. Total revenues increased to $541,886 for the six months ended
June 30, 1997 from $82,035 for the six months ended June 30, 1996, representing
an increase of $459,851. Approximately one half of this increase was derived
from lease revenue recognition with the remainder resulting from one-time
non-lease revenues. The increase in lease revenues resulted from an increase in
the customer base.
COST OF SALES. Cost of sales increased to $1,081,677 for the six months
ended June 30, 1997 from $265,029 for the six months ended June 30, 1996,
representing an increase of $816,648. The increase was primarily due to costs
associated with one time non-lease revenue recognition during the period.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A increased to $2,186,291 for the
six months ended June 30, 1997 from $1,276,853 for the six months ended June 30,
1996, an increase of $909,438. This increase is primarily a result of increased
headcount due to the staffing of the organization to accomodate the anticipated
growth of the Company. Legal expenses also increased as a result of the
increased business activity within the organization.
CONSULTING AND EMPLOYMENT INCENTIVES. Consulting and employment incentives
increased to $13,419,900 for the six months ended June 30, 1997 from $3,651,442
for the six months ended June 30, 1996, reflecting an increase of $9,768,458.
This increase is due to the increase in issuance of equity instruments to key
employees of the Company during the period.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$372,935 for the six months ended June 30, 1997 from $292,319 for the six months
ended June 30, 1996, representing an increase of $80,616. The increase in
depreciation and amortization relates to the increased size of the Company's
fiber optic network versus the prior year.
INTEREST INCOME. Interest income of $204,175 was recorded for the six
months ended June 30, 1997. Interest income in 1997 was derived from the
short-term investment of the Company's excess cash. In 1996, there was no excess
cash available for investing and no interest income.
INTEREST EXPENSE (INCLUDING FINANCING COSTS). Interest expense (including
financing costs) decreased to $679,427 for the six months ended June 30, 1997
from $1,807,956 for the six months ended June 30, 1996, representing a decrease
of $1,128,529. The decrease was primarily due to the repayment of debt from the
proceeds of the Metromedia Investment in April 1997. The Company incurred higher
financing costs for the six months ended June 30, 1996 due to efforts to fund
the expanded operations of the Company.
NET LOSS. Net loss increased to $16,994,169 for the six months ended June
30, 1997 from $7,211,564 for the six months ended June 30, 1996, representing an
increase of $9,782,605. The increase in the loss is the result of the factors
discussed above, primarily the increase in consulting and employment incentives.
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YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The Company was in its early development stage and did not generate its
first revenues until the last three months of 1995 when customers began using
the Company's facilities.
REVENUES. Total revenues increased to $236,082 for the year ended December
31, 1996 from $56,149 for the year ended December 31, 1995, representing an
increase of $179,933. The increase in revenue is due primarily to an increase in
the number of customers.
COST OF SALES. Cost of sales was $698,793 for the year ended December 31,
1996. There were no cost of sales recorded for the year ended December 31, 1995.
The increase was primarily attributable to the inclusion of franchise and
easement fees in cost of sales.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A decreased to $2,070,345 for the
year ended December 31, 1996 from $3,886,568 for the year ended December 31,
1995, representing a decrease of $1,816,223.
CONSULTING AND EMPLOYMENT INCENTIVES. Consulting and employment incentives
were $3,652,101 for the year ended December 31, 1996 versus none in 1995,
reflecting the Company's issuance of equity instruments for consulting services.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$612,530 for the year ended December 31, 1996 from $161,576 for the year ended
December 31, 1995, representing an increase of $450,954. Certain components of
depreciation and amortization are recognized by the Company upon commencement of
service to customers, which did not occur until late 1995. As a result,
depreciation and amortization in 1996 was larger than it was in 1995 due to the
inclusion of a full year of depreciation and amortization.
INTEREST EXPENSE (INCLUDING FINANCING COSTS). Interest Expense (including
financing costs) increased to $3,561,010 for the year ended December 31, 1996
from $327,106 for the year ended December 31, 1995, representing an increase of
$3,233,904. This increase was a result of additional debt incurred in 1996 to
finance construction of the NY Network and to fund the operations of the
Company.
NET LOSS. Net Loss increased to $10,358,697 for the year ended December 31,
1996 from $4,319,101 for the year ended December 31, 1995, representing an
increase of $6,039,596. The increase in net loss is attributable to the factors
discussed above.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES. Total revenues were $56,149 for the year ended December 31, 1995.
The Company did not recognize any revenues for the year ended December 31, 1994.
COST OF SALES. There were no costs of sales incurred for the years ended
December 31, 1995 and December 31, 1994. Any franchise fees and easement costs
were recognized in SG&A during these periods.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A increased to $3,886,568 for the
year ended December 31, 1995 from $874,000 for the year ended December 31, 1994,
representing an increase of $3,012,568. This increase is primarily the result of
increased sales, marketing and administrative expenses associated with the
Company's start up phase.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $161,576
for the year ended December 31, 1995 and began to be recognized upon
commencement of service to customers in late 1995.
INTEREST EXPENSE. Interest Expense was $327,106 for the year ended December
31, 1995 primarily due to debt incurred to finance the construction of the NY
Network.
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NET LOSS. Net Loss increased to $4,319,101 for the year ended December 31,
1995 from $874,000 for the year ended December 31, 1994, representing an
increase of $3,445,101. The increase in net loss is attributable to the factors
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Since its organization in 1993, the Company has funded capital expenditures,
debt service and cash used in operations through a combination of private
placements of debt and equity securities and stockholder advances. The Company's
operations generated insufficient cash flows in 1993 through 1996 to enable it
to meet its capital expenditures, debt service and other cash needs. At December
31, 1996 and 1995, the Company had working capital deficits of approximately
$12.9 million and $11.5 million respectively. The working capital deficiencies
occurred because, prior to the financings by Metromedia, the Company had
insufficient permanent financing to fund its capital expenditures and losses
during its start-up phase.
Cash provided by operating activities was $833,019 during the six months
ended June 30, 1997 and cash used in operating activities was $3,848,863 during
the six months ended June 30, 1996. The increase in cash flow from operating
activities resulted primarily from advanced payments of $8,868,768 from
customers. Cash used in operating activities during the year ended December 31,
1996 was $2,745,590 as compared to $1,290,817 for the year ended December 31,
1995. Capital expenditures for fiber optic transmission network and related
equipment and other property amounted to $1,069,463, $135,883 and $813,377 for
the year ended December 31, 1996 and the six months ended June 30, 1996 and
1997, respectively. Net cash provided by financing activities was $4,273,464,
$3,984,851 and $22,409,500 for the year ended December 31, 1996 and the six
months ended June 30, 1996 and 1997, respectively. These amounts represent the
proceeds from the sale of securities of the Company net of the repayment of
certain of the Company's indebtedness.
On April 30, 1997, the Company issued and sold to Metromedia and certain of
its affiliates equity interests, substantially all of which will be reclassified
as Class B Common Stock, for a gross sale price of $32.5 million, the proceeds
of which were used to repay indebtedness and repurchase certain equity
securities. See "Capitalization" and "Certain Relationships and Related
Transactions--Recent Transactions."
The Company anticipates that it will continue to incur net operating losses
as it expands the NY Network, constructs additional networks and markets its
services to an expanding customer base. Cash provided by operations will not be
sufficient to fund the expansion and development of networks as currently
planned and as a result the Company intends to use cash on hand and the net
proceeds of the Offerings to fund this expansion and development. Accordingly,
the Company expects to continue experiencing net operating losses and negative
cash flows for the foreseeable future.
The build-out of the NY Network, the construction of additional networks and
the marketing of the Company's services will require substantial capital. Such
capital expenditures for years ended, 1994, 1995 and 1996 were $1,829,000,
$3,709,928 and $974,107 respectively. The Company currently estimates that, in
building out the MFN Network, its capital expenditure requirements for the
period from June 30, 1997 through the end of 1998 are expected to be
approximately $140.0 million and it estimates the total cost to complete the
construction of the MFN Network to be approximately $220.0 million. Management
believes that cash on hand together with the net proceeds from the Offerings
contemplated hereby and internally generated funds, will be sufficient to fund
the Company's capital requirements over the next 15 months. In addition,
management intends to use such sources to finance the completion of the MFN
Network, as currently planned. The Company may also consider from time-to-time
the private or public sale of additional equity or debt securities of the
Company depending upon market conditions. There can be no assurance that the
Company will be able to successfully consummate any such financing on acceptable
terms.
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<PAGE>
BUSINESS
THE COMPANY
GENERAL
The Company is a facilities-based provider of technologically advanced,
high-bandwidth, fiber optic communications infrastructure to carrier and
corporate/government customers. The Company is expanding its existing network to
encompass approximately 229,000 fiber miles, or 643 route miles, concentrated in
the northeastern United States, a market which the Company believes is
characterized by significant demand for and limited supply of fiber optic
capacity. The fiber infrastructure leased by MFN to its customers provides
high-bandwidth capacity for customers that seek to establish secure
communications networks for the transmission of large amounts of voice, data and
video. For example, a pair of MFN fiber optic strands can transmit up to 8.6
gigabits of data per second or the equivalent of approximately 129,000
simultaneous voice conversations.
The Company tailors the amounts of capacity leased to the needs of its
customers. Certain customers that lease fiber optic capacity from the Company
connect their own transmission equipment to the leased fiber, thereby obtaining
a fixed-cost, secure telecommunications alternative to the metered
communications services offered by traditional providers. Other customers that
require lesser amounts of transmission capacity will have the option to lease
such broadband capacity on the Company's network, whereby the Company
effectively divides a single strand of fiber into multiple smaller
communications channels. The Company believes that it will have installation,
operating, and maintenance cost advantages per fiber mile relative to its
competitors because MFN installs its network with as many as 432 fibers per
route mile as compared to a generally lower number of fibers in existing
competitive networks.
The Company was formed in 1993 and currently operates a 54 route mile fiber
optic communications network in the New York/New Jersey metropolitan area (the
"NY Network"), consisting of 7,188 fiber miles, approximately two-thirds of
which are currently available for lease. Within the next two years the Company
plans to complete an expansion of the NY Network to increase its coverage within
the New York/New Jersey metropolitan area. In addition, the Company intends to
construct intra-city fiber optic networks in Washington, D.C., Chicago and
Philadelphia and an inter-city fiber optic route between New York City and
Washington, D.C. The Company currently intends to expand its network in order to
connect the NY Network with other major domestic metropolitan areas, in part
through the exchange of fiber capacity with other carriers, and to extend its
network to link the NY Network to London, England, thereby providing a valuable
connection between two of the world's most important financial centers. See
"Build-out of Networks," and "Risk Factors -- Risks Associated with Growth
Strategy." The Company's NY Network supports a self-healing SONET architecture
that minimizes the risk of downtime in the event of a fiber cut and provides
MFN's customers with high security and reliability. It is expected that the
Company's other Intra-City Networks will also support a self-healing SONET
architecture. Most of the Company's fiber is installed inside high density
polyethylene conduit to protect the cable and, where practicable, MFN installs
additional unused conduits to accommodate future network expansion.
MFN is focused on providing its broadband communications infrastructure to
two main customer groups: communications carriers and corporate/government
customers located in selected Tier I markets. Carrier customers targeted by the
Company include a broad range of communications companies such as incumbent
local exchange carriers ("ILECs"), competitive local exchange carriers
("CLECs"), long distance companies/interexchange carriers ("IXCs"), paging,
cellular and PCS companies, cable companies, and Internet service providers
("ISPs"). These carrier customers typically would lease fiber optic capacity
with which they would develop their own communications networks as a low-cost
alternative to building their own infrastructure or purchasing metered services
from ILECs or CLECs. The Company's corporate and government customers would
typically lease fiber optic infrastructure and other broadband services on a
point-to-point basis for high-bandwidth, secure voice and data networks.
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<PAGE>
The Company believes that it will be well-positioned to penetrate the corporate
and government markets since it plans to continue to install most of its fiber
in Tier I markets. See "Business -- Customers."
On April 30, 1997, Metromedia and certain of its affiliates made a
substantial equity investment in the Company. Metromedia and its partners own
all of the outstanding shares of Class B Common Stock which is entitled to 10
votes per share and to vote separately to elect at least 75% of the members of
the Board. As a result, Metromedia and its partners own and control
approximately 26% of the common equity of the Company (on a fully diluted basis
without giving effect to the Offerings) and approximately 76% of the outstanding
voting power (on a fully diluted basis without giving effect to the Offerings).
Metromedia and its predecessor have successfully invested in and operated
numerous businesses in the communications industry, including cellular, paging,
long distance and media companies. In connection with the Metromedia Investment,
John W. Kluge and Stuart Subotnick who bring considerable management and
corporate governance experience to the Company, joined MFN's Board. See "Certain
Relationships and Related Transactions." In addition, David Rockefeller has
agreed to serve on the Board shortly after consummation of the Offerings. Mr.
Rockefeller brings considerable management and investment experience to the
Company.
INCREASING DEMAND FOR HIGH-BANDWIDTH CAPACITY
MFN intends to capitalize on the increasing demand for high-bandwidth
communications services and the limited supply of transmission capacity. Based
on management experience and industry reports, the Company believes that demand
for the broadband communications infrastructure afforded by its network will
continue to increase as a result of the following factors:
- RAPID GROWTH OF COMMUNICATIONS TRAFFIC. Industry research indicates that
data traffic is growing by 35% annually with demand for data services
outpacing that for voice by 20 times. The Internet, for example, has been
growing at a compound annual rate of more than 100% per year for the past
decade and it is anticipated to reach 20 million host computers connected
to the Internet by the end of 1997. Business connectivity, in particular,
is expected to grow at a rate of 65% annually to reach almost $6.4 billion
by the end of 2000. With an advanced fiber optic network, the Company
believes that it is well-positioned to take advantage of this rapid
growth.
- CAPACITY REQUIRED BY NEW ENTRANTS. Competition and deregulation are
bringing new entrants into the telecommunications market. The 1996 Act
allows the RBOCs to enter the long distance business and enables other
entities, including entities affiliated with power utilities and ventures
between ILECs and cable television companies, to provide an expanded range
of telecommunications services. The Company believes that the opening of
various telecommunications markets will lead to an increase in demand for
fiber optic cable and circuits as more communications carriers elect to
compete. As a carriers' carrier, MFN believes that carrier customers
typically would lease fiber optic capacity with which they would develop
their own communications networks as a low-cost alternative to building
their own infrastructure or purchasing metered services from ILECs or
CLECs. The Company believes that its fiber optic communications network
will provide a cost effective alternative for market entrants in a number
of communications industry segments, including ILECs, CLECs, IXCs,
wireless companies and ISPs.
- EXPECTED UPGRADES TO OLDER COMMUNICATIONS NETWORKS. Approximately 92% of
the RBOCs' networks currently are comprised of copper cable. The RBOCs
will likely need to replace or upgrade their networks to remain
competitive and satisfy their customers' increasing demand for
high-bandwidth capacity in the coming years. The Company believes that the
RBOCs will seek cost-effective and expedient solutions when faced with the
decision to buy or build fiber optic capacity which could result in
increased demand for the Company's infrastructure.
- ACCOMMODATION OF OTHER NEW APPLICATIONS. The Company believes that
additional network transmission capacity and faster response times will be
required to accommodate the needs of
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multimedia (voice, data and video) and other potential high-bandwidth
applications, including the deployment of corporate intranets and the use
of telecommunications infrastructure for providing cable television and
other entertainment services. Because applications such as intranet and
Frame Relay can use as much as OC-48 to OC-192 each, the Company believes
that there will be significant demand for its high-bandwidth
communications infrastructure.
According to an industry report, the total 1995 market for communications
services in the United States was approximately $282 billion and is expected to
grow to approximately $457 billion by the year 2000. In addition, the Company
believes there will be increased demand for its infrastructure due to its
ability to offer fixed-cost pricing which is generally more economical for high
volume users than traditional usage-based pricing.
BUSINESS STRATEGY
The Company's objective is to become the preferred facilities-based provider of
broadband communications infrastructure to communications carriers, corporations
and government agencies, primarily in the northeastern United States. The
following are the key elements of MFN's strategy to achieve this objective:
ESTABLISH THE COMPANY AS THE PREFERRED CARRIERS' CARRIER OF BROADBAND
COMMUNICATIONS INFRASTRUCTURE.
MFN leases broadband communications infrastructure on a fixed-cost basis to
various communications carriers, thus enabling them to compete in markets which
were previously difficult to penetrate due to limited and/or costly access to
high-bandwidth communications infrastructure. Specifically, the Company plans to
lease local transmission capacity within its target Tier I markets thereby
enabling its carrier customers to bypass the ILECs and CLECs. The Company
believes that it is currently the only provider providing local transmission
infrastructure on a fixed-cost basis. Additionally, the Company plans to lease
capacity on its high-bandwidth, long-haul Inter-City Network to provide seamless
connectivity between its various Intra-City Networks. The Company's fixed-cost,
long-term contracts allow its carrier customers to access certain Tier I markets
without incurring the high capital expenditures and long lead times usually
associated with building their own networks. Carriers may be more likely to
lease capacity from MFN rather than from a competitor since MFN currently has no
plans to offer communications infrastructure services on a metered basis,
choosing instead to position itself as a non-competing provider of
infrastructure alternatives for IXCs, ILECs, CLECs, etc. See "Customers."
POSITION THE COMPANY AS THE PREFERRED PROVIDER OF BROADBAND COMMUNICATIONS
INFRASTRUCTURE TO CORPORATE AND GOVERNMENT CUSTOMERS.
The Company's fiber optic network is expected to serve Tier I markets in
which there are a large number of corporations and government agencies that the
Company believes have significant demand for communications capacity which has
not been satisfied. These customers typically lease broadband communications
infrastructure from the Company on a point-to-point basis, creating secure
networks for voice, video or data communications. Customers with significant
transmission needs or who require a high degree of security are potential
candidates for leasing MFN's fiber. Customers seeking lesser amounts of
broadband transmission capacity will have the option of leasing smaller amounts
of capacity from the Company. By providing leased capacity on a fixed-cost
rather than a metered basis, MFN's network, as currently planned, will be more
economical for MFN's corporate and government customers, while also providing
enhanced reliability and security. See "Customers."
STRENGTHEN MFN'S COMPETITIVE POSITION BY EXPANDING THE MFN NETWORK.
The Company seeks to enhance its attractiveness as a communications provider
by enlarging its network according to a three-part plan: (i) expanding the NY
Network to increase coverage of the New York/New Jersey metropolitan area to
approximately 61,000 fiber miles covering 179 route miles,
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(ii) constructing fiber optic intra-city telecommunications networks in
Washington, D.C., Chicago and Philadelphia and (iii) constructing a fiber optic
backbone between New York City and Washington, D.C. to link certain of its
Intra-city Networks. Once completed, MFN's domestic fiber optic network
infrastructure, as currently planned, will consist of approximately 229,000
fiber miles covering 643 route miles.
UTILIZE STRATEGIC RELATIONSHIPS TO EXPAND THE REACH OF THE MFN NETWORK.
Another part of MFN's strategy is to enter into agreements with other
communications companies to expand the reach of the MFN Network. MFN has signed
a letter of cooperation with a leading global voice and data communications
provider in the United Kingdom. A definitive agreement, if entered into, would
expand the reach of MFN's network to the United Kingdom and provide seamless
connectivity between two leading financial centers, New York City and London.
The Company believes that its presence in Tier I markets will continue to
provide similar partnering opportunities. The Company will continue to evaluate
opportunities, including potential fiber swaps, along specific additional routes
in order to speed the build-out of the MFN Network and reduce costs.
CREATE A LOW COST POSITION.
The Company believes it will be able to establish a low cost position
relative to its competitors primarily for the following reasons: (i) the Company
currently installs trunks of up to 432 fibers per route mile, which the Company
believes is significantly more fiber than many of its competitors install,
thereby reducing the per fiber mile cost to construct and operate the MFN
Network, (ii) the Company owns a newly-constructed network with advanced fiber
optic technology which offers operating and maintenance cost advantages, (iii)
the Company believes that certain of its rights-of-way and franchises are
valuable assets that will be costly and difficult for others to procure in the
future and (iv) MFN, where practicable, installs spare conduit which will allow
for expanded fiber optic capacity at a cost significantly below the cost of new
construction. The Company's low cost position will allow it to remain price
competitive with other providers of fiber optic infrastructure and to lease its
fiber infrastructure at a price which customers will find more attractive than
the cost of constructing their own networks.
INSTALL A TECHNOLOGICALLY ADVANCED NETWORK.
The Company believes that the advanced technical characteristics of its
network will allow it to provide high levels of reliability, security and
capacity that its target customers typically demand. The NY Network is, and
future extensions of the Intra-City Networks will be, capable of supporting a
SONET ring architecture, which prevents interruption in service to its clients
by instantaneously rerouting traffic in the event of a fiber cut. The Company
will also continuously monitor and maintain high quality control of its network
on a 24-hour basis through its network operations center. The Company's network
is capable of using the highest commercially available capacity transmission
(OC-192) and thereby can handle advanced, capacity-intensive data applications
such as Frame Relay, ATM, multimedia and Internet-related applications.
BUILD ON MANAGEMENT EXPERIENCE AND METROMEDIA RELATIONSHIP.
The Company's management team and Board include individuals with
communications industry expertise and extensive experience in network design,
construction, operations and sales. MFN's Chief Executive Officer, Stephen A.
Garofalo, has approximately 25 years of experience in the cable installation
business, having managed the installation of over one half billion dollars in
electrical and communications cable in New York City. In April 1997, the Company
hired Howard Finkelstein as President and Chief Operating Officer. From 1984 to
1993, Mr. Finkelstein served as President of Metromedia Communications
Corporation, Metromedia's long distance telephone enterprise, until its merger
with WorldCom, Inc. in 1993. In his most recent position, Mr. Finkelstein was
the Chief Operating Officer and an Executive Vice President of Metromedia
International Telecommunications, Inc. He has also served in various capacities
at Metromedia and its affiliated companies over a period of 16 years. The
Company also
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<PAGE>
expects to benefit from the communications industry expertise and corporate
governance experience of John W. Kluge, Stuart Subotnick and David Rockefeller.
As the owner of all of the Class B Common Stock, Metromedia and its general
partners will control the Board and all stockholder decisions and, in general,
determine the outcome of any corporate transaction or other matter submitted to
the stockholders for approval. See "Risk Factors--Control by and Reliance Upon
Metromedia Company" and "Certain Relationships and Related Transactions."
BUILD-OUT OF NETWORKS
Since its founding in 1993 the Company has concentrated solely on developing
and constructing its NY Network. The Company has developed a plan for the
expansion of the NY Network and the construction of new fiber optic Intra-City
Networks and an Inter-City Network and is pursuing the acquisition of necessary
licenses, franchises and rights-of-way. See "Risk Factors--Risks Associated with
Growth Strategy; Management of Expansion." In constructing its fiber optic
networks, the Company seeks to create strategic alliances with the engineering
and construction management firms that have been engaged to develop routes,
easements and manage deployment plans. All firms with whom the Company is allied
in this regard have deployed local loop network infrastructure for RBOCs as well
as for CLECs. Though much of the actual construction will be outsourced to
various construction firms, the Company maintains strict oversight of the design
and implementation of its fiber optic communications networks. The Company
utilizes only advanced commercially available fiber. Although the Company has
ordered a substantial portion of its fiber optic cable from Lucent Technologies,
Inc, it believes that it could obtain advanced fiber from other suppliers on
acceptable terms.
NY NETWORK. The NY Network currently consists of a 54 route mile fiber
optic communications network in the New York/New Jersey metropolitan area
consisting of 7,188 fiber miles, approximately two-thirds of which are currently
available for lease. As currently planned, the expansion of the NY Network will
add 125 route miles with each additional route-mile consisting of up to 432
fibers for an additional 54,000 fiber miles. Upon its completion, the entire NY
Network will utilize a SONET capable fiber ring focused in Manhattan and
extending east to Brookhaven, Long Island, north to White Plains, Westchester
County, west to Jersey City, New Jersey, and south to Brooklyn, New York. The
expanded NY Network is expected to pass more than 800 buildings in New York City
and to pass through 31 RBOC central offices, which are believed to connect to
over 15 million people and over 400,000 businesses. On September 19, 1997, the
Company entered into a twenty-year fiber swap arrangement with an engineering
and telecommunications infrastructure construction company which provides the
Company with access to approximately 7,760 fiber miles (or 38.8 route miles) in
the New York/New Jersey metropolitan area in return for the Company providing
access to 21.92 route miles on its NY Network. The agreement also gives the
Company the right to acquire a twenty-year indefeasible right to use an
additional 7,756 fiber miles and duct for MFN to place its own fibers in the New
York/New Jersey metropolitan area in return for certain monthly payments.
INTRA-CITY NETWORKS. Subject to the receipt of the necessary franchises,
licenses and rights-of-way, the Company plans to construct additional fiber
optic communications networks in Washington, D.C., Chicago, and Philadelphia. No
assurance can be given that the necessary franchises, licenses and rights-of-way
will be obtained or consummated or will provide all of the rights needed to
implement the Company's strategy on acceptable terms. The following table sets
forth the Company's estimates of route miles and fiber miles for each of the
proposed Intra-City Networks. The Company anticipates it will use existing cash
balances and the proceeds from the Offerings, amounts received from long-term
lease
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arrangements from customers and additional debt or equity financings to finance
the construction of these proposed networks.
<TABLE>
<CAPTION>
PROPOSED PROPOSED
CURRENTLY PROPOSED CITIES ROUTE MILES MINIMUM FIBER MILES
- ---------------------------------------------------------- ------------- ---------------------
<S> <C> <C>
</TABLE>
<TABLE>
<S> <C> <C>
Chicago........................................ 50 21,600
Washington, D.C................................ 120 25,920
Philadelphia................................... 30 6,480
--- -------
Total.......................................... 200 54,000
</TABLE>
INTER-CITY NETWORK. Subject to the receipt of the necessary franchises,
licenses and rights-of-way, the Company plans to construct and operate its
Inter-City Network between New York City and Washington, D.C., covering
approximately 114,000 fiber miles (or 264 route miles). The Company has
completed or is in the process of negotiating for the acquisition of
rights-of-way with respect to existing conduit alternatives, as well as
construction easements with major rail and civil authorities along the route. No
assurance can be given that the necessary franchises, licenses and rights-of-way
needed to implement the Company's strategy on acceptable terms will be obtained.
RIGHTS-OF-WAY. When the Company decides to build a fiber optic
communications network, its corporate development staff seeks to obtain the
necessary city authorizations. In some cities, a construction permit is all that
is required. In other cities, a license agreement or franchise is also required.
Such licenses and franchises are generally for a term of limited duration. Where
possible, rights-of-way are leased under multi-year agreements with renewal
options and are generally non-exclusive. The Company strives to obtain
rights-of-way that afford it the opportunity to expand its communications
networks as business develops. See "Risk Factors--Need to Obtain and Maintain
Rights-of-Way."
The Company plans to lease underground conduit and pole space and other
rights-of-way from entities such as ILECs, utilities, railroads, IXCs, state
highway authorities, local governments and transit authorities.
The following is a summary of the status of MFN's efforts to secure
rights-of-way:
- NEW YORK CITY: The NYC Franchise Agreement grants MFN the right, until
December 2008, to install, operate, repair, maintain, remove and replace
cable, wire, fiber or other transmission media that may be used in lieu of
cable, wire or fiber on, over and under the inalienable property of New
York City in order to provide telecommunications services which originate
and/or terminate in or transit New York City. The Conduit Occupancy
Agreement (as defined herein) between the Company and NYNEX, together with
easements granted to the Company by ECS, authorize the installation of the
Company's fiber optic communications network in NYNEX's conduit system and
the conduit system associated with the ECS, respectively. See "Franchise,
License and Related Agreements--New York City Franchise Agreement,"
"--Conduit Occupancy Agreement" and "Risk Factors--Risk of Cancellation or
Non-Renewal of Franchises, Licenses or Permits."
- CHICAGO: MFN is negotiating easements and rights-of-way for Chicago with
two entities. MFN is also investigating procuring the required franchises,
licenses, permits and other agreements needed to complete its Chicago
network. No assurance can be given that these agreements will be
consummated or will provide all of the rights-of-way needed by MFN in
Chicago.
- WASHINGTON, D.C.: The Company has obtained rights-of-way for a portion of
the Washington, D.C. Intra-City Network and is investigating obtaining the
necessary licenses and permits for this network.
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- PHILADELPHIA: MFN has negotiated with the City of Philadelphia for
permission, subject to certain conditions, to construct, maintain and
operate, replace and remove a telecommunications system in, under and
across the public rights-of-way and city streets and/or to place such
telecommunications system within the existing facilities owned by Bell
Atlantic Corporation, PECO Energy Company, Southeastern Pennsylvania
Transportation Authority, Consolidated Rail Corporation or any other
entity holding a grant pursuant to City ordinances. An appropriate
ordinance was passed by the Philadelphia city council in June 1997 and the
Company expects to enter into formal licenses and other agreements
shortly.
In developing the Inter-City Network, MFN is negotiating with certain rail
transportation providers, public utilities, RBOCs and others to accomplish the
Company's goal of providing its customers with a flexible network architecture.
No assurance can be given that these agreements will be consummated or that the
rights-of-way needed by MFN will be obtained throughout the intended route of
the Inter-City Network.
ADVANCED TECHNOLOGY.
The MFN Network consists of fiber optic communication paths which allow for
high speed, high quality transmission of voice, data and video communications.
Fiber optic systems use laser-generated light to transmit voice, data and video
in digital formats through ultra-thin strands of glass. Fiber optic systems are
generally characterized by large circuit capacity, good sound quality,
resistance to external signal interference and direct interface to digital
switching equipment or digital microwave systems. The Company plans to install
backbone fiber optic cables containing up to 432 fiber optic strands, which have
significantly greater bandwidth than traditional analog copper cables. Using
current electronic transmitting devices, a single pair of glass fibers used by
the Company's network can transmit up to 8.6 gigabits of data per second or the
equivalent of approximately 129,000 simultaneous voice conversations, which is
substantially more than traditional analog copper cable installed in many
current communications networks. The Company believes that continuing
developments in compression technology and multiplexing equipment will increase
the capacity of each fiber optic strand, thereby providing more bandwidth
carrying capacity at relatively low incremental costs. See "Risk Factors--Rapid
Technological Change."
The Company offers end-to-end fiber optic capacity utilizing SONET capable
ring architecture, which has the ability to route customer traffic in either
direction around its ring design thereby assuring that fiber cuts do not
interrupt service to customers on the NY Network and its planned Intra-City
Networks. Currently, a state-of-the-art network operating system continuously
monitors and maintains quality control of the NY Network on a 24-hour basis and
alerts the Company of any degradation or loss of fiber capacity, pinpoints the
location of such degradation and enables the Company to repair or replace
impaired fiber without any loss of service. In addition, the monitoring system
automatically reroutes traffic in the event of a catastrophic break in the
system, enabling the Company to ensure that its customers obtain continuous
service.
FRANCHISE, LICENSE AND RELATED AGREEMENTS
NEW YORK CITY FRANCHISE AGREEMENT. The Company has entered into a 15 year
non-exclusive franchise agreement with New York City, which expires in December
2008, to install, operate, repair, maintain, remove and replace cable, wire,
fiber or other transmission medium that may be used in lieu of cable, wire or
fiber on, over and under the inalienable property of New York City in order to
provide telecommunications services which originate and/or terminate in or
transit New York City. The NYC Franchise Agreement provides that the Company may
submit a written petition to New York City to renew the term of the franchise at
least 12 months (but not more than 18 months) before the expiration of the 15
year term. However, New York City has no obligation to renew the NYC Franchise
Agreement. The City of New York has granted only seven franchises to date.
However, the Company is not aware of any limit on
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the number of franchises that the City of New York may grant and believes that
the City of New York may be in the process of granting at least three additional
licenses. See "Risk Factors -- Risk of Cancellation or Non-Renewal of
Franchises, Licenses or Permits."
The NYC Franchise Agreement requires the Company to provide New York City
with certain telecommunications infrastructure and to complete construction of
its initial network as described in the NYC Franchise Agreement by November
1997. The Company believes it is on schedule to complete such construction.
Both New York City and the Company have the right, at any time after
December 20, 2000, upon six months notice, to renegotiate certain terms of the
NYC Franchise Agreement, including the annual compensation payable by the
Company to New York City, based on changes in technological, regulatory or
market conditions which may occur after the effective date of the NYC Franchise
Agreement. In the event either party calls for renegotiation, both New York City
and the Company are required to negotiate any such changes in good faith. In the
event an agreement cannot be reached upon any such renegotiation, the NYC
Franchise Agreement will be subject to early termination on a date which would
be one half of the number of days between the date of the notice to renegotiate
and January 1, 2009.
The Company was required to pay the City of New York an annual franchise fee
at a rate of 10% of Gross Revenues per year for 1995 and 1996, currently pays 6%
of Gross Revenues in 1997 and will pay 5% of Gross Revenues for each remaining
year of the franchise. "Gross Revenues" is defined in the NYC Franchise
Agreement as all revenues received directly or indirectly by the Company or any
affiliate of the Company from or in connection with telecommunications services
which originate in, terminate in, or transit New York City. Revenues that are
generated from transmissions which transit New York City, but also include
transmission through other areas, are to be pro-rated. The minimum franchise fee
payable to City of New York is $200,000 per annum.
CONDUIT OCCUPANCY AGREEMENT. The Company entered into a non-exclusive
conduit occupancy agreement (the "Conduit Occupancy Agreement") with NYNEX in
May 1993, authorizing the Company to install its cable facilities in NYNEX's
conduit system in New York. The Company is required to pay NYNEX certain rates
and charges pursuant to the terms of the agreement.
The Conduit Occupancy Agreement, which had an initial term of 12 months but
was to continue indefinitely if not affirmatively terminated by either party, is
terminable without cause by either party upon three months' written notice.
Under certain circumstances, a petition may be brought to the Public Services
Commission requesting that it decide a dispute arising over termination prior to
the termination of the Conduit Occupancy Agreement.
SERVICES
Market research contained in an industry report estimates today's worldwide
internetworking market at approximately $27 billion. Recognizing the significant
growth in this area as a result of the ongoing expansion of corporate enterprise
networks and the proliferation of the Internet, MFN plans to use its fiber optic
infrastructure as a platform to expand into the business of providing SONET-
based and ATM-based broadband communications services aimed at the carrier
market and high end corporate/ government users.
MFN has reserved sufficient dark fiber capacity to provide the
infrastructure which will allow the Company to offer the following services at
competitive rates:
- OC-3 through OC-192 resilient SONET networks
- High capacity ATM-based intranet services
- ATM-based Frame Relay transmission capacities
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SALES AND MARKETING
The Company's sales and marketing strategy includes (i) positioning itself
as the communications carriers' carrier of choice, (ii) focusing on high dollar
volume corporate and government customers and (iii) emphasizing the cost
advantages which will allow the Company to lease its fiber optic infrastructure
at fixed prices which represent potentially significant savings for its large
volume carrier and corporate customers relative to their present build or buy
alternatives. The Company also believes that communications carriers and
corporate and government customers will be attracted to the Company's dark fiber
product and its unmetered pricing structure. The Company intends to focus its
sales and marketing efforts on carrier customers. However, the Company is
currently in the process of hiring additional sales professionals to focus on
both customer groups. As MFN constructs fiber optic networks in new cities,
local sales professionals are expected to be hired to target regional corporate
and government customers, while New York City based sales professionals will
seek out the Company's carrier customers.
CUSTOMERS
The Company currently has contracts with approximately 14 customers.
CARRIERS. The Company expects that communications carriers will account for
a majority of its business. The Company currently targets the major carriers,
such as resellers, data services, RBOCs, IXCs, CLECs, ISPs, wireless providers,
and major information service providers. The Company believes it can compete
effectively with other providers due to its rapid deployment, pricing,
reliability, customer service and capacity of the MFN Network. The Company
traditionally leases dark fiber to communications carriers, providing them with
point-to-point and IXC POP-to-end user non-switched access which connects their
customers to the Company's network, enabling IXCs to eliminate or reduce costly
access charges.
The Company has entered into contracts with several communications carriers,
including providers of wireless and cellular services and a CLEC, as described
below. In addition, the Company is currently in the process of negotiating
agreements with certain other major communications carriers and will continue to
target such carriers in the future. However, there can be no assurance that such
agreements will be consummated or will be on terms as favorable to the Company
as are the existing agreements.
On June 3, 1997, the Company entered into an agreement with a CLEC that
provides certain exclusive long-term rights to the NY Network. The agreement
calls for MFN to provide the customer with capacity over a significant portion
of MFN's network at specified locations for twenty years (the "Term"), with an
additional ten year option exercisable by the customer. In addition, the
agreement permits the carrier to use additional fiber miles for additional
charges and requires, under certain circumstances, the Company to construct and
maintain extensions of up to two miles from the then-existing network. As
compensation through the Term, the Company is to receive $11.0 million ($5.0
million of which has been received by the Company) in scheduled upfront
payments, a monthly recurring charge per terminated fiber strand terminating at
certain additional locations, and an additional fiber charge per mile of
additional fiber made available for the customer. Charges for the term of the
option period are to be determined at market rates.
In April 1996, the Company entered into an agreement with U.S. One
Communications ("U.S. One"), an IXC, pursuant to which it leases portions of its
fiber optic network to U.S. One for an initial term lasting until December 20,
2008. U.S. One has the option to renew the agreement for an additional term of
up to 13 years. Lease payments consisted of prepayments of $3.6 million. Lease
payments for the additional term are payable only if U.S. One elects to renew
the agreement, either monthly at a rate per fiber mile equal to the lowest lease
rate charged by the Company to any lessee or in a lump sum payment equal to the
present value of the lease payments, up to a maximum of $8.8 million plus a
certain percentage based upon the consumer price index. The lump sum payment to
be made by U.S. One is subject to adjustment if the Company has not completed
the build-out of a portion of its network. U.S.
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One is currently a debtor-in-possession under the U.S. Bankruptcy Code and
accordingly no assurance can be given that U.S. One, or its bankruptcy trustee,
will assume the agreement with the Company, utilize the Company's network or
make any additional payments to the Company.
CORPORATE/GOVERNMENT CUSTOMERS. The Company expects that its corporate and
government customers, including members of the international financial and
commercial community, will primarily be entities with multiple locations and
high volume communications requirements. The Company expects to provide these
customers with dedicated point-to-point communications that have the capacity to
carry a wide range of communications services (E.G., high speed intranet
access). The Company offers its high-bandwidth services to such customers at
prices that are lower than those currently offered by regulated CLECs and ILECs.
However, the Company's customers currently provide their own transmission or
switching equipment.
The Company believes it can effectively compete for corporate and government
customers based upon price, non-metered usage, reliability and solutions
tailored to the customers' needs. In addition, the Company's NY Network
utilizes, and the Intra-City Networks will utilize, SONET technology and offer
reliability which the Company believes is generally superior to that provided by
the ILECs.
The Company currently has dark fiber infrastructure leasing arrangements
with a variety of financial services firms, including investment and commercial
banks, securities and accounting firms and a financial exchange, although
installation of the dark fiber to be leased pursuant to certain of the contracts
has not yet been completed by the Company. Accordingly, some of such contracts
are currently terminable and the terms of certain contracts will not commence
until the relevant dark fiber has been installed by the Company and accepted by
the relevant customers. There can be no assurance that the Company will complete
the installation in a timely manner. See "Risk Factors--Risks Associated with
Growth Strategy; Management of Expansion."
COMPETITION
Fiber optic systems are currently under construction both locally and
nationally. In New York City, for example, seven franchisees have been granted
the right to install and operate a telecommunications network within the city.
Development of fiber optic networks is also continuing on a national scale; for
example, one provider of fiber is currently in the midst of constructing a
cross-continental long distance fiber optic network from Los Angeles to New York
and another, Qwest, is constructing a fiber-based national backbone network
which will connect 115 metropolitan areas and span approximately 16,000 miles.
The construction of these networks enables their owners to either lease
access to their networks to other communications carriers or large corporate or
government customers seeking high bandwidth capacity, without these customers
having to incur costly expenditures associated with building networks of their
own. Alternatively, some network owners may choose to use their infrastructure
to provide switched voice and data services, competing directly with ILECs and
IXCs. Currently, MFN does not provide such services or plan to provide such
services.
In New York City and the cities where MFN plans to deploy fiber optic
communications networks, the Company faces significant competition from the
ILECs, which currently dominate their local communications markets. The Company
also faces competition from CLECs and other potential competitors in New York
City and will face competition in the cities in which the Company plans to build
its networks. Many of the Company's competitors have financial, management and
other resources substantially greater than those of the Company, as well as
other competitive advantages over the Company, including established reputations
in the communications market.
Various communications carriers already own fiber optic cables as part of
their communications networks. Accordingly, each of these carriers could, and
some do, compete directly with the Company in
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the market for leasing fiber capacity. In addition, although CLECs generally
provide a wider array of services to their customers than the Company presently
provides to its customers, CLECs nevertheless represent an alternative means by
which a potential customer of the Company could obtain direct access to an IXC
POP or other site of the customer's choosing. Thus, CLECs could compete with the
Company.
Some communications carriers and local cable companies have extensive
networks in place that could be upgraded to fiber optic cable, as well as
numerous personnel and substantial resources to undertake the requisite
construction to so equip their networks. To the extent that communications
carriers and local cable companies decide to equip their networks with fiber
optic cable, they are potential direct competitors of the Company provided that
these competitors are willing to offer this capacity to all of their customers.
See "Risk Factors--Competitive Industry."
The Company believes that as competition in the local exchange market
develops, a fundamental division between the needs of corporate, governmental
and institutional end users and residential end users will drive the creation of
differentiated communications services and service providers. The Company
believes that the IXCs, ISPs, wireless carriers and corporate and government
customers on which it focuses will have distinct requirements, including maximum
reliability, consistent high quality transmissions, capacity for high-speed data
transmissions, diverse routing and responsive customer service. The Company
believes that it will be able to satisfy the needs of such customers.
PROPERTIES
The NY Network and its component assets are the principal properties
currently owned by the Company. The Company owns substantially all of the
communications equipment required for its business. The Company's installed
fiber optic cable is laid under the various rights-of-way held by the Company.
See "--Build-out of Networks--Rights-of-Way". Other fixed assets are located at
various leased locations in geographic areas served by the Company.
The Company's executive, administrative and sales offices are located at its
principal office in New York, New York. MFN leases this space (6,446 square
feet) at 110 East 42nd Street under two agreements that expire in April and June
1998, respectively. The Company leases additional space at 60 Hudson Street, New
York, New York from Hudson Telegraph Associates. See "Certain Relationships and
Related Relationships."
REGULATION
On February 8, 1996, the 1996 Act, the most comprehensive reform of the
nation's telecommunications laws since the Communications Act, was enacted. The
1996 Act has resulted in substantial changes in the marketplace for
communications services that should be largely favorable to the Company.
FEDERAL
The 1996 Act imposes a number of access and interconnection requirements on
all local exchange providers, including CLECs, with additional requirements
imposed on ILECs. The 1996 Act provides a detailed list of items which are
subject to these interconnection requirements, as well as a detailed set of
duties for all affected carriers. All LECs, including CLECs, have a duty to (i)
not unreasonably limit the resale of their services, (ii) provide number
portability if technically feasible, (iii) provide dialing parity to competing
providers, (iv) provide access to poles, ducts and conduits and (v) establish
reciprocal compensation arrangements for the transport and termination of
tele-communications. In addition to those general duties of all LECs, ILECs have
additional duties to (i) interconnect at any technically feasible point and
provide service equal in quality to that provided to their customers or the ILEC
itself, (ii) provide unbundled access to network elements at any technically
feasible point, (iii) offer retail
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services at wholesale prices for the use of competitors, (iv) provide reasonable
public notice of changes in the network or the information necessary to use the
network and (v) provide for physical collocation. "Physical collocation" is an
offering by an ILEC that enables another telecommunications carrier to enter the
ILEC's premises to install, maintain and repair its own equipment that is
necessary for interconnection or access to the ILEC's network elements. An ILEC
must allocate reasonable amounts of space to carriers on a first-come
first-served basis. If space limitations or practical or technical reasons
prohibit physical collocation, an ILEC must offer "virtual collocation," by
which the other carrier may specify ILEC equipment to be dedicated to its use
and electronically monitor and control communications terminating in such
equipment.
The FCC adopted pricing and other guidelines to implement the
interconnection provisions of the 1996 Act, but the 8th Circuit Court of Appeals
recently vacated most of the FCC's guidelines. The responsibility for setting
pricing and other guidelines with respect to interconnection has thus been left
up to the individual state public service commissions. It is expected that
varying pricing and guidelines will emerge from state to state, and some of
these guidelines may eventually have an indirect adverse effect on the Company's
business.
Federal telecommunications law directly shapes the market in which the
Company competes. Consequently, undesirable regulatory changes could adversely
affect the Company's business, financial conditions and results of operations.
Federal telecommunications law imposes special legal requirements on "common
carriers" who engage in "interstate or foreign communication by wire or radio."
The Company believes that the leasing of dark fiber facilities does not
constitute engaging in "communication by wire or radio" and therefore is not
subject to these legal requirements. In any event, the Company does not intend
to offer its dark fiber facilities as a common carrier. Common carriers are
those who offer services directly to the public, or to all potential users on an
indiscriminate basis subject to standardized rates, terms or conditions. The
Company does not intend to offer its dark fiber services in this manner, but
instead intends to enter into individualized negotiations on a selective basis
with prospective lessees of its dark fiber facilities to determine whether and
on what terms to serve each potential lessee. The Company therefore does not
believe that its dark fiber offerings are subject to the common carrier
provisions of the FCC or to the common carrier provisions of the Communications
Act.
Federal telecommunications law also imposes special legal requirements on
"telecommunications carriers." The law essentially defines "telecommunications
carriers" as those offering certain telecommunication services "directly to the
public" or to all potential users. The Company therefore believes that a company
has to be a common carrier in order to be considered a telecommunications
carrier. For the reasons stated above, the Company believes that it is neither a
common carrier nor a telecommunications carrier with respect to its dark fiber
service. Nevertheless, the law is not entirely clear as to, and the FCC has not
definitively addressed whether, the term "telecommunications carriers" is meant
to encompass only common carriers, and therefore whether a provider of dark
fiber facilities on an individualized basis, like the Company, is a
"telecommunications carrier." The FCC has been petitioned by certain railroad,
power and telecommunications associations, none of which are affiliated with the
Company, to clarify the status of dark fiber providers in this respect, and if
the agency decides that such companies are telecommunications carriers, then the
Company would be subject to certain additional regulatory requirements. These
requirements may have a material adverse effect on the Company.
If the Company's offering of dark fiber facilities were deemed to constitute
a "telecommunications service," then its revenues from such leases to end users
(but not to other telecommunication carriers) would become subject to assessment
for the FCC's Universal Service Fund, a fund that was established
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by the FCC pursuant to the Telecom Act to assist in ensuring the universal
availability of basic telecommunications services at affordable prices. Such
assessments could create a liability equal to a percentage of these gross
revenues (the Company anticipates that the rate of assessment will be
approximately 4.5% of gross interstate end-user revenues for the year 1997, and
may be higher in subsequent years).
With respect to its offering of telecommunications transmission services,
however, the Company will likely operate as a common carrier and therefore will
be subject to the regulatory requirements applicable to common carriers and to
telecommunications carriers. For example, the Company will be required, with
respect to its transmission services, to (1) provide such services
indiscriminately upon any reasonable request; (2) charge rates and adopt
practices, classifications and regulations that are just and reasonable; and (3)
avoid unreasonable discrimination in charges, practices, regulations, facilities
and services. The Company may also be required to file tariffs setting forth the
rates for its services. Under current FCC policies, these regulatory
requirements should not impose any substantial burdens on the Company. The FCC
has recently determined, for example, that providers of "access" services
(intracity transmission services used to originate and/or terminate interstate
and foreign communications) need not file tariffs and may offer such services to
customers on a private, contractual basis. Although the FCC's policies may be
subject to change in the future due to regulatory, judicial, or legislative
actions, and such changes could have a material adverse effect on the Company,
the Company does not believe that regulation of its services at the federal
level will have any detrimental effect on its competitiveness. The Company's
revenues from transmission services will be subject to FCC Universal Service
Fund assessments as described above, to the extent that these services are
purchased by end users; since the revenues of the Company's competitors will be
subject to comparable assessments; however, this should not reduce the Company's
competitiveness.
ILECs, CLECs and IXCs are subject to various federal telecommunications
laws. Accordingly, federal telecommunications law may affect the Company's
business by virtue of the inter-relationships that exist among the Company and
many of these regulated telecommunications entities. For example, the FCC
recently issued an order requiring, among other things, that access fees charged
to IXCs, which previously amounted to more than just the recovery of the RBOCs'
investment in fixed assets, shift from being usage driven to a fixed flat
cost-based structure. While it is not possible to predict the precise effect
this change will have on the Company's business or financial condition, the
reforms will reduce access charges paid by IXCs, likely eliminating one of the
principal disincentives for use of ILEC and CLEC facilities by IXCs, which could
have a material adverse effect on the use of the Company's fiber optic
telecommunications networks by IXCs.
STATE
The 1996 Act prohibits state and local governments from enforcing any law,
rule or legal requirement that prohibits or has the effect of prohibiting any
person from providing any interstate or intrastate telecommunications service.
Notwithstanding the prohibition contained in the 1996 Act, states regulate
telecommunications services, including through certification of providers of
intrastate services, regulation of intrastate rates and service offerings, and
other regulations. Nonetheless, this provision of the 1996 Act should enable the
Company and customers of the Company to provide telecommunications services in
states that previously prohibited competitive entry.
States retain jurisdiction under the 1996 Act to adopt regulations necessary
to preserve universal service, protect public safety and welfare, ensure the
continued quality of communications services and safeguard the rights of
consumers. States are also responsible for mediating and arbitrating CLEC-ILEC
interconnection arrangements if voluntary agreements are not reached.
Accordingly, the degree of state involvement in local telecommunications
services may be substantial.
In arbitrating interconnection agreements under the 1996 Act between ILECs
and their potential competitors, some state commissions have considered whether
dark fiber should be considered an
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unbundled network element. For example, the New York Public Service Commission
determined that it would not require NYNEX to provide dark fiber as an unbundled
network element. State commissions, including those in Florida, Maryland, North
Carolina, and Virginia, also have either refused to require the ILECs to offer
dark fiber to competitors, or have stated that the issue would be addressed at a
later time. On the other hand, state commissions in Illinois, Massachusetts,
Arizona, Georgia, Minnesota, Ohio, Oregon and Tennessee have found dark fiber to
be a network element and required the ILECs to offer it on an unbundled basis to
CLECs. There can be no assurance that these requirements, and the associated
pricing methodologies, where applicable, will not reduce the demand for dark
fiber provided by the Company.
Each state (and the District of Columbia, which is treated as a state for
the purpose of regulation of telecommunications services) has its own statutory
scheme for regulating providers of certain telecommunications-related services
as "common carriers," as "public utilities," or under similar rubrics. The
Company believes that the offering of dark fiber facilities is not subject to
this type of regulation in Illinois, New York, Pennsylvania, or the District of
Columbia. However, the Company's offering of transmission services (as distinct
from dark fiber capacity) likely will be subject to regulation in each of these
jurisdictions to the extent that these services are offered for intra-state use.
Even though many of the Company's facilities will be physically intra-state, the
Company anticipates that most customers will use its facilities and services for
the purpose of originating and/or terminating inter-state and foreign
communications. Under current FCC policies, any dedicated transmission service
or facility that is used more than 10% of the time for the purpose of
inter-state or foreign communication is subject to FCC jurisdiction to the
exclusion of any state regulation.
Regulation of the telecommunications industry is changing rapidly, and the
regulatory environment varies substantially from state to state. At present, the
Company does not anticipate that the regulatory requirements to which it will be
subject in Illinois, New York, Pennsylvania, and the District of Columbia will
have any material adverse effect on its operations, although the Company will
incur certain costs to comply with regulatory requirements such as the filing of
tariffs, submission of periodic financial and operational reports to regulators,
and payment of regulatory fees and assessments. In some jurisdictions, the
Company's pricing flexibility for intra-state services may be limited because of
regulation, although the Company's direct competitors will be subject to similar
restrictions. However, there can be no assurance that future regulatory,
judicial, or legislative action will not have a material adverse effect on the
Company.
In response to the 1996 Act, NYNEX "unbundled" its local loop in October
1996. As a result, carriers such as the Company will be permitted to access
NYNEX's existing wiring infrastructure in buildings on an economical basis,
which the Company believes enhances the strategic value of the NY Network to
potential customers. By virtue of the unbundling, NYNEX must make a significant
portion of its in-house apartment wiring available for $2 per month per
apartment. The availability of an unbundled local loop will enable new carriers
to enter the residential voice market on a competitive basis with NYNEX.
LOCAL
In addition to federal and state laws, local governments exercise legal
authority that may impact the Company's business. For example, local
governments, such as the City of New York, typically retain the ability to
license public rights-of-way, subject to the limitation that local governments
may not prohibit persons from providing telecommunications services. Local
authorities affect the timing and costs associated with the Company's use of
public rights-of-way. These regulations may have an adverse effect on the
Company's business.
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INTERNATIONAL
Various regulatory requirements and limitations also will influence the
Company's business as it attempts to enter international markets.
Although the Company has not fully determined its international business
strategy, the Company is currently negotiating an agreement with a foreign firm
that contemplates jointly acquiring and selling international, facilities-based
telecommunications capacity between the U.S. and the United Kingdom. Depending
on the Company's specific business plan in this arrangement, it is possible that
the Company will become a U.S. international common carrier subject to U.S.
regulation under Title II of the Communications Act. Under current FCC rules,
international carriers that do not exercise market power and that are not
affiliated with dominant foreign carriers are subject to relatively relaxed U.S.
regulation as nondominant international carriers. As a common carrier, the
Company would be subject to among other policies, the common carrier obligations
of nondiscrimination. In addition, FCC rules prohibit U.S. carriers from
bargaining for special concessions from foreign partners. The Company would also
be required, under Section 214 of the Communications Act, to obtain authority
and file an international service tariff containing rates, terms and conditions
prior to initiating service. As a nondominant carrier, the Company would be
eligible to seek "global" authority to operate as facilities-based and/or resale
carrier in an application subject to the FCC's streamlined processing rules.
International carriers are also subject to certain annual fees and filing
requirements, including the requirement to file contracts with other carriers
including foreign carrier agreements, and reports setting forth international
circuit, traffic and revenue data service. Failure to obtain an appropriate U.S.
license for international service or the revocation of a license could have a
material adverse effect on the future operations of the Company.
If the Company operates as an international common carrier, it will also be
required to comply with FCC's rules regarding the ISP which defines the
permissible boundaries for U.S. carriers and their foreign correspondents to
settle the cost of terminating each other's traffic over their respective
networks. The ISP is designed to eliminate a foreign carrier's opportunity to
discriminate among different U.S. carriers by bargaining for accounting rates or
other terms that benefit the foreign carrier but is inconsistent with the U.S.
public interest. The ISP generally provides that U.S. carriers may only enter
into foreign carrier agreements for the exchange of traffic that contain the
same accounting rate and settlement rate (typically one-half of the accounting
rate) offered to all other U.S. carriers. The ISP also requires U.S. carriers to
adhere to the principle of proportionate return so that competing U.S. carriers
have comparable opportunities to receive the return traffic that reduces the
marginal cost of providing international service.
The FCC continues to refine its international service rules to promote
competition, reflect and encourage liberalization in foreign countries, and
reduce accounting rates toward cost. Indeed, the FCC recently established
reduced "benchmark" rates for the amounts U.S. carriers will be allowed to pay
to foreign carriers for terminating U.S.-originated traffic. Effective January
1, 1998, U.S. carriers will have one year to ensure that the rate paid to
terminate traffic in the U.K. does not exceed $.15/minute.
In addition, in connection with the proposed transaction between MCI
Communications and British Telecom and in other decisions, the FCC has
recognized the advent of competition in the U.K. market by designating the U.K.
as a country that offers "equivalent opportunities" for the resale of
international private line services and "effectively competitive opportunities."
Those decisions have relaxed or eliminated regulatory limitations on certain
U.S. carrier services between the U.S. and the U.K. and permitted U.K. carriers
to enter the U.S. market through affiliations with U.S. carriers. In addition,
the FCC has determined that it would permit U.S. carriers to enter into
"flexible" international termination arrangements where such arrangements
promote competition and has proposed to amend its rules to reflect the U.S.
participation in the WTO Agreement on Basic Telecommunications Services in which
69 countries agreed to eliminate barriers to competition in their markets for
basic telecommunications service. Under the proposed amendments, the FCC would,
among other things, relax or eliminate
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current rules that restrict or impose more stringent regulation on U.S. carriers
with affiliations with carriers from WTO-member countries.
Regulation of the international telecommunications industry is changing
rapidly. The Company is unable to predict how the FCC will resolve the various
pending international policy issues and the effect of such resolutions on the
Company.
The Company's international services would also be subject to regulation in
the United Kingdom. U.K. regulation, as well as policies and regulations on the
European Union level, would impose separate licensing, service and other
conditions on the Company's international service operations, and these
requirements may have a material adverse impact on the Company.
EMPLOYEES
As of September 15, 1997, the Company employed 31 people. The Company's
employees are not represented by any labor union. The Company considers its
relationship with employees to be good.
LEGAL PROCEEDINGS
On or about April 18, 1997, Howard Katz, Realprop Capital Corp. and Evelyn
Katz commenced an action against the Company, Stephen A. Garofalo, Peter Sahagen
and Peter Silverman in the United States District Court for the Southern
District of New York captioned KATZ, ET AL. v. NATIONAL FIBER NETWORK, INC., ET
AL., No. 97 Civ. 2764 (JGK). (National Fiber Network, Inc. is the former name of
the Company). On May 28, 1997, the plaintiffs filed an amended complaint and on
September 15, 1997, the plaintiffs filed a second amended complaint, which,
among other things, added Metromedia and Silverman, Collura, Chernis & Balzano,
P.C. as defendants. The amended complaint alleges causes of action for, among
other things, common law fraud, violations of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, breach of fiduciary
duty and negligent misrepresentation for alleged misrepresentations and
omissions made in connection with the repurchase of the Katz Securities (as
defined below under "Certain Relationships and Related Transactions"). The
amended complaint also contains allegations of corporate waste against the
Company and Mr. Garofalo. Plaintiffs seek, among other things, compensatory
damages of not less than $12 million, punitive damages in the amount of $100
million and, in the alternative, rescission of the purchase by the Company of
264,631 shares of Class A Common Stock and 207,883 warrants to acquire shares of
Class A Common Stock. On June 11, 1997, various defendants, including the
Company and Stephen A. Garofalo, moved to dismiss the amended complaint and the
motion is still pending. The Company intends to vigorously defend itself against
these allegations based on its belief that MFN acted appropriately in connection
with the matters at issue in this litigation. No assurance can be made though,
that the Company will not determine that the advantages of entering into a
settlement outweigh the risks and expense of protracted litigation or that
ultimately the Company will be successful in its defense of the allegations. If
the Company is unsuccessful in its defense of the allegations, an award of the
magnitude being sought by the plaintiffs in the Katz Litigation would have a
material adverse effect on the Company's financial condition or results of
operations.
In addition, the Company is subject to various claims and proceedings in the
ordinary course of business. Based on information currently available, the
Company believes that none of such current claims, or proceedings, individually
or in the aggregate, including the Katz Litigation, will have a material adverse
effect on the Company's financial condition or results of operations, although
there can be no assurances in this regard.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE OFFICE OR POSITION HELD
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Stephen A. Garofalo.................................. 46 Chairman of the Board, Chief Executive Officer and
Secretary
Howard M. Finkelstein................................ 44 President, Chief Operating Officer and Director
Stephen W. Ellis..................................... 47 Chief Financial Officer
Vincent A. Galluccio................................. 51 Senior Vice President--Business Development and
Director
Louis J. Gambino..................................... 45 Vice President--Network Operations
John S. Mahon........................................ 51 Vice President--Network Engineering
John McLeod.......................................... 39 Vice President--Marketing
Nicholas M. Tanzi.................................... 38 Vice President--Sales
James Urbelis........................................ 45 Vice President--Easements and Construction
Silvia Kessel........................................ 47 Director
John W. Kluge........................................ 83 Director
David Rockefeller.................................... 82 Director (Nominee)
Stuart Subotnick..................................... 55 Director
Arnold L. Wadler..................................... 54 Director
</TABLE>
Each director is elected to serve until a successor is elected and qualified
or, if earlier, until the director's death, resignation or removal. Officers,
subject to the terms of their respective employment agreements, serve at the
pleasure of the Board. See "Management--Employment Agreements."
Set forth below is the background of each of the Company's executive
officers and directors.
STEPHEN A. GAROFALO founded the Company in April 1993, and has been serving
as Chairman of the Board since the Company's inception, as Chief Executive
Officer since October 1996 and as Secretary since 1993, and served as President
from 1993 to 1996. From 1979 to 1993 Mr. Garofalo served as president and chief
executive officer of F. Garofalo Electric Co., Inc. See "Certain Relationships
and Related Transactions."
HOWARD M. FINKELSTEIN has been President, Chief Operating Officer and a
Director of the Company since April 1997. Prior to joining the Company, Mr.
Finkelstein was employed by various affiliates of Metromedia for 16 years. His
most recent position was as Executive Vice President and Chief Operating Officer
of Metromedia International Telecommunications, Inc. From 1984 to 1993, Mr.
Finkelstein served as President of Metromedia Communications Corporation, a
national long distance telecommunications carrier. In addition, Mr. Finkelstein
served as Executive Vice President and Chief Operating Officer of Metromedia
Restaurant Group from 1993 to 1995. Mr. Finkelstein is a Director of Multimedia
Medical Systems, Incorporated, a privately held company.
STEPHEN W. ELLIS has been Chief Financial Officer since June, 1997. From
1992 until joining the Company, Mr. Ellis served as an executive officer of Data
Broadcasting Corporation, a financial market data distributor, first through
1995 as Chief Financial Officer followed by President through 1997 of its broker
dealer subsidiary DBC Securities, Inc. From 1988 to 1992, Mr. Ellis served as
Vice President-- Operations at Citibank and its then-subsidiary, Quotron
Systems, Inc., also a market data vendor. Prior to joining Citibank, Mr. Ellis,
who is a certified public accountant, was Vice President--Operations at Merrill
Lynch & Company and Vice President--Controller for First Interstate Bank, Ltd.
46
<PAGE>
VINCENT A. GALLUCCIO has been a Director of the Company since February 1997
and has served as a Senior Vice President since December 1995. From January 1992
to October 1994, Mr. Galluccio was employed by British Telecommunications Plc.
as a global sales manager for network outsourcing operations. Prior to joining
British Telecommunications plc, Mr. Galluccio spent 25 years with International
Business Machines Corporation in various sales, marketing and business
development positions and was involved in both domestic and world trade
assignments.
LOUIS J. GAMBINO has been Vice President--Network Operations since November,
1996. From 1995 to 1996 he was Vice President-Domestic Operations at
International Exchange Networks, Ltd., a an international private line and
switched voice carrier. From 1990 to 1995, Mr. Gambino served as Vice
President-Operations of Metropolitan Fiber Systems of New York, a CLEC.
JOHN S. MAHON has been the Company's Vice President--Network Engineering
since 1994. Prior to joining the Company, Mr. Mahon was employed by NYNEX
(formerly known as New York Telephone Company) from 1965 to 1994 as staff
director for engineering design, construction and maintenance of all
telecommunications infrastructure in New York City.
JOHN MCLEOD has been Vice President--Marketing since June 1997. From October
1995 to June 1997, he served as Vice President--Venture Support at Metromedia
International Telecommunications, Inc. From January 1994 to October 1995, Mr.
McLeod was Vice President--Field Support at Metromedia Restaurant Group. From
September 1986 to January 1994, he was employed at Metromedia Communications
Corporation where his last position was Vice President and General
Manager--National Customer Service Center.
NICHOLAS M. TANZI has been Vice President--Sales since August 1997. From
March 1995 to July 1997, he served as Vice President, Enterprise Networks
Division at Fujutsu Business Communications Systems. From April 1993 to February
1995, Mr. Tanzi was Director of Sales, Eastern Region at Asante Technologies
Inc. Mr. Tanzi was employed in various capacities from November 1979 through
October 1993 at Digital Equipment Corporation.
JAMES URBELIS has been Vice President--Easements and Construction since
1994. Mr. Urbelis was formerly employed by F. Garofalo Electric Co., Inc. as
construction manager from 1968 to 1994. Prior to that time he was a civilian
employee of the Army Corps of Engineers engaged in civil works projects.
SILVIA KESSEL has served as a Director of the Company since July, 1997. Ms.
Kessel has served as Chief Financial Officer and Treasurer of MIG since 1995 and
Executive Vice President of MIG since 1996. In addition, Ms. Kessel served as
Executive Vice President of Orion Pictures Corporation ("Orion") from January
1993 through July 1997, Senior Vice President of Metromedia since 1994 and
President of Kluge & Company since January 1994. Prior to that time, Ms. Kessel
served as Senior Vice President and a Director of Orion from June 1991 to
November 1992 and Managing Director of Kluge & Company from April 1990 to
January 1994. Ms. Kessel is a member of the Board of Directors of RDM Sports
Group Inc., a diversified sporting goods company ("RDM").
JOHN W. KLUGE has been a Director of the Company since July 1997. Mr. Kluge
has been the President and Chairman of Metromedia and its
predecessor-in-interest, Metromedia, Inc. ("Ml") for over five years. Mr. Kluge
has been the Chairman of the Board of Metromedia International Group, Inc.
("MIG") since 1995. In addition, Mr. Kluge has been Chairman of the Board and a
Director of Orion Pictures Corporation from 1992 until July 1997. He also serves
as a Director of The Bear Stearns Companies, Inc., Conair Corporation and
Occidental Petroleum Corporation.
DAVID ROCKEFELLER is, as of the effective date of this registration
statement, a nominee as a Director of the Company. He currently serves as
Chairman of The Chase Manhattan Bank's International Advisory Committee, as
Chairman of Rockefeller Center Properties, Inc. (since 1995) and as a Director
of Rockefeller & Co., Inc. (since 1994), a privately owned investment management
firm. From 1961 to 1981,
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<PAGE>
Mr. Rockefeller served as Chairman of The Chase Manhattan Corporation and The
Chase Manhattan Bank, N.A. From 1981 to 1995, he served as Chairman of
Rockefeller Group, Inc.
STUART SUBOTNICK has been a Director of the Company since July 1997. Mr.
Subotnick has been the Vice Chairman of the Board of MIG since 1995 and
President and Chief Executive Officer of MIG since December 1996. In addition,
Mr. Subotnick served as Vice Chairman of the Board of Orion from 1992 until July
1997. Mr. Subotnick has served as Executive Vice President of Metromedia and Ml
for over five years. Mr. Subotnick is also a Director of Carnival Cruise Lines,
Inc. and RDM.
ARNOLD L. WADLER has served as a Director of the Company since July, 1997.
Mr. Wadler has served as Executive Vice President, General Counsel and Secretary
of MIG since August 29, 1996 and, from November 1, 1995 until that date, as
Senior Vice President, General Counsel and Secretary of MIG. In addition, Mr.
Wadler has served as a Director of Orion from 1991 until July 1997 and as Senior
Vice President, Secretary and General Counsel of Metromedia for over five years.
BOARD; ELECTION OF DIRECTORS; AGREEMENTS REGARDING BOARD POSITIONS
Approximately twenty-five percent (25%) of the members of the Board of
Directors of the Company are elected by a majority of the votes cast by holders
of Class A Common Stock, voting as a separate class, at the annual meeting of
shareholders and hold office until their successors have been duly elected and
qualified or until their death, resignation or removal. Holders of Class B
Common Stock will vote as a separate class to elect at least 75% of the Board.
Directors may be removed, with or without cause, only by the holders of the
class of Common Stock or series of Preferred Stock that, as of the date such
removal is effected, would be entitled to elect such director at the next annual
meeting of stockholders. Vacancies in a directorship may be filled only by (a)
the remaining directors elected by holders of each class of Common Stock or
series of Preferred Stock that (x) elected such director and (y) as of the date
such vacancy is filled, would be entitled to elect such director at the next
annual meeting of the stockholders or (b) if there are no such remaining
directors, then by the vote of the holders of the class or classes of Common
Stock or series of Preferred Stock, that, as of the date such vacancy is filled,
would be entitled to elect such director at the next annual meeting of
stockholders, voting as a separate class at a meeting, special or otherwise, of
the holders of Common Stock of such class or series of Preferred Stock. In
addition, within 60 days of the consummation of the Offerings, the Board will
elect 2 outside directors to its Board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee or an Audit Committee
during 1996. Mr. Garofalo determined officers' compensation during 1996.
COMMITTEES OF THE BOARD
Within 60 days of the consummation of the Offerings, the Board will
establish a Compensation Committee and an Audit Committee. The Compensation
Committee will make recommendations concerning the salaries and incentive
compensation of employees of and consultants to the Company. The Audit Committee
will be responsible for reviewing the results and scope of audits and other
services provided by the Company's independent auditors.
EXECUTIVE COMPENSATION
The following table sets forth in summary form all compensation for all
services rendered in all capacities to the Company for the year ended December
31, 1996 of the Chief Executive Officer of the Company and the other four most
highly compensated executive officers of the Company (collectively with the
Chief Executive Officer, the "Named Executive Officers"):
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
-------------------------------------- COMPENSATION
SALARY --------------------- ALL OTHER
NAME/PRINCIPAL POSITION YEAR $ BONUS OPTIONS/SARS COMPENSATION
- --------------------------------------------------- --------- ---------- ------- --------------------- --------------
<S> <C> <C> <C> <C> <C>
Stephen A. Garofalo
Chairman, Chief Executive Officer and
Secretary........................................ 1996 225,960 -- -- --
Vincent A. Galluccio
Senior Vice President............................ 1996 127,087 -- -- --
James Urbelis
Vice President-Easements and
Construction..................................... 1996 111,030 -- -- --
Gerald Vento
Former Chief Executive Officer................... 1996 14,243 -- -- 112,500(a)
Peter Sahagen(b)
Former Acting Vice
Chairman--Finance................................ 1996 29,800 -- -- 94,349
</TABLE>
- ------------------------
(a) This payment represents the amount of a settlement agreement between Mr.
Vento and the Company. See "Certain Relationships and Related Transactions."
(b) Mr. Sahagen joined the Company during 1996 and amounts disclosed for Mr.
Sahagen represent compensation paid after that date. The amount of $94,349
represents consulting fees paid by the Company to Sahagen Consulting Group.
In addition, Mr. Sahagen received $250,000 in April 1997 for services
rendered in connection with the Metromedia Investment. See "Certain
Relationships and Related Transactions."
Subsequent to the year ended December 31, 1996, the Company granted to
Messrs. Galluccio, Mahon and Urbelis options to purchase up to 197,730, 136,890
and 136,890 shares of Class A Common Stock, respectively. All the options have
an exercise price of $1.97 per share, are exercisable immediately and have a
term of up to 10 years subject to certain conditions. In addition, pursuant to
Mr. Garofalo's employment agreement he was granted options to purchase 380,250
shares of Class A Common Stock at an exercise price of $1.97 per share, which
options are immediately exercisable and expire 10 years from the grant of the
stock option. The Company is required to register the shares of Class A Common
Stock underlying the options under the Securities Act on Form S-8 upon the
consummation of the Offerings. In addition, pursuant to Mr. Finkelstein's
employment agreement, as amended, he was granted options to purchase 1,521,000
shares of Class A Common Stock at an exercise price of $1.97 per share, which
options are immediately exercisable and expire 10 years from their grant. The
Company is required to register such shares of Class A Common Stock on Form S-8
under the Securities Act upon the consummation of the Offerings.
COMPENSATION OF DIRECTORS
Directors who are officers, employees or affiliates of the Company receive
no compensation for their services as directors. Each director of the Company
who is not also an officer, employee or affiliate of the Company (an "outside
director") will be entitled to receive directors' fees of $ for each Board
meeting attended and $ for each committee meeting attended ($ if such
director is chairing the committee). Outside directors are eligible to
participate in the 1997 Incentive Stock Plan (as defined below) pursuant to
which options to purchase shares of Class A Common Stock will be granted to
each outside director immediately upon such director's initial election and
qualification for the Board. Options to purchase of Class A Common Stock
will be granted annually on the day of each annual
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<PAGE>
shareholder meeting. Each outside director will be eligible to receive options
to purchase a maximum of shares of Class A Common Stock pursuant to the
1997 Incentive Stock Plan. Each option will have an exercise price equal to the
fair market value of a share of Class A Common Stock on the date of grant. All
such options granted to outside directors will be immediately exercisable. See
"--1997 Stock Incentive Plan."
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Garofalo and
Finkelstein.
GAROFALO EMPLOYMENT AGREEMENT. Mr. Garofalo's employment agreement, dated
as of February 26, 1997, has a five year term and provides for a base salary of
$295,000 for the first year, $335,000 for the second year, $375,000 for the
third year, $415,000 for the fourth year and $455,000 for the fifth year. Mr.
Garofalo is also entitled to receive an annual incentive bonus to be determined
by the Compensation Committee. The incentive bonus will not be less than
$100,000 per year. Mr. Garofalo's employment agreement also provides for other
employee benefits such as life insurance and health care, in addition to certain
disability and death benefits. In addition, pursuant to Mr. Garofalo's
employment agreement he was granted options to purchase 380,250 shares of Class
A Common Stock at an exercise price of $1.97 per share, which options are
immediately exercisable and expire 10 years from their grant. The Company is
required to register the shares of Class A Common Stock underlying the options
under the Securities Act upon the consummation of the Offerings. Except in the
case of disability, the Company may terminate Mr. Garofalo's employment only for
cause upon which termination Mr. Garofalo shall have no right to receive any
compensation or benefit from the Company. If the agreement is terminated without
cause, or if Mr. Garofalo terminates employment for good reason, the Company is
obligated to pay Mr. Garofalo an amount equal to the greater of (i) his monthly
base salary as then in effect multiplied by the number of months remaining in
term of his employment as of such termination date and (ii) $1,000,000. "Good
reason" includes (i) a reduction in the nature or scope of Garofalo's titles,
authorities, powers, duties or responsibilities; (ii) a change in the method or
formula for determining the bonus which results in a decrease in the amount of
bonus payable to Garofalo; (iii) removal of Garofalo as a member of the Board of
the Company, unless such removal occurs after termination of Garofalo's
employment for cause; (iv) a sale of all or substantially all of the ownership
interests or assets of the Company or a merger or consolidation of the Company
with any other corporation; (v) a change in control of the company defined as
any person or entity becoming a beneficial owner as defined in Rule 13d-3 of the
Securities Exchange Act of 1934 (the "Exchange Act") directly or indirectly of
securities of the company representing 50% or more of the combined voting power
of the company's then outstanding securities; or (vi) the Company's materially
breaching its affirmative or negative covenants or undertakings in the
employment agreement and failing to remedy within 15 days. Pursuant to the
agreement, Mr. Garofalo has agreed not to compete with the Company for a period
of one year following termination of the agreement. During such non-compete
period, Mr. Garofalo shall be entitled to receive an amount equal to his base
salary as in effect on the date of termination provided that the agreement was
not terminated prior to the expiration of the term by either party.
FINKELSTEIN EMPLOYMENT AGREEMENT. Mr. Finkelstein's employment agreement,
dated as of April 30, 1997, has a three year term and provides for a base salary
of $295,000 for the first year, $335,000 for the second year and $375,000 for
the third year. Mr. Finkelstein is also entitled to receive an annual incentive
bonus to be determined by the Compensation Committee. The incentive bonus will
not be less than $100,000 for each year. Mr. Finkelstein's employment agreement
also provides for other employee benefits such as life insurance and health
care, in addition to certain disability and death benefits. In addition,
pursuant to Mr. Finkelstein's employment agreement, as amended, he was granted
options to purchase 1,521,000 shares of Class A Common Stock at an exercise
price of $1.97 per share, which options are immediately exercisable and expire
10 years from their grant. The Company is
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<PAGE>
required to register such shares of Class A Common Stock under the Securities
Act on Form S-8 upon the consummation of the Offerings. Except in the case of
disability, the Company may terminate Mr. Finkelstein's employment only for
cause upon which termination Mr. Finkelstein shall have no right to receive any
compensation or benefit from the Company. If the agreement is terminated without
cause or if Mr. Finkelstein terminates employment for good reason, the Company
is obligated to pay to Mr. Finkelstein his base salary, bonus and benefits that
are accrued and unpaid as of the date of termination as well as an amount equal
to one and a half times his base salary as then in effect. "Good reason"
includes (i) a reduction in the nature or scope of Finkelstein's titles,
authorities, powers, duties or responsibilities; (ii) a change in the method or
formula for determining the bonus which results in a decrease in the amount of
bonus payable to Finkelstein; (iii) removal of Finkelstein as a member of the
Board of the Company, unless such removal occurs after termination of
Finkelstein's employment for cause; (iv) a sale of all or substantially all of
the ownership interests or assets of the Company or a merger or consolidation of
the Company with any other corporation; (v) a change in control of the company
defined as any person or entity (other than Stephen Garofalo) becoming a
beneficial owner as defined in Rule 13d-3 of the Exchange Act directly or
indirectly of securities of the company representing 50% or more of the combined
voting power of the company's then outstanding securities; or (vi) the Company's
materially breaching its affirmative or negative covenants or undertakings in
the employment agreement and failing to remedy within 15 days. Pursuant to the
agreement, Mr. Finkelstein has agreed not to compete with the Company for a
period of one year following termination of the agreement. During such
non-compete period, Mr. Finkelstein shall be entitled to receive an amount equal
to his base salary as in effect on the date of termination provided that the
agreement was not terminated prior to the expiration of the term by either
party.
1997 STOCK INCENTIVE PLAN
In connection with the consummation of the Offerings the Company intends to
adopt the Metromedia Fiber Network, Inc. 1997 Incentive Stock Plan (the "1997
Incentive Stock Plan"). The following is a summary of the material features of
the 1997 Incentive Stock Plan.
The purpose of the 1997 Incentive Stock Plan is to give MFN a significant
advantage in retaining key employees, officers and directors, and to provide an
incentive to selected key employees, officers and directors of MFN who have
substantial responsibility in the direction of MFN, and others whom the
Committee (as defined below) determines provide substantial and important
services to MFN, to acquire a proprietary interest in MFN, to continue as
employees, officers and directors or in their other capacities, and to increase
their efforts on behalf of MFN.
TYPES OF AWARDS
The types of awards that may be granted pursuant to the 1997 Incentive Stock
Plan include (i) incentive stock options ("ISOs") and (ii) non-qualified stock
options ("NQSOs" and together with ISOs, "Stock Options" and "Awards"). ISOs are
intended to be treated as incentive stock options within the meaning of Section
422 of the Code. NQSOs are, in general, options which do not have the special
income tax advantages associated with ISOs. Stock Option grants will consist of
the maximum number of ISOs that may be granted to a particular grantee under
applicable law with the balance of the Stock Options being NQSOs.
ADMINISTRATION OF THE PLAN
The 1997 Incentive Stock Plan will be administered by the Compensation
Committee of the Board (the "Committee"). The Committee will consist of two or
more members of the Board each of whom shall be an "outside director" as defined
under Section 162(m) of the Code, and the regulations and interpretations
thereunder. Members of the Committee will be eligible to receive certain Awards
(other than ISOs) under the 1997 Incentive Stock Plan.
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<PAGE>
Subject to the terms and conditions of the 1997 Incentive Stock Plan and the
formula awards for Independent Directors (as defined below), the Committee is
authorized to grant Awards, to determine which employees, officers, directors or
other individuals may be granted Awards, to determine the type and number of
Awards to be granted, to determine the term of such Awards, to determine the
exercise price of any Award, to determine the terms of any agreement pursuant to
which Awards are granted, to interpret and construe the 1997 Incentive Stock
Plan, and to determine any other matters delegated to it under the 1997
Incentive Stock Plan or necessary for the proper administration of the 1997
Incentive Stock Plan.
SHARES OF CLASS A COMMON STOCK SUBJECT TO THE 1997 INCENTIVE STOCK PLAN
Subject to certain exceptions set forth in the 1997 Incentive Stock Plan,
the aggregate number of shares of the Class A Common Stock that may be the
subject of Awards under the 1997 Incentive Stock Plan is . The maximum
number of shares of Class A Common Stock available with respect to Awards
granted to any one grantee shall not exceed, in the aggregate, . Shares of
Class A Common Stock granted under the 1997 Incentive Stock Plan may either be
authorized but unissued shares of Class A Common Stock not reserved for any
other purpose or shares of Class A Common Stock held in or acquired for the
treasury of MFN.
Shares of Class A Common Stock subject to an Award which terminates
unexercised may again be the subject to an Award under the 1997 Incentive Stock
Plan. In addition, shares of Class A Common Stock surrendered to MFN in payment
of the exercise price or applicable taxes upon exercise or settlement of an
Award may also be used thereafter for additional Awards.
ELIGIBILITY
Any key employee, officer and director, including a director who is not an
employee and a director who serves on the Committee, of MFN and its subsidiaries
who has substantial responsibility in the direction of MFN and its subsidiaries
and anyone else whom the Committee determines provides substantial and important
services to MFN is eligible to receive Awards.
Any Independent Director who first serves on the Board subsequent to the
date the 1997 Incentive Stock Plan was adopted shall be entitled to receive
Awards under the 1997 Incentive Stock Plan with respect to shares of
Common Stock, each having an exercise price equal to the fair market value of a
share of Class A Common Stock on the date of grant. For purposes hereof,
"Independent Directors" shall mean any member of the Board who during his entire
term as a director was not employed by MFN and its subsidiaries, within the
meaning of Section 424(f) of the Internal Revenue Code of 1986, as amended (the
"Code"), and who also satisfies the criteria for "outside director" under
Section 162(m) of the Code.
TERMS AND CONDITIONS OF STOCK OPTIONS
The exercise price of all ISOs granted under the 1997 Incentive Stock Plan
is the fair market value of the Class A Common Stock on the date of grant. The
exercise price of all NQSOs granted under the 1997 Incentive Stock Option Plan
will be determined by the Committee, although the initial awards will be made at
fair market value of the Class A Common Stock on the date of grant. The term of
each Stock Option granted under the 1997 Incentive Stock Plan will be determined
by the Committee but will in no event be greater than ten years from the date of
grant.
With respect to ISOs granted to a grantee who owns stock possessing more
than 10% of the voting rights of MFN's outstanding capital stock on the date of
grant, the exercise price of the ISO shall be equal to 110% of the fair market
value of the Class A Common Stock subject to the ISO on the date of grant and
the ISO may not be exercisable more than five years after the date of grant.
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Stock Options shall vest and become exercisable over a period of years as
determined by the Committee.
Subject to the following sentence, upon the exercise of a Stock Option, the
grantee must pay the exercise price in cash. At the discretion of the Committee,
the exercise price may be paid with shares of Class A Common Stock already owned
by, and in possession of, the grantee or in a combination of cash or shares of
Class A Common Stock.
The aggregate fair market value of the Class A Common Stock (determined on
the date of grant) for which ISOs granted under the 1997 Incentive Stock Plan
and any other plan of MFN or a subsidiary may be exercisable for the first time
by any grantee during any calendar year cannot exceed $100,000 or such other
amount as may be prescribed under the Code or applicable regulations and rulings
from time to time.
ACCELERATION OF VESTING AND EXERCISABILITY
If a grantee's employment with MFN is terminated because of the grantee's
death, the grantee's retirement on or after attaining age sixty-five or a Change
in Control prior to the date of the Stock Option is by its terms exercisable,
the Stock Option shall be immediately exercisable (and the restrictions thereof,
if any, shall lapse) as of the date of the termination of the grantee's
employment, subject to the other terms of the 1997 Incentive Stock Plan.
Upon a Change in Control of MFN, (i) each holder of a Stock Option shall
have the right to exercise the Stock Option in full without regard to any
waiting period, installment period or other limitation or restriction thereon
and (ii) each holder of a Stock Option shall have the right, exercisable by
written notice to MFN within sixty days after the Change in Control, to receive,
in exchange for the surrender of the Stock Option or any portion thereof to the
extent the Stock Option is then exercisable in accordance with clause (i), an
amount of cash equal to the difference between the fair market value of the
Class A Common Stock on the date of exercise and the exercise price of the Stock
Option.
In general, under the 1997 Incentive Stock Plan, a "Change in Control" of
MFN shall be deemed to have occurred as of the first day any one or more of the
following four conditions have been satisfied: (i) any event whereby a Person
(other than (a) MFN or an affiliate, as defined in the Exchange Act or (b) any
employee benefit plan or trust sponsored or maintained by MFN or an affiliate,
as defined in the Exchange Act) (x) acquires 35% or more of MFN's outstanding
voting securities, (y) acquires securities of MFN bearing a majority of voting
power with respect to election of directors of MFN or (z) acquires all or
substantially all of MFN's assets, whether by sale, lease, exchange or other
transfer (in one transaction or in a series of related transactions); (ii) a
change in the composition of the Board such that at any time a majority of the
Board shall not have been members of the Board for twenty-four months; provided,
however, that directors who were appointed or nominated for election by at least
two-thirds of the directors who were directors at the beginning of such
twenty-four month period (or deemed to be such directors under this clause (ii))
shall be deemed to be directors at the beginning of such twenty-four month
period for the purposes of this clause (ii); (iii) the stockholders of MFN
approve any plan or proposal for the liquidation or dissolution of MFN; or (iv)
any consolidation or merger of MFN, other than a merger or consolidation of MFN
in which the voting securities of MFN outstanding immediately prior thereto
continue to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 50% of the combined
voting power of the voting securities of MFN or such surviving entity
outstanding immediately after such merger or consolidation. "Person" shall have
the same meaning as ascribed to such term in Section 3(a)(9) of the Exchange Act
and used in Section 13(d) thereof.
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ADJUSTMENT PROVISIONS
The total number and character of shares of Class A Common Stock subject to
Awards and the number and character of shares of Class A Common Stock subject to
outstanding Awards and/or the exercise price of such shares will be
appropriately adjusted by the Committee if the shares of Class A Common Stock
are changed into or exchanged for a different number or kind of shares of stock
or other securities of MFN or of another corporation (whether by reason of
merger, consolidation, recapitalization, reclassification, split, reverse split,
combination of shares, or otherwise). The Committee may also make appropriate
adjustments in the event of a merger, consolidation or other transaction or
event having a similar event.
AMENDMENT AND TERMINATION OF THE 1997 INCENTIVE STOCK PLAN
Unless terminated earlier by action of the Board of MFN, the 1997 Incentive
Stock Plan will terminate on the tenth anniversary of its adoption, and no
additional grants under the 1997 Incentive Stock Plan will be made after that
date.
The Board may amend or terminate the 1997 Incentive Stock Plan at any time,
but may not, without the written consent of the grantee, make any such
alteration which would impair the rights of a holder of an outstanding Award.
Furthermore, the 1997 Incentive Stock Plan may not be amended without the
approval of the holders of a majority of the outstanding stock of MFN (i) to
decrease the minimum exercise price for ISOs; (ii) to extend the term of the
1997 Incentive Stock Plan beyond ten years, (iii) to extend the maximum terms of
the Awards granted beyond ten years, (iv) to withdraw the administration of the
1997 Incentive Stock Plan from the Committee, (v) to change the class of
eligible employees, officers, directors and other grantees, (vi) to increase the
aggregate number of shares of Class A Common Stock authorized to be issued, and
(vii) to otherwise require stockholder approval to comply with Rule 16b-3 or any
other applicable law, regulation, or listing requirement or to qualify for an
exemption or characterization that is deemed desirable by the Board. No
amendment or terminations of the 1997 Incentive Stock Plan shall, without
written consent of the grantee, alter the terms of Awards already granted and
such Stock Options shall remain in full force and effect as if the 1997
Incentive Stock Plan had not been terminated.
MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS
The Committee may, within the limitations of the Incentive Stock Plan,
modify, extend or renew outstanding Awards granted under the 1997 Incentive
Stock Plan, or accept the surrender of outstanding Awards and authorize the
granting of new Awards in substitution therefor. No modification may, without
the consent of the grantee, alter or impair any rights or obligations under any
Award theretofore granted to the grantee nor shall any modification adversely
affect the status of an ISO under Section 422 of the Code.
TRANSFERABILITY OF AWARDS AND OTHER PROVISIONS
The rights of a grantee with respect to the Awards granted pursuant to the
1997 Incentive Stock Plan are not transferable other than by will or the laws of
descent and distribution and are exercisable, during the lifetime of the
grantee, only by the grantee or by the guardian or legal representative of the
grantee acting in a fiduciary capacity on behalf of the grantee under state law
or court supervision. An Award is not subject, in whole or in part, to
attachment, execution or levy of any kind.
RIGHTS UPON TERMINATION OF EMPLOYMENT
If the grantee dies while an employee or when no longer an employee but
while he or she still has the right to exercise an Award, the grantee's estate
shall have the right for a period of one year following
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the date of death to exercise the Award to the extent such Award is exercisable
and to the extend such Award has not yet expired.
Upon a grantee's retirement from MFN or a subsidiary on or after attaining
age sixty-five the grantee shall have the right for a period of three months
following the date of retirement to exercise an Award to the extent such Award
is exercisable and to the extent such Award has not yet expired.
Upon a grantee's termination of employment from MFN on account of
disability, the grantee or the legal representative of the grantee, shall have
the right for a period of one year following the date of such termination to
exercise an Award to the extent such award is exercisable and to the extent such
Award has not yet expired.
In the event the grantee's employment with MFN or a subsidiary is terminated
for any reason other than disability, death or retirement on or after attaining
age sixty-five, the grantee may exercise an Award within three months after his
or her termination of employment.
RIGHTS AS STOCKHOLDER
No grantee of any Stock Option has any rights as a stockholder with respect
to any shares of Common Stock subject to his or her Stock Option prior to the
date on which he or she is recorded as the holder of such shares of Class A
Common Stock on the records of MFN.
RIGHT TO CONTINUED EMPLOYMENT
The 1997 Incentive Stock Plan is not a contract of employment, and the terms
of employment of any grantee shall not be affected in any way by the 1997
Incentive Stock Plan or related instruments except as specifically provided
therein. The establishment of the 1997 Incentive Stock Plan shall not be
construed as conferring any legal rights upon any grantee for a continuation of
employment, nor shall it interfere with the right of MFN or any subsidiary to
discharge any grantee and to treat him or her without regard to the effect which
such treatment might have upon him or her as a grantee.
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PRINCIPAL STOCKHOLDERS
The following table sets forth, as of September 23, 1997, certain
information regarding the beneficial ownership of the Company's voting stock by
(i) each of the Company's directors, (ii) each person believed by the Company to
own beneficially more than 5% of its outstanding voting stock, (iii) each of the
Named Executive Officers and (iv) all executive officers and directors of the
Company as a group. The information set forth below assumes consummation of the
Reverse Stock Split and the Reclassifications. Except as otherwise indicated,
each stockholder listed below has sole voting and investment power with respect
to shares beneficially owned by such person.
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK(A)
------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
NUMBER PERCENT NUMBER PERCENT PERCENT OF
OF SHARES OF CLASS OF SHARES OF CLASS TOTAL VOTING POWER
------------ ----------- ----------- ----------- ---------------------
Stephen A. Garofalo.............................. 5,686,939(b) 57.0% -- -- 10.9%
110 East 42nd Street
Suite 1502
New York, NY 10017
Metromedia Company............................... -- -- 3,932,756 93.2% 75.9%
One Meadowlands Plaza
East Rutherford, NJ 07073
Howard M. Finkelstein............................ 1,521,000(c) 13.7% -- -- 2.9%
110 East 42nd Street
Suite 1502
New York, NY 10017
Peter Sahagen.................................... 1,104,030(d) 11.5% -- -- 2.1%
300 Park Avenue
Suite 1700
New York, NY 10017
Vincent A. Galluccio............................. 197,730(e) 2.0% -- -- *
James Urbelis.................................... 136,890(f) 1.4% -- -- *
John S. Mahon.................................... 136,890(f) 1.4% -- -- *
Louis J. Gambino................................. 15,210(j) * -- -- --
Silvia Kessel.................................... 63,809(g) * -- * *
John W. Kluge.................................... 253,500(i) 2.6% 3,932,756(h) 93.2% 76.0%
215 East 67th Street
New York, NY 10021
David Rockefeller................................ 348,638 3.6% -- -- *
Stuart Subotnick................................. 253,500(i) 2.7% 4,221,159(h) 100.0% 81.6%
215 East 67th Street
New York, NY 10021
Arnold L. Wadler................................. 76,918(g) * -- -- *
Gerald Vento..................................... -- -- -- -- *
All Directors and Executive Officers as a 9,840,685 77.8% 4,221,159 100.0% 94.9%
group........................................
</TABLE>
- ------------------------
* less than 1.0%
(a) The shares of Class B Common Stock are convertible into shares of Class A
Common Stock at the rate of one share of Class A Common Stock for each share
of Class B Common Stock and the holders of shares of Class B Common Stock
are entitled to 10 votes per share.
(b) Includes presently exercisable options to purchase 380,250 shares of Class A
Common Stock at an exercise price of $1.97 per share.
(c) Includes presently exercisable options to purchase 1,521,000 shares of Class
A Common Stock at exercise price of $1.97 per share.
(d) All of such shares are owned by Sahagen Consulting Group of Florida. Mr.
Sahagen is the principal of Sahagen Consulting Group of Florida.
(e) Represents presently exercisable options to purchase 197,730 shares of Class
A Common Stock at an exercise price of $1.97 per share.
(f) Represents presently exercisable options to purchase 136,890 shares of
Class A Common Stock at an exercise price of $1.97 per share.
(g) Includes 50,700 options to acquire shares of Class A Common Stock at an
exercise price of $1.97 held by each of Ms. Kessel and Mr. Wadler. Does not
include shares held by Metromedia. Ms. Kessel and Mr. Wadler are employed by
Metromedia and disclaim beneficial ownership of the shares held by
Metromedia.
(h) Includes 3,932,756 shares held by Metromedia. Messrs. Kluge and Subotnick,
Directors of the Company, also are partners of Metromedia.
(i) Consists of 253,500 options to acquire shares of Class A Common Stock at an
exercise price of $1.97 held by each of Mr. Kluge and Mr. Subotnick.
(j) Represents presently exercisable options to purchase 15,210 shares of Class
A Common Stock at an exercise price of $1.97 per share.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
HISTORICAL TRANSACTIONS
Stephen A. Garofalo, the Company's Chairman of the Board, Chief Executive
Officer and a principal stockholder, served as chief executive officer and
principal stockholder of F. Garofalo Electric Co., Inc. ("Garofalo Electric").
Garofalo Electric provided the Company with electrical contracting services in
connection with the installation of the Company's fiber optic network. As of
December 31, 1995, the Company owed Garofalo Electric $692,887 for such
services. The Company believes that the terms pursuant to which such services
were rendered to the Company by Garofalo Electric were fair to the Company and
comparable to those which could have been obtained in arm's-length negotiations
with unaffiliated parties. On July 24, 1995, Garofalo Electric assigned to the
Company its interest in an agreement between Garofalo Electric and Oppenheimer
Capital for the provision of dark fiber. In May 1996, the Company, Garofalo
Electric and Frank Garofalo, the assignee of Garofalo Electric's receivable from
the Company and the father of Stephen A. Garofalo, entered into an agreement
whereby the full amount was satisfied by the issuance of 456,300 shares of Class
A Common Stock to Frank Garofalo. Garofalo Electric is currently in the process
of winding up its business and affairs.
Stephen A. Garofalo has made various loans to the Company. At December 31,
1994, such loans totaled $1,967,109. In April 1995 Mr Garofalo agreed to
contribute to the Company's capital $1.7 million of amounts due him. By
agreement between the Company and Mr. Garofalo in May 1996 the transaction was
rescinded. During 1995, the Company made repayments (net of additional advances)
of $1,070,130. The loans from Mr. Garofalo totaled approximately $896,979 at
December 31, 1995. On May 21, 1996, the Company issued to Mr. Garofalo 152,100
shares of Class A Common Stock in satisfaction of $600,000 of the outstanding
balance. All outstanding amounts have been repaid to Mr. Garofalo.
As of December 31, 1996, the Company had outstanding approximately $4.9
million of indebtedness due to US ONE Communications of New York, Inc. ("US
ONE"), a lessee of the Company's dark fiber, which was personally guaranteed by
Stephen A. Garofalo. On April 30, 1997, upon consummation of the Metromedia
Investment, $1,370,000 of the indebtedness was paid off in cash from proceeds of
the Metromedia Investment while the remainder was converted into a prepaid lease
payment to the Company. Therefore, there is no such indebtedness currently
outstanding.
On March 16, 1995, the Company entered into a loan agreement (the "Rubin
Loan Agreement") with Robert Rubin, at the time a Director of the Company,
pursuant to which the Company borrowed $500,000 at an interest rate of 10% per
annum and issued to Mr. Rubin 155,994 shares of Class A Common Stock as an
inducement for entering into the agreement. The Rubin Loan Agreement had a term
of one year and the obligations of the Company were (i) guaranteed by Stephen A.
Garofalo and (ii) collateralized by shares of Common Stock owned by Mr.
Garofalo. The Rubin Loan Agreement, including all accrued interest, was fully
repaid in March 1996.
On January 12, 1996, the Company entered into an agreement with its then
legal counsel, Silverman, Collura, Chernis & Balzano, P.C. ("SCCB"), pursuant to
which the Company agreed to issue shares of Class A Common Stock as additional
consideration for legal services provided to the Company. Pursuant to this
agreement, and a subsequent amendment dated April 16, 1996, the Company issued
to SCCB 968,649 shares of Class A Common Stock during March and April of 1996.
At the time of the April 16 amendment, Peter Silverman, a partner of SCCB, was a
Director of the Company. On June 15, 1996, the Company granted SCCB a warrant to
purchase an aggregate of 152,100 shares of Class A Common Stock at an exercise
price of $.065 per share as additional consideration for legal services provided
to the Company. In January 1997, SCCB exercised this warrant and purchased
152,100 shares of Class A Common Stock.
In February, 1996, the Company entered into a settlement agreement (the
"Katz Settlement Agreement") with Howard Katz, the Company's former Chief
Financial Officer, and Realprop Capital Corp. ("Realprop"), an affiliate of Mr.
Katz, in connection with the termination of Mr. Katz's employment with the
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Company. Pursuant to the Katz Settlement Agreement, the Company agreed to pay
Mr. Katz approximately $940,000 over a period of five years, including $90,000
per year pursuant to a consulting agreement (the "Consulting Agreement"). Under
the Consulting Agreement, Realprop was to provide consulting services relating
to Katz's knowledge and understanding of transactions and the conduct of
business in which the Company engaged and to such other areas of consultation as
Katz and the Company mutually agreed upon. On November 12, 1996, Howard Katz,
Lauren Katz, Stephen Katz and Realprop (collectively, the "Katz Group") entered
into an agreement (the "Katz Purchase Agreement") with Peter Sahagen, at the
time acting Vice Chairman of Finance of the Company, pursuant to which Mr.
Sahagen was granted the right to purchase an aggregate of 264,631 shares of
Class A Common Stock and an option to purchase warrants for the purchase of
207,883 shares of Class A Common Stock (collectively, the "Katz Securities") for
an aggregate purchase price of $640,000. In conjunction with the Katz Purchase
Agreement, in a letter agreement dated December 10, 1996, Howard Katz and
Realprop Capital Corp. agreed to release the Company from all liabilities and
obligations arising out of the Katz Settlement Agreement, and to reduce the term
of the $90,000 per year Consulting Agreement from five years to three years. On
February 11, 1997, Mr. Sahagen entered into a letter agreement with the Company
acknowledging that he was acting as nominee for the Company with respect to the
Katz Purchase Agreement and assigned to the Company all of his rights, title and
interest in and to the Katz Purchase Agreement. The Company agreed to reimburse
Mr. Sahagen for $25,000 in payments made to Mr. Katz for extending Mr. Sahagen's
right to purchase the Katz Securities. On February 11, 1997, the Company entered
into an agreement with the Katz Group, pursuant to which the Company purchased
the Katz Securities for $640,000 and confirmed that the Consulting Agreement may
be terminated by the Company after three years of its term had concluded. The
purchase price was funded with a portion of the proceeds of the Metromedia Loan
(as described below). The foregoing transaction is the subject of a pending
lawsuit. See "Business--Legal Proceedings."
On April 15, 1996, the Company entered into an employment agreement with
Gerald Vento pursuant to which Mr. Vento would serve as Chief Executive Officer
of the Company. On the same day, the Company entered into a stock purchase
agreement and a consulting agreement with Vento & Company of New York, LLC
("VCNY"). Pursuant to the stock purchase agreement, the Company issued 1,521,000
shares of Class A Common Stock to VCNY as consideration for prior services
provided by VCNY. On October 9, 1996, the Company entered into a settlement
agreement with Mr. Vento and VCNY. Pursuant to such settlement agreement, (i)
the Company and Mr. Vento agreed to terminate Mr. Vento's employment agreement,
(ii) VCNY agreed to sell to Stephen A. Garofalo 1,368,900 shares of Class A
Common Stock (the "Vento Shares") and (iii) the Company agreed to pay $112,500
to VCNY on behalf of Mr. Vento. On January 3, 1997, Mr. Garofalo assigned his
right to purchase the Vento Shares to Mr. Sahagen, who together with other
parties on January 13, 1997 purchased the Vento Shares for $425,000.
On October 28, 1996, the Knobel 1995 Childrens' Investment Trust (the
"Knobel Trust") granted to Stephen A. Garofalo an option to purchase 399,889
shares of Class A Common Stock of the Company for an aggregate purchase price of
$500,000. By letter dated December 3, 1996, the option was amended to reduce the
number of option shares to 323,839. The option was thereafter assigned by Mr.
Garofalo to the Company. On February 11, 1997, the Company exercised the option
by payment of the sum of $500,000 to the Knobel Trust. Payment of such amount
was funded with a portion of the proceeds of the Metromedia Loan.
On February 11, 1997, the Company entered into an agreement (the "Sahagen
Agreement") with Mr. Sahagen. Pursuant to the Sahagen Agreement, (i) the Company
agreed to pay Mr. Sahagen a fee of $250,000 upon an equity investment in the
Company of at least $10 million, in full and complete payment for all services
rendered by Mr. Sahagen in his capacity as Acting Vice Chairman--Finance of the
Company and in facilitating the Metromedia Investment and for any fees or
compensation due to Mr. Sahagen pursuant to any prior agreements with the
Company, (ii) Mr. Sahagen agreed to release the Company from any claims against
the Company, subject to payments required by the Sahagen Agreement, (iii) the
Company agreed to designate Mr. Sahagen or a suitable designee selected by
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Mr. Sahagen as a Director of the Company for a term of six months and (iv) the
Company granted Mr. Sahagen certain "piggyback" registration rights. In
connection with the Metromedia Investment, the Company paid the $250,000 fee to
Mr. Sahagen.
On December 13, 1996, the Company issued and sold to Penny Lane Partners,
L.P. ("Penny Lane"), for aggregate cash consideration of $2,025,000, (i) 150,000
shares of 10% cumulative convertible preferred stock (the "Series A Preferred
Stock") bearing dividends at a rate of $1.35 per share per annum, (ii) warrants
to purchase 114,075 shares of Class A Common Stock at an exercise price of $4.93
per share (the "Penny Lane Warrants") and (iii) a contingent stock subscription
warrant to purchase a number of shares of Class A Common Stock (such number to
be determined based on certain future events) at an exercise price of $0.02 per
share (the "Contingent Warrants"). In connection with the Metromedia Investment,
Penny Lane agreed to permit the Series A Preferred Stock and the Contingent
Warrants to be redeemed at an aggregate redemption price of $2,115,000 (which
includes accrued but unpaid dividends on the Series A Preferred Stock) and in
connection therewith the number of shares underlying the Penny Lane Warrants was
increased from 114,075 to 202,800.
In 1994 the Company engaged Richard A. Eisner & Company, LLP ("Eisner") to
serve as its independent auditors. During 1995, Gerald Vento began his
affiliation with the Company and requested that the Company engage M.R. Weiser &
Co. LLP, Certified Public Accountants ("Weiser"), to serve as the Company's
independent auditors. Stephen A. Garofalo, majority stockholder and Chairman of
the Board, approved the dismissal of Eisner and the engagement of Weiser. In
September 1996, the Company decided to engage a "big six" accounting firm and
engaged Ernst & Young LLP ("Ernst & Young") to serve as its independent
auditors. Stephen A. Garofalo, majority stockholder, approved the dismissal of
Weiser and the engagement of Ernst & Young. At no time during the periods in
which Eisner and Weiser served as the Company's independent auditors were there
any disagreements between the Company and Eisner or Weiser regarding any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedures. Both Eisner and Weiser included in their opinions
on the Company's financial statements a separate paragraph stating that there
was substantial doubt about the Company's ability to continue as a going
concern. Ernst & Young's report on the Company's consolidated financial
statements for the year ended December 31, 1996 does not contain a similar
statement.
RECENT TRANSACTIONS
METROMEDIA INVESTMENT. On February 10, 1997, Metromedia agreed to loan
$2,000,000 to the Company. See "Principal Stockholders." Pursuant to an
agreement dated March 6, 1997, Metromedia agreed to loan to the Company up to an
additional $6,000,000, subject to certain conditions (together with the loan on
February 10, the "Metromedia Loan"). On April 30, 1997, the Metromedia Loan was
repaid with a portion of the proceeds from the Metromedia Investment. The
Metromedia Loan was funded in two installments: (i) $1,140,000 on February 10,
1997 and (ii) $860,000 on February 14, 1997, and provided for a revolving loan
of up to an additional $6,000,000. The Metromedia Loan was scheduled to mature
on August 31, 1997 and bore interest at the prime rate announced by The Chase
Manhattan Bank. The proceeds from the first installment of the Metromedia Loan
were used to fund an escrow account which repurchased on behalf of the Company
588,470 shares of Class A Common Stock and warrants to purchase 207,883 shares
of Class A Common Stock (the "Repurchased Securities"). Pursuant to an escrow
arrangement, the Repurchased Securities were pledged to Metromedia as security
for the Metromedia Loan. The proceeds from the other installments of the
Metromedia Loan were used for working capital. On April 30, 1997, the Company
entered into the Metromedia Agreement, pursuant to which the Company sold to
Metromedia, Mr. Subotnick, Mr. Wadler and Ms. Kessel shares of the Series B
Preferred Stock (which constituted 100% of such series) for $32,500,000. The
shares of the Series B Preferred Stock were exchanged for 4,221,159 shares of
Class B Common Stock pursuant to the Series B Reclassification. The proceeds
from this transaction were used to redeem the Series A Preferred Stock and
Contingent Warrants ($2,115,000), to repay the Metromedia Loan and accrued
interest thereon ($4,058,126), to repay indebtedness to US ONE ($1,370,000), to
repay indebtedness to
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Sterling Capital LLC ("Sterling") ($555,000), and the balance for working
capital. Upon repayment of the Metromedia Loan, the Repurchased Shares were
released from escrow and delivered to the Company.
METROMEDIA LEASE. In March 1997, the Company entered into an agreement to
lease approximately 5,300 square feet of office space in Manhattan from an
affiliate of Metromedia. The lease commenced on April 1, 1997. Aggregate monthly
rent payments are approximately $127,800 for the one year term of the lease. In
June 1997, the Company entered into another agreement with the same affiliate of
Metromedia to lease approximately 1,146 additional square feet of office space
in the same building. The lease commences on June 20, 1997. Aggregate monthly
rent payments are approximately $27,504 for the one year term of the lease. The
Company believes that the terms of the leases are fair to the Company and
comparable to those which have been obtained in arm's-length negotiations with
unaffiliated third parties. In September 1997, the Metromedia affiliate disposed
of its interest in this office building.
TRADEMARK LICENSE AGREEMENT. MFN is a party to a license agreement with
Metromedia (the "Metromedia License Agreement"), pursuant to which Metromedia
has granted a non-exclusive, non-transferable, non-assignable right and license,
without the right to grant sublicenses, to use the trade name, trademark and
corporate name "Metromedia" in the United States and worldwide, royalty-free for
a term of 10 years. The Metromedia License Agreement can be terminated by
Metromedia upon one month's prior written notice in the event that (i)
Metromedia or its affiliates own less than 20% of the Common Stock; (ii) a
Change in Control of MFN (as defined below) occurs; or (iii) any of the stock or
all or substantially all of the assets of any of the subsidiaries of MFN are
sold or transferred, in which case, the Metromedia License Agreement shall
terminate with respect to such subsidiary. A Change in Control of MFN is defined
as (a) a transaction in which a person or "group" (within the meaning of Section
13(d)(3) of the Exchange Act) not in existence at the time of the execution of
the Metromedia License Agreement becomes the beneficial owner of stock entitling
such person or group to exercise 50% or more of the combined voting power of all
classes of stock of MFN; (b) a change in the composition of MFN's Board of
Directors whereby a majority of the members thereof are not directors serving on
the Board at the time of the Metromedia License Agreement or any person
succeeding such director who was recommended or elected by such directors; (c) a
reorganization, merger or consolidation where following consummation thereof,
Metromedia would hold less than 20% of the combined voting power of all classes
of MFN stock; (d) a sale or other disposition of all or substantially all of the
assets of MFN; or (e) any transaction the result of which would be that the
Common Stock would not be required to be registered under the Exchange Act and
the holders of Common Stock would not receive common stock of the survivor to
the transaction which is required to be registered under the Exchange Act.
In addition, Metromedia has reserved the right to terminate the Metromedia
License Agreement in its entirety immediately upon written notice to MFN if, in
Metromedia's sole judgment, MFN's continued use of "Metromedia" as a trade name
would jeopardize or be detrimental to the good will and reputation of
Metromedia.
Pursuant to the Metromedia License Agreement, MFN has agreed to indemnify
and hold harmless Metromedia against any and all losses, claims, suits, actions,
proceedings, investigations, judgments, deficiencies, damages, settlements,
liabilities and reasonable legal expenses (and other expenses related thereto)
arising in connection with the Metromedia License Agreement.
TRANSACTIONS ENTERED INTO IN CONNECTION WITH THE OFFERINGS
RECLASSIFICATIONS. In connection with the Offerings, the Company intends to
effect the Reclassifications. Pursuant to the Series B Reclassification, each
share of Series B Preferred Stock will be converted into and exchanged for 507
shares of Class B Common Stock. Pursuant to the Common Stock Reclassification,
the Old Common Stock will be reclassified as Class A Common Stock, with all of
the rights and preferences currently found in the Old Common Stock. See
"Description of Capital Stock--Common Stock" for a description of the relative
rights of holders of Class A Common Stock and Class B Common Stock.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 200,000,000 shares
of Common Stock, par value $0.01 per share (the "Common Stock"), of which
180,000,000 shares have been designated Class A Common Stock and 20,000,000
shares have been designated as Class B Common Stock, and 20,000,000 shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock"). Effective
upon completion of the Offerings, 16,204,267 shares of Class A Common Stock will
be issued and outstanding, 4,221,158 shares of Class B Common Stock will be
issued and outstanding and no shares of Preferred Stock will be issued and
outstanding. In addition, 4,260,511 shares of Class A Common Stock will be
reserved for issuance under outstanding options and warrants and 4,221,159
shares of Class A Common Stock will be reserved for issuance upon conversion of
the Class B Common Stock. As of , 1997, there were holders of record
of Class A Common Stock and two holders of record of Class B Common Stock.
The following summary of certain provisions of the Common Stock and
Preferred Stock, outstanding warrants and related registration rights does not
purport to be complete and is subject to, and qualified in its entirety by, the
provisions of the Company's Amended and Restated Certificate of Incorporation
and Bylaws, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part.
COMMON STOCK
The shares of Class A Common Stock and Class B Common Stock are identical in
all respects, except for voting rights and certain conversion rights and
transfer restrictions in respect of the shares of the Class B Common Stock. The
number of authorized shares of any class or classes of capital stock of the
Company may be increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the holders of a majority
of the voting power of the Common Stock of the Company entitled to vote
generally in the election of directors irrespective of the provisions of Section
242(b)(2) of the General Corporation Law of the State of Delaware (the "Delaware
Law") or any corresponding provisions hereinafter enacted.
VOTING RIGHTS. The holders of Class A Common Stock are entitled to one vote
per share. Holders of Class B Common Stock are entitled to ten votes per share.
Holders of all classes of Common Stock entitled to vote will vote together as a
single class on all matters presented to the stockholders for their vote or
approval except for the election and the removal of directors as described below
and as otherwise required by applicable law. In addition, with respect to the
election of directors, the Company's Amended and Restated Certificate of
Incorporation provides that holders of Class B Common Stock will vote as a
separate class to elect at least 75% of the members of the Company's Board.
Directors may be removed, with or without cause, only by the holders of the
class of Common Stock or series of Preferred Stock that, as of the date such
removal is effected, would be entitled to elect such director at the next annual
meeting of stockholders. Vacancies in a directorship may be filled only by (a)
the remaining directors elected by holders of each class of Common Stock or
series of Preferred Stock that (x) elected such director and (y) as of the date
such vacancy is filled, would be entitled to elect such director at the next
annual meeting of the stockholders or (b) if there are no such remaining
directors, then by the vote of the holders of the class or classes of Common
Stock or series of Preferred Stock, that, as of the date such vacancy is filled,
would be entitled to elect such director at the next annual meeting of
stockholders, voting as a separate class at a meeting, special or otherwise, of
the holders of Common Stock of such class or series of Preferred Stock.
DIVIDENDS. Holders of Class A Common Stock and the Class B Common Stock are
entitled to receive dividends at the same rate if, as and when such dividends
are declared by the Board out of assets legally available therefor after payment
of dividends required to be paid on shares of Preferred Stock, if any. The
Company may not make any dividend or distribution to any holder of any class of
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Common Stock unless simultaneously with such dividend or distribution the
Company makes the same dividend or distribution with respect to each outstanding
share of Common Stock regardless of class. In the case of a dividend or other
distribution payable in shares of a class of Common Stock, including
distributions pursuant to Stock splits or divisions of Common Stock, only shares
of Class A Common Stock may be distributed with respect to Class A Common Stock
and only shares of Class B Common Stock may be distributed with respect to Class
B Common Stock. Whenever a dividend or distribution, including distributions
pursuant to stock splits or divisions of the Common Stock, is payable in shares
of a class of Common Stock, the number of shares of each class of Common Stock
payable per share of such class of Common Stock shall be equal in number. In the
case of dividends or other distributions consisting of other voting securities
of the Company or of voting securities of any corporation which is a
wholly-owned subsidiary of the Company, the Company shall declare and pay such
dividends in two separate classes of such voting securities, identical in all
respects except that (i) the voting rights of each such security issued to the
holders of Class A Common Stock shall be one-tenth of the voting rights of each
such security issued to holders of Class B Common Stock, (ii) such security
issued to holders of Class B Common Stock shall convert into the security issued
to the holders of Class A Common Stock upon the same terms and conditions
applicable to the conversion of Class B Common Stock into Class A Common Stock
and shall have the same restrictions on transfer and ownership applicable to the
transfer and ownership of the Class B Common Stock, and (iii) with respect only
to dividends or other distributions of voting securities of any corporation
which is a wholly owned subsidiary of the Company, the respective voting rights
of each such security issued to holders of the Class A Common Stock and Class B
Common Stock with respect to election of directors shall otherwise be as
comparable as is practicable to those of the Class A Common Stock and Class B
Common Stock. In the case of dividends or other distributions consisting of
securities convertible into, or exchangeable for, voting securities of the
Company or of voting securities of any corporation which is a wholly owned
subsidiary of the Company, the Company shall provide that such convertible or
exchangeable securities and the underlying securities be identical in all
respects (including, without limitation, the conversion or exchange rate) except
that the underlying securities may have the same differences as they would have
if the Company issued voting securities of the Company or of a wholly owned
subsidiary rather than issuing securities convertible into, or exchangeable for,
such securities. The Company does not anticipate paying cash dividends in the
foreseeable future. See "Dividend Policy."
RESTRICTIONS ON ADDITIONAL ISSUANCES AND TRANSFER. The Company may not
issue or sell any shares of Class B Common Stock or any securities (including,
without limitation, any rights, options, warrants or other securities)
convertible into, or exchangeable or exercisable for, shares of Class B Common
Stock to any person or entity other than to Metromedia, Messrs. Kluge and
Subotnick, their affiliates, relatives and certain other entities (the
"Permitted Holders"). Additionally, shares of Class B Common Stock may not be
transferred, whether by sale, assignment, gift, bequest, appointment or
otherwise, to a person other than to a Permitted Holder. Notwithstanding the
foregoing (i) any Permitted Holder may pledge his, her or its shares of Class B
Common Stock to a financial institution pursuant to a bona fide pledge of such
shares as collateral security for indebtedness due to the pledgee provided that
such shares remain subject to the transfer restrictions and that, in the event
of foreclosure or other similar action by the pledgee, such pledged shares of
Class B Common Stock may only be transferred to a Permitted Holder or converted
into shares of Class A Common Stock, as the pledgee may elect and (ii) the
foregoing transfer restrictions shall not apply in the case of a merger,
consolidation or business combination of the Company with or into another
corporation in which all of the outstanding shares of Common Stock and Preferred
Stock of the Company regardless of class are purchased by the acquiror.
CONVERSION. Class A Common Stock has no conversion rights. Shares of Class
B Common Stock are convertible into Class A Common Stock, in whole or in part,
at any time and from time to time at the option of the holder, on the basis of
one share of Class A Common Stock for each share of Class B Common Stock
converted. Additionally, at such time as a person ceases to be a (i) Permitted
Holder, any share of Class B Common Stock held by such person at such time shall
convert into a share of Class A
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Common Stock. The Company covenants that (i) it will at all times reserve and
keep available out of its authorized but unissued shares of Class A Common
Stock, such number of shares of Class A Common Stock issuable upon the
conversion of all outstanding shares of Class B Common Stock, (ii) it will cause
any shares of Class A Common Stock issuable upon conversion of a share of Class
B Common Stock that require registration with or approval of any governmental
authority under federal or state law before such shares may be issued upon
conversion to be so registered or approved and (iii) it will use its best
efforts to list the shares of Class A Common Stock required to be delivered upon
conversion prior to such delivery upon such national securities exchange upon
which the outstanding Class A Common Stock is listed at the time of such
delivery.
RECLASSIFICATION AND MERGER. In the event of a reclassification or other
similar transaction as a result of which the shares of Class A Common Stock are
converted into another security, then a holder of Class B Common Stock will be
entitled to receive upon conversion the amount of such other security that the
holder would have received if the conversion occurred immediately prior to the
record date of such reclassification or other similar transaction. No
adjustments in respect of dividends will be made upon the conversion of any
share of Class B Common Stock; except if a share is converted subsequent to the
record date for the payment of a dividend or other distribution on shares of
Class B Common Stock but prior to such payment, then the registered holder of
such share at the close of business on such record date will be entitled to
receive the dividend or other distribution payable on such date regardless of
the conversion thereof or the Company's default in payment of the dividend due
on such date.
In the event the Company enters into any consolidation, merger, combination
or other transaction in which shares of Common Stock are exchanged for or
changed into other stock or securities, cash and/ or any other property, then,
and in such event, the shares of each class of Common Stock will be exchanged
for or changed into either (1) the same amount of stock, securities, cash and/or
any other property, as the case may be, into which or for which each share of
any other class of Common Stock is exchanged for or changed into shares of
capital stock, such shares so exchanged for or changed into may differ to the
extent and only to the extent that the Class A Common Stock and the Class B
Common Stock differ as provided in the Company's Amended and Restated
Certificate of Incorporation or (2) if holders of each class of Common Stock are
to receive different distributions of stock, securities, cash and/or any other
property, an amount of Stock, securities, cash and/or property per share having
a value, as determined by an independent investment banking firm of national
reputation selected by the Board of Directors, equal to the value per share into
which or for which each share of any other class of Common Stock is exchanged or
changed.
LIQUIDATION. In the event of a liquidation of the Company, after payment of
the debts and other liabilities of the Company and after making provision for
the holders of Preferred Stock, if any, the remaining assets of the Company will
be distributable ratably among the holders of the Class A Common Stock and Class
B Common Stock treated as a single class.
OTHER PROVISIONS. Except as described below, the holders of the Class A
Common Stock and Class B Common Stock are not entitled to preemptive rights.
None of the Class A Common Stock or Class B Common Stock may be subdivided or
combined in any manner unless the other classes are subdivided or combined in
the same proportion. The Company may not make any offering of options, rights or
warrants to subscribe for shares of Class B Common Stock. If the Company makes
an offering of options, rights or warrants to subscribe for shares of any other
class or classes of capital stock (other than Class B Common Stock) to all
holders of a class of Common Stock, then the Company is required to
simultaneously make an identical offering to all holders of the other classes of
Common Stock other than to any class the holders of which, voting as a separate
class, agrees that such offering need not be made to such class. All such
options, rights or warrants offerings shall offer the respective holders of
Class A Common Stock and Class B Common Stock the right to subscribe at the same
rate per share. All
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outstanding shares of Common Stock are, and all shares of Common Stock offered
hereby when issued will be, upon payment therefor, validly issued, fully paid
and nonassessable.
Delaware law does not require stockholder approval for any issuance of
authorized shares of Common Stock. Such authorized and unissued shares may be
used for a variety of corporate purposes, including future public offerings to
raise additional capital or to facilitate corporate acquisitions. One of the
effects of the existence of unissued and unreserved Common Stock may be to
enable the Board to issue shares to persons friendly to current management,
which issuance could render more difficult or discourage an attempt to obtain
control of the Company by means of a merger, tender offer, proxy consent or
otherwise, and thereby protect the continuity of the Company's current
management and possibly deprive the stockholders of opportunities to sell their
shares of Common Stock at prices higher than prevailing market prices.
At present there is no established trading market for the Class A Common
Stock.
Application to list the shares of the Class A Common Stock has been made to
the Nasdaq National Market under the proposed symbol "MFNX".
PREFERRED STOCK
The Board has the authority, without any further action by the stockholders
of the Company, to issue from time to time shares of Preferred Stock in one or
more series and to fix the designations, preferences, rights, qualifications,
limitations and restrictions thereof, including voting rights, dividend rights,
dividend rates, conversion rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series. The
issuance of Preferred Stock with voting rights could have an adverse effect on
the voting power of holders of Common Stock by increasing the number of
outstanding shares having voting rights. In addition, if the Board authorizes
Preferred Stock with conversion rights, the number of shares of Common Stock
outstanding could potentially be increased up to the authorized amount. The
issuance of Preferred Stock could decrease the amount of earnings and assets
available for distribution to holders of Common Stock. Any such issuance could
also have the effect of delaying, deterring or preventing a change in control of
the Company and may adversely affect the rights of holders of Common Stock. The
Board does not presently intend to issue any additional shares of Preferred
Stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
As a Delaware corporation, the Company is subject to the DGCL, including
Section 203. Section 203 of the DGCL prohibits certain transactions between a
Delaware corporation and an "interested stockholder," which is defined as a
person who, together with any affiliates or associates of such person,
beneficially owns, directly or indirectly, 15% or more of the outstanding voting
shares of a Delaware corporation. This provision prohibits certain business
combinations (defined broadly to include mergers, consolidations, sales or other
dispositions of assets having an aggregate value in excess of 10% of the
consolidated assets of the corporation, and certain transactions that would
increase the interested stockholder's proportionate share ownership in the
corporation) between an interested stockholder and a corporation for a period of
three years after the date the interested stockholder becomes an interested
stockholder, unless (i) prior to the date the interested stockholder becomes an
interested stockholder, the business combination or the transaction by which the
stockholder becomes an interested stockholder is approved by the corporation's
board of directors, (ii) upon consummation of the transaction which resulted in
the stockholder becoming an interested stockholder, such stockholder held at
least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (other than stock held by directors who are also officers
or by certain employee stock plans) or (iii) the business combination is
approved by a majority of the board of directors, and at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
66 2/3% of the outstanding voting stock
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that is not owned by the interested stockholder. Mr. Garofalo and Metromedia are
interested stockholders under the DGCL. However since their acquisition of the
Company's securities was approved in advance by the Company's Board of
Directors, they would not be prohibited from engaging in a business combination
with the Company.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The By-laws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual or special meeting of stockholders, must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Company not less than 70 days nor more than 90 days prior to the meeting;
provided, however, that in the event that the date of the annual meeting is
advanced by more than 20 days or delayed by more than 70 days from such
anniversary date, notice by the stockholder to be timely must be received no
earlier than the close of business on the ninetieth day prior to such annual
meeting and not later than the close of business on the later of the seventieth
day prior to such annual meeting or the tenth day following the day on which
public announcement of the date of such meeting is first made. The By-laws also
specify certain requirements for a stockholder's notice to be in proper written
form. These provisions may preclude some stockholders from bringing matters
before the stockholders at an annual or special meeting or from making
nominations for directors at an annual or special meeting.
The Company's Amended and Restated Certificate of Incorporation provides
that to the fullest extent permitted by the DGCL, no director of the Company
shall be liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director. Under current Delaware law, liability of
a director may not be limited (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law,
(iii) in respect of certain unlawful dividend payments or stock redemptions or
repurchases and (iv) for any transaction from which the director derives an
improper personal benefit. The effect of the provision of the Charter is to
eliminate the rights of the Company and its stockholders (through stockholders'
derivative suits on behalf of the Company) to recover monetary damages against a
director for breach of the fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior) except in the
situations described in clauses (i) through (iv) above. This provision does not
limit or eliminate the rights of the Company or any stockholder to seek
nonmonetary relief such as an injunction or rescission in the event of a breach
of a director's duty of care. In addition, the Charter provides that the Company
shall indemnify its directors, officers, employees and agents to the extent not
prohibited by Delaware law.
In addition, prior to the completion of the Offerings, the Company intends
to enter into agreements (the "Indemnification Agreements") with each of the
directors of the Company pursuant to which the Company will agree to indemnify
each such director against claims, liabilities, damages, expenses, losses,
costs, penalties or amounts paid in settlement (collectively, "Losses") incurred
by such director and arising out of his capacity as a director, executive
officer, employee and/or agent of the Company to the maximum extent permitted by
applicable law. In addition, such director or officer shall be entitled to an
advance of expenses to the maximum extent authorized or permitted by law to meet
the obligations indemnified against. The Indemnification Agreements will also
obligate the Company to purchase and maintain insurance for the benefit and on
behalf of its directors insuring against all liabilities that may be incurred by
such director in or arising out of his capacity as a director, officer, employee
and/or agent of the Company.
To the extent that the Board or the stockholders of the Company may in the
future wish to limit or repeal the ability of the Company to indemnify
directors, such repeal or limitation may not be effective as to directors who
are currently parties to the Indemnification Agreements, because their rights to
full protection will be contractually assured by the Indemnification Agreements.
It is anticipated that similar
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contracts may be entered into, from time to time, with future directors and with
executive officers of the Company.
WARRANTS
In February, 1997, the Company issued to a customer (in replacement for an
existing warrant) a warrant to purchase 456,300 shares of Class A Common Stock
at an exercise price of $4.85 per share. The new warrant expires on February 13,
2000. The warrants are subject to provisions for the adjustment of the exercise
price and the aggregate number of shares issuable upon exercise of the warrants
under certain circumstances, including stock dividends, stock splits and
reclassifications.
On June 14, 1996, the Company issued 38,025 Class A Common Stock purchase
warrants to two investors. The warrants are exercisable at $2.63 per share for a
period of 4 years (the "Exercise Period"), provided that in the event of an
initial public offering of the Company's Common Stock during the Exercise
Period, the exercise price will be reduced to the lesser of $2.63 or one half of
the initial public offering price per share. The warrants are subject to
provisions for the adjustment of the exercise price and the aggregate number of
shares issuable upon exercise of the warrants under certain circumstances,
including stock dividends, stock splits and reclassifications.
On September 24, 1996, the Company issued an aggregate of 94,302 Common
Stock purchase warrants to various bridge lenders (the "Bridge Warrants"). The
exercise price of the warrants is the lesser of (i) $5.92 per share; (ii) the
price at which the Company issues its securities in the future if less than
$5.92; or (iii) one half of the price at which the Class A Common Stock of the
Company is offered in an initial public offering. The exercise price is subject
to further reduction to a price such that the difference between the exercise
price and the market price of a share would yield an aggregate gross profit upon
exercise of all of the warrants equal to at least $550,000. The warrants are
exercisable until the later of September 24, 1999 or twelve months after the
Company has completed an initial public offering and the shares issuable
pursuant to the exercise of the warrants have been covered by an effective
registration statement which has remained in effect for 90 days. The warrants
are subject to provisions for the adjustment of the exercise price and the
aggregate number of shares issuable upon exercise of the warrants under certain
circumstances, including stock dividends, stock splits and reclassifications.
In October 1995, concurrent with the issuance of notes in a private
offering, warrants were issued by the Company to certain noteholders which are
exercisable at a rate of 15,210 shares of common stock per $100,000 of note
principal. Such warrants, entitling the holders to purchase an aggregate of
130,502 shares, are exercisable at a price equal to 50% of the per share price
of an initial public offering of common stock over a three-year period beginning
on the effective date of such initial public offering. The warrants are subject
to provisions for the adjustment of the exercise price and the aggregate number
of shares issuable upon exercise of the warrants under certain circumstances,
including stock dividends, stock splits and reclassifications.
In December 1996, the Company offered certain private placement noteholders
warrants to purchase 107,078 shares of its Class A Common Stock exercisable at
one half of the price for which shares are sold in an initial public offering
for a period of three years following such offering in exchange for the
extension of the due dates of the notes. All of the noteholders accepted this
offer. The warrants are subject to provisions for the adjustment of the exercise
price and the aggregate number of shares issuable upon exercise of the warrants
under certain circumstances, including stock dividends, stock splits and
reclassifications.
In March 1997 the Company issued warrants to private placement noteholders
to purchase 57,682 shares of Class A Common Stock exercisable at one half of the
price for which shares are sold in an initial public offering for a period of
three years following such offering in exchange for the extension of the due
dates of the notes. The warrants are subject to provisions for the adjustment of
the exercise price and the
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aggregate number of shares issuable upon exercise of the warrants under certain
circumstances, including stock dividends, stock splits and reclassifications.
On December 13, 1996, the Company issued and sold to an investor warrants to
purchase 114,075 shares of Class A Common Stock at an exercise price of $4.93
per share (the "Investor Warrants") and a contingent stock subscription warrant
to purchase a number of shares of Class A Common Stock (such number to be
determined based upon certain future events) at an exercise price of $0.02 per
share (the "Contingent Warrants"). On April 30, 1997, the Contingent Warrants,
along with a series of preferred stock the investor had acquired, were redeemed
at an aggregate redemption price of $2,115,000. In connection therewith, the
number of Investor Warrants was increased from 114,075 to 228,150. The Investor
Warrants are exercisable on or prior to December 31, 2001. The Investor Warrants
contain provisions for the adjustment of the exercise price and the aggregate
number of shares issuable upon the exercise of a warrant under certain
circumstances including the issuance of Class A Common Stock, options to
purchase Class A Common Stock or securities convertible into Class A Common
Stock at a price less than the exercise price, stock dividends, stock splits,
combinations, capital reorganizations and reclassifications. In addition, at any
time within one year of a change of control in the Company or after the second
anniversary of the grant of the Investor Warrants, the holders of Investor
Warrants have the right to require the Company to repurchase all of the shares
issued pursuant to the warrants or represented by the warrants.
Another of the Company's customers, subject to the satisfaction of certain
conditions set forth in an agreement with the Company, may acquire warrants to
purchase a minimum of 76,050 and, subject to the approval of the Company, a
maximum of 456,300 Class A Common Stock purchase warrants exercisable at $0.02
per share (the "Customer Warrants"). The purchase price for the warrants shall
be either (i) $.7456 per warrant, or (ii) in the event that the Company sells
Class A Common Stock in a private placement for an aggregate purchase price of
$7,500,000 or more, the sales price per warrant shall be the same as the price
per share of Class A Common Stock in such placement less $0.01; PROVIDED THAT,
in no event shall the aggregate purchase price exceed $1.25 million. The
warrants are exercisable on or prior to March 20, 2009. The warrants have
provisions for adjustment of the number of shares issuable upon exercise of the
warrants under certain circumstances including stock dividends, stock splits,
combinations, issuances of additional shares of Class A Common Stock at a price
less than the current market value of the Class A Common Stock, and issuances of
warrants, options, convertible securities or indebtedness or other rights,
exercisable for or convertible into Class A Common Stock at an exercise price
less than the current market value of the Class A Common Stock. In addition, at
any time on or after December 21, 2001 but prior to the earlier of March 20,
2009 or the consummation of public offering meeting certain criteria, the
warrant holder has the right to require the Company to purchase all of the
shares issued pursuant to the exercise of the warrants owned by such holder at a
price per share equal to the current market value per share of Class A Common
Stock and all of the warrants at a price equal to the current market value per
share of Class A Common Stock multiplied by the number of shares for which such
warrant is exercisable less the aggregate exercise price of such shares.
REGISTRATION RIGHTS
After the Company's initial public offering, each time that the Company
proposes to register any of its securities (other than on a registration
statement on Form S-8 or Form S-4) under the Securities Act, holders of the
Customer Warrants have the right to have their shares of Class A Common Stock of
the Company, whether owned as of the date of the grant of the warrant or issued
pursuant to the exercise of the warrant (the "Registrable Shares"), included in
such registration. If the managing underwriter advises the Company in writing
that the number of shares requested to be included in such registration exceeds
the number of shares which can be sold in such offering, the Company will be
obligated to include in such registration only (i) first, any and all shares of
Class A Common Stock for sale by the
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Company, and (ii) second, pro rata among the Registrable Shares and any other
shares of Class A Common Stock requested to be included in the registration
pursuant to any other registration rights. The Company is required to use all
reasonable efforts to effect the registration and the sale of the Registrable
Shares.
Pursuant to a letter agreement dated February 11, 1996 between Mr. Sahagen
and the Company, Mr. Sahagen was granted the same "piggyback" registration
rights as those granted to the holders of the Customer Warrants with respect to
shares of Class A Common Stock owned by him.
For five years after the issuance of the Bridge Warrants, at any time the
Company proposes to file a registration statement for the public sale of
securities (other than in connection with a merger or pursuant to Form S-4, Form
S-8 or a comparable registration statement), holders of these warrants have the
right to include the shares underlying the warrants registered under such
registration statement. If the managing underwriter advises the Company in
writing that the number of shares requested to be included in such registration
exceeds the number of shares which can be sold in such offering, the Company
will be obligated to include in such registration only (i) first, any and all
shares of Class A Common Stock for sale by the Company, and (ii) second, pro
rata among the shares underlying the warrants and any other shares of Class A
Common Stock requested to be included in the registration pursuant to any other
registration rights.
On March 20, 1996, an individual entered into a consulting and stock sale
agreement with the Company under which such individual received 182,520 shares
of Class A Common Stock and certain registration rights. After the Company's
initial public offering, at any time the Company proposes to register its
securities (other than pursuant to a Form S-4 or Form S-8 or in connection with
a merger), such individual has the right to include his shares in such
registration. If the managing underwriter in such offering advises the Company
that it declines to include a portion or all of the shares requested by such
individual to be included in the registration statement, then such portion or
all of such shares shall be excluded from the registration statement, with a
portion of the excluded shares allocated to such individual in proportion to the
respective numbers of shares requested to be registered by such individual.
On April 15, 1996, VCNY entered into a stock purchase agreement with the
Company for the purchase of 1,521,000 shares of Class A Common Stock. Under that
agreement, certain piggyback rights were granted to VCNY. In the event the
Company proposes to register any of its securities (other than in connection
with an initial public offering, a merger or pursuant to Form S-4 or Form S-8),
the Company is required, at VCNY's request, to include the shares sold to VCNY
in such registration. If the managing underwriter in such offering advises the
Company that it declines to include a portion or all of the shares requested by
VCNY to be included in the registration statement, then such portion or all of
such shares shall be excluded from the registration statement, with the excluded
shares being allocated among all shareholders requesting registration in
proportion to the respective numbers of shares requested to be registered by
each such shareholder. On October 9, 1996, VCNY and MFN entered into a
settlement agreement which provided for the termination of Mr. Vento's
employment with the Company. On January 13, 1997, VCNY sold 1,368,900 of the
shares of Class A Common Stock to certain investors. On January 15, 1997, the
Company entered into a registration rights agreement with some of these
investors who had purchased 264,870 shares of Class A Common Stock ("Vento
Investors"). Pursuant to this registration rights agreement, at any time on or
after 90 days following the effective date of an initial public offering of
Class A Common Stock, holders of a majority of shares of Class A Common Stock
held by the Vento Investors may request a demand registration of such shares.
This demand registration may be exercised up to three separate times, but no
such demand may be made within 90 days of the effectiveness of another
registration statement (other than pursuant to a Form S-8). The Vento Investors
also have certain piggyback registration rights, subject to customary cut-back
provisions. In addition, at such time as (i) the Company is qualified to use
Form S-3 and (ii) at least one year has passed since an initial public offering
of the Class A Common Stock, the Vento Investors having at
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least 5 of the shares purchased from VCNY have the unlimited right to request
the Company register such shares on Form S-3 (or a successor form), provided
that each such registration has an anticipated offering price of at least
$250,000. The remaining 1,104,030 shares of Class A Common Stock owned by VCNY
that were sold on January 13, 1997 were sold to Mr. Sahagen, who was granted
piggyback registration rights pursuant to a February 11, 1997 letter agreement
with the Company, as discussed above.
Pursuant to employment agreements and stock option agreements with the
Company, certain officers of the Company have rights with respect to the
registration of the shares underlying their stock options. Stephen A. Garofalo
was granted options to purchase 380,250 shares of Class A Common Stock, and
Howard Finkelstein was granted options to purchase 1,521,000 shares of Class A
Common Stock. John Mahon and Jim Urbelis were both granted options to purchase
136,890 shares of Class A Common Stock, and Vincent Galluccio has been granted
options to purchase 197,730 shares of Class A Common Stock. Upon the
consummation of an initial public offering, the Company is required to register
the shares underlying the stock options of Mr. Garofalo on Form S-8 and Mr.
Finkelstein's shares. At any time the Company proposes to file a registration
statement on Form S-8, and if permissible under such form, the Company is
required to include on such statement the shares underlying the stock options of
Messrs. Mahon, Urbelis and Galluccio.
Under the Metromedia Agreement, as amended, Metromedia, Stuart Subotnick,
Arnold Wadler and Silvia Kessel (the "Buyers") and Stephen A. Garofalo, were
granted certain demand and piggyback registration rights. Under his employment
agreement, Mr. Finkelstein was granted certain demand and piggyback registration
rights. At any time, Mr. Garofalo, Mr. Finkelstein or the holders of a majority
of the Class B Common Stock owned by the Buyers or issuable upon conversion of
the Class B Common Stock ("Majority Holders") may demand that the Company
register their shares of Class A Common Stock (assuming holders of Class B
Common Stock have converted their shares of Class B Common Stock into shares of
Class A Common Stock), and upon such demand, the Company is required to use its
best efforts to effect such registration. With certain exceptions, unless Mr.
Garofalo, Mr. Finkelstein or the Majority Holders consent to such inclusion, no
such registration may include any other securities. For each of Garofalo, and
the Majority Holders, the Company is not required to effect (i) more than three
such registrations in the aggregate; (ii) more than two such registrations
within any six month period; (iii) any such registration within six months after
the effectiveness of a registration by the Company offering its Class A Common
Stock (other than a registration on Form S-8 with respect to an employee benefit
plan), unless the Company has completed the sale of at least 80% of the offering
pursuant to such registration; or (iv) any such registration valued at less than
$5,000,000 based upon the then current market price or fair market value as
estimated by the Company's underwriters.
Each time the Company proposes to file a registration statement to register
its securities (except for registration on Form S-4 or Form S-8), the Company
will use its best efforts to effect the registration of shares requested to be
registered by Mr. Garofalo, Mr. Finkelstein or the Buyers. In the case of any
such piggyback registration in connection with a demand registration initiated
by Metromedia, Mr. Subotnick, Ms. Kessel, or Mr. Wadler, the amount of shares to
be included in such piggyback registration may not, without the prior written
consent of the person initiating the demand registration, exceed 10% of Mr.
Garofalo's or Mr. Finkelstein's total equity interest in the Company. In the
case of a piggyback registration in connection with a demand registration
initiated by Mr. Garofalo or Mr. Finkelstein, the amount of shares to be
included in such piggyback registration may not, without the prior written
consent of the person initiating the demand registration, exceed 10% of the
Buyers' total equity interest in the Company. In the case of any such piggyback
registration in connection with an underwritten primary registration on behalf
of the Company, if the Company's underwriters advise the Company in writing that
the number of shares to be included in such registration exceeds the number of
shares which, in the estimation of such underwriters, can be reasonably expected
to be sold in such offering, then the Company shall include in such registration
(i) first, the Class A Common Stock for sale by the
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Company and (ii) second, if additional shares of Class A Common Stock can be
included in such registration in the estimation of the Company's underwriters,
the shares requested by Mr. Garofalo, Mr. Finkelstein or the Buyers, on a pro
rata basis with each other eligible person.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock is ChaseMellon
Shareholder Services, L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offerings, there has been no market for the shares of the Class
A Common Stock. Sales of a substantial amount of Class A Common Stock in the
public market, or the perception that such sales may occur, could adversely
affect the market price of the Class A Common Stock prevailing from time to time
in the public market and could impair the Company's ability to raise additional
capital through the sale of its equity securities in the future.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of restricted securities from the
Company or any "affiliate" of the Company, as that term is defined under the
Securities Act, the holder is entitled to sell within any three-month period a
number of shares of Class A Common Stock that does not exceed the greater of 1%
of the then-outstanding shares of the Class A Common Stock or the average weekly
trading volume of shares of Class A Common Stock on all exchanges and reported
through the automated quotation system of a registered security association
during the four calendar weeks preceding the date on which notice of the sale is
filed with the Commission. Sales under Rule 144 are also subject to certain
restrictions on the manner of sales, notices, requirements and the availability
of current public information about the Company. If two years have elapsed since
the date of acquisition of restricted shares from the Company or from any
"affiliate" of the Company, and the holder thereof is deemed not to have been an
affiliate of the Company at any time during the 90 days preceding a sale, such
person would be entitled to sell such Class A Common Stock in the public market
under Rule 144(k) without regard to the volume limitations, manner of sale
provisions, public information requirements or notice requirements.
Upon completion of the Offerings, the Company will have approximately
16,204,267 shares of Class A Common Stock outstanding (17,194,267 if the
Underwriters' overallotment option is exercised in full), including 6,600,000
shares of Class A Common Stock sold in the Offerings (7,590,000 if the
Underwriters' overallotment option is exercised in full) and
"restricted" shares of Common Stock. Of the restricted shares held by
persons other than "affiliates" of the Company within the meaning of Rule 144,
shares of Class A Common Stock are currently eligible for sale under Rule
144, as currently in effect, and an additional shares of Class A
Common Stock will be eligible for sale under Rule 144, as currently in effect,
beginning in March, 1998.
The shares of Class A Common Stock offered in the Offerings will be freely
tradeable without restriction or further registration under the Securities Act
by persons other than "affiliates" of the Company within the meaning of Rule
144. The holders of restricted shares generally will be entitled to sell these
shares in the public securities market without registration under the Securities
Act to the extent permitted by Rule 144 or any exemption under the Securities
Act.
The Company and each of its executive officers and directors and certain
other stockholders have entered into lock-up agreements with the Underwriters,
providing that, subject to certain exceptions, they will not, for a period of
180 days from the date of this Prospectus, offer, sell or contract to sell or
otherwise dispose, directly or indirectly, or announce an offering of, any
shares of Class A Common Stock or any securities convertible into, or
exchangeable for, shares of Class A Common Stock without prior written consent
of Salomon Brothers Inc, subject to certain exceptions. See "Underwriting."
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Promptly after completion of the Offerings, the Company intends to file with
the Commission a Registration Statement on Form S-8, covering the shares of
Common Stock issuable upon exercise of certain officer's options and the shares
of Class A Common Stock underlying options granted under the 1997 Incentive
Stock Plan. This registration statement will become effective immediately upon
filing with the Commission. As a result, the shares of Class A Common Stock so
registered and acquired pursuant to the 1997 Incentive Stock Plan will be
available for sale by non-affiliates in the public securities market without
limitation and by affiliates, subject to the volume limitations of Rule 144.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among the Company and the U.S. Underwriters (the "U.S. Underwriting Agreement"),
the Company has agreed to sell to each of the U.S. Underwriters named below (the
"U.S. Underwriters"), and each of the U.S. Underwriters, for whom Salomon
Brothers Inc, Donaldson, Lufkin & Jenrette Securities Corporation and
are acting as the U.S. representatives (the "U.S. Representatives"),
has severally agreed to purchase from the Company the number of shares of Class
A Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
- ------------------------------------------------------------------------------ -------------
<S> <C>
Salomon Brothers Inc..........................................................
Donaldson, Lufkin & Jenrette Securities Corporation...........................
-------------
Total....................................................................... 5,610,000
-------------
-------------
</TABLE>
The Company has been advised by the U.S. Representatives that the several
U.S. Underwriters initially propose to offer such shares of Class A Common Stock
to the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share of Class A Common Stock. The U.S. Underwriters may allow, and
such dealers may re-allow, a concession not in excess of $ per share of Class
A Common Stock to other dealers. After the Offerings, the public offering price
and such concessions may be changed.
The Company has granted to the U.S. Underwriters and the international
underwriters (the "International Underwriters" and, collectively with the U.S.
Underwriters, the "Underwriters") an option, exercisable during the 30-day
period after the date of this Prospectus, to purchase up to 990,000 additional
shares of Class A Common Stock from the Company at the price to public less the
underwriting discount, solely to cover over-allotments. To the extent that the
U.S. Underwriters and the International Underwriters exercise such option, each
of the U.S. Underwriters and the International Underwriters, as the case may be,
will be committed, subject to certain conditions, to purchase a number of option
shares proportionate to such U.S. Underwriter's or International Underwriter's
initial commitment.
The Company has entered into an International Underwriting Agreement with
the International Underwriters named therein, for whom Salomon Brothers
International Limited, Donaldson, Lufkin & Jenrette Securities Corporation and
are acting as the representatives (the "International Representatives"
and, together with the U.S. Representatives, the "Representatives"), providing
for the concurrent offer and sale of 990,000 shares of Class A Common Stock (in
addition to the shares covered by the over-allotment options described above)
outside the United States and Canada. Both the U.S. Underwriting Agreement and
the International Underwriting Agreement provide that the obligations of the
U.S. Underwriters and the International Underwriters are such that if any of the
shares of Class A Common Stock are purchased by the U.S. Underwriters pursuant
to the U.S. Underwriting Agreement, or by the International Underwriters
pursuant to the International Underwriting Agreement, all the shares of Class A
Common Stock agreed to be purchased by either the U.S. Underwriters or the
International
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Underwriters, as the case may be, pursuant to their respective agreements must
be so purchased. The price to public and underwriting discount per share of
Class A Common Stock for the U.S. Offering and the International Offering will
be identical. The closing of the International Offering is a condition to the
closing of the U.S. Offering and the closing of the U.S. Offering is a condition
to the closing of the International Offering.
Each U.S. Underwriter has severally agreed that, as part of the distribution
of the 5,610,000 shares of Class A Common Stock offered by the U.S.
Underwriters, (i) it is not purchasing any shares of Class A Common Stock for
the account of anyone other than a United States or Canadian Person and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
shares of Class A Common Stock or distribute this Prospectus to any person
outside of the United States or Canada or to anyone other than a United States
or Canadian Person. Each International Underwriter has severally agreed that, as
part of the distribution of the 990,000 shares of Class A Common Stock offered
by the International Underwriters, (i) it is not purchasing any shares of Class
A Common Stock for the account of any United States or Canadian Person and (ii)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any shares of Class A Common Stock or distribute any Prospectus relating to the
International Offering to any person in the United States or Canada or to any
United States or Canadian Person.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Agreement Between U.S. Underwriters
and International Underwriters. "United States or Canadian Person" means any
person who is a national or resident of the United States or Canada, any
corporation, partnership or other entity created or organized in or under the
laws of the United States or Canada or of any political subdivision thereof, and
any estate or trust the income of which is subject to United States or Canadian
federal income taxation, regardless of the source of its income (other than the
foreign branch of any United States or Canadian Person), and includes any United
States or Canadian branch of a person other than a United States or Canadian
Person.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the U.S. Underwriters and the
International Underwriters of such number of shares of Class A Common Stock as
may be mutually agreed. The price of any shares of Class A Common Stock so sold
shall be the public offering price, less an amount not greater than the
concession to securities dealers. To the extent that there are sales between the
U.S. Underwriters and the International Underwriters pursuant to the Agreement
Between U.S. Underwriters and International Underwriters, the number of shares
of Class A Common Stock initially available for sale by the U.S. Underwriters or
by the International Underwriters may be more or less than the amount specified
on the cover page of this Prospectus.
Any offer of the shares of Class A Common Stock in Canada will be made only
pursuant to an exemption from the registration and qualification requirements in
any jurisdiction in Canada in which such offer is made.
The U.S. Underwriting Agreement and the International Underwriting Agreement
provide that the Company will indemnify the U.S. Underwriters and the
International Underwriters against certain liabilities and expenses, including
liabilities under the Securities Act, or contribute to payments the U.S.
Underwriters and the International Underwriters may be required to make in
respect thereof.
The Company, and each of its directors and officers and certain other
stockholders have agreed not to offer, sell, contract to sell or otherwise
dispose of, directly or indirectly, or announce the offering of any shares of
Class A Common Stock, including any such shares beneficially or indirectly owned
or controlled by the Company, or any securities convertible into, or
exchangeable or exercisable for, shares of Class A Common Stock, for 180 days
from the date of this Prospectus, without the prior written consent of Salomon
Brothers Inc, except for (i) shares issued in connection with any employee
benefit or incentive plans of the Company existing on the date of this
Prospectus, (ii) shares issued in respect of obligations existing before the
date of this Prospectus and (iii) shares in connection with the Offerings.
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At the Company's request, the Underwriters have reserved up to 330,000
shares of Class A Common Stock (the "Directed Shares") for sale at the public
offering price to persons who are directors, officers or employees of, or
otherwise associated with, the Company and its affiliates and who have advised
the Company of their desire to purchase such shares of Class A Common Stock. The
number of shares of Class A Common Stock available for sale to the general
public will be reduced to the extent of sales of Directed Shares to any of the
persons for whom they have been reserved. Any shares of Class A Common Stock not
so purchased will be offered by the Underwriters on the same basis as all other
shares of Class A Common Stock offered hereby.
Certain persons engaged in the distribution of the shares of Class A Common
Stock may engage in stabilizing transactions, syndicate covering transactions
and penalty bids in accordance with Rule 104 under the Exchange Act. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of shares of Class A Common Stock in the open
market after the distributions has been completed in order to cover syndicate
short positions. Penalty bids permit an underwriter to reclaim a selling
concession from a syndicate member when the shares of Class A Common Stock
originally sold by such syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Underwriters and prospective
underwriters intend to engage in passive market making in accordance with Rule
103 under the Exchange Act, which, in general, permits entities which are Nasdaq
market makers to continue to maintain bids for the shares of Class A Common
Stock so long as certain price and daily quantity limits are observed. Such
stabilizing transactions, syndicate covering transactions, penalty bids and
passive market making may cause the price of the Class A Common Stock to be
higher than it would otherwise be in the absence of such transactions.
Prior to the Offerings, there has been no public market for the Class A
Common Stock. The initial public offering price was determined by negotiations
between the Company and the Representatives. Among the factors considered in
determining the initial public offering price were the information set forth in
this Prospectus and otherwise available to the Representatives, the history of
and future prospects for the industry in which the Company competes, the ability
of the Company's management, the general conditions of the securities market at
the time of the Offerings and the market prices of securities and certain
financial and operating information of companies engaged in activities similar
to those of the Company. There can be no assurance that the price at which the
shares of Class A Common Stock will sell in the public market after the
Offerings will not be lower than the price at which they are sold in the
Offerings by the Underwriters.
The U.S. Underwriters and the International Underwriters do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
This Company has applied to have the Class A Common Stock quoted in the
Nasdaq National Market under the proposed symbol MFNX.
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CERTAIN FEDERAL TAX CONSEQUENCES
The following is a general discussion of certain U.S. Federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
"Non-United States Holder" and of the issuance of the Class A Common Stock by
the Company. A "Non-United States Holder" is a person or entity that, for U.S.
Federal income tax purposes, is (i) a non-resident alien individual, (ii) a
foreign corporation or partnership, (iii) an estate, other than an estate the
income of which is includible in gross income for United States Federal income
tax purposes regardless of its source, or (iv) a trust that is not subject
either to the primary supervision of a court within the United States or the
control of a United States fiduciary.
This discussion is based on the Code and administrative interpretations as
of the date hereof, all of which may be changed either retroactively or
prospectively. This discussion does not address all aspects of U.S. Federal
income and estate taxation that may be relevant to Non-United States Holders in
light of their particular circumstances and does not address any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction.
Prospective holders should consult their tax advisors with respect to the
United States Federal, state, local and non-United States income and other tax
consequences to them of holding and disposing of Class A Common Stock.
CONSEQUENCES TO NON-UNITED STATES HOLDERS OF COMMON STOCK
DIVIDENDS
Subject to the discussion below, dividends paid to a Non-United States
Holder of Class A Common Stock generally will be subject to withholding tax at a
30% rate or such lower rate as may be specified by an applicable income tax
treaty unless the dividend is effectively connected with the conduct of a trade
or business within the United States, or, if an income tax treaty applies, is
attributable to a United States permanent establishment of the Non-United States
Holder and, in either case, the Non-United States Holder provides the payor with
proper documentation (Form 4224), in which event the dividend will be taxable
under the rules discussed below. In order to claim the benefit of an applicable
tax treaty rate, a Non-United States Holder may have to file with the Company or
its dividend paying agent an exemption or reduced treaty rate certificate or
letter in accordance with the terms of such treaty.
Under current United States Treasury regulations, for purposes of
determining whether tax is to be withheld at a 30% rate or at a reduced rate as
specified by an income tax treaty, the Company ordinarily will presume that
dividends paid to a stockholder at an address in a foreign country are paid to a
resident of such country absent knowledge that such presumption is not
warranted. However, under proposed United States Treasury regulations which have
not yet been put into effect, additional certification requirements would apply
after December 1, 1997. See "--Information Reporting Requirements and Backup
Withholding Tax."
In the case of dividends that are effectively connected with the Non-United
States Holder's conduct of a trade or business within the United States or, if
an income tax treaty applies, are attributable to a United States permanent
establishment of the Non-United States Holder, the Non-United States Holder will
generally be subject to regular U.S. income tax in the same manner as if the
Non-United States Holder were a United States resident. A Non-United States
corporation receiving effectively connected dividends also may be subject to an
additional "branch profits tax" which is imposed, under certain circumstances,
at a rate of 30% (or such lower rate as may be specified by an applicable
treaty) of the Non-United States corporation's "effectively connected earnings
and profits," subject to certain adjustments.
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GAIN ON DISPOSITION OF CLASS A COMMON STOCK
A Non-United States Holder generally will not be subject to U.S. Federal
income tax with respect to gain realized on a sale or other disposition of Class
A Common Stock unless (i) the gain is effectively connected with a trade or
business of such Non-United States Holder in the U.S., (ii) in the case of
certain Non-United States Holders who are non-resident alien individuals and
hold the Common Stock as a capital asset, such individuals are present in the
U.S. for 183 or more days in the taxable year of the disposition and either (a)
such individuals have a "tax home" (as defined for United States Federal income
tax purposes) in the U.S., or (b) the gain is attributable to an office or other
fixed place of business maintained by such individuals in the U.S., (iii) the
Non-United States Holder is subject to tax, pursuant to the provisions of U.S.
tax law applicable to certain U.S. expatriates, or (iv) the Company is or has
been a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code at any time within the shorter of the five-year
period preceding such disposition or such Non-United States holding period.
The Company believes that it is not currently, but may become, a United
States real property holding corporation. If the Company were to become a United
States real property holding corporation, any gain recognized by a Non-United
States Holder would be subject to United States Federal income tax if the Common
Stock were regularly traded on an established securities market for tax purposes
and the Non-United States Holder held, directly or indirectly, at any time
within the five-year period preceding such disposition more than 5% of the
outstanding Class A Common Stock.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Under United States Treasury regulations, the Company must report annually
to the Internal Revenue Service and to each Non-United States Holder the amount
of dividends paid to such holder and any tax withheld with respect to such
dividends. These information reporting requirements apply regardless of whether
withholding is required. Copies of the information returns reporting such
dividends and withholding may also be made available to the tax authorities in
the country in which the Non-United States Holder is a resident under the
provisions of an applicable income tax treaty or agreement.
United States backup withholding (which generally is withholding tax imposed
at the rate of 31% on certain payments to persons that fail to furnish certain
information under the United States information reporting requirements)
generally will not apply to (i) dividends paid to Non-United States Holders that
are subject to the 30% withholding discussed above (or that are not so subject
because a tax treaty applies that reduces or eliminates such 30% withholding) or
(ii) under current law, dividends paid to a Non-United States Holder at an
address outside of the United States. However, under proposed United States
Treasury regulations, in the case of dividends paid after December 31, 1997
(December 31, 1999 in the case of dividends paid to accounts in existence on or
before the date that is 60 days after the proposed United States Treasury
regulations are published as final regulations), a Non-United States Holder
generally would be subject to backup withholding at a rate of 31% unless certain
procedures or documentary evidence procedures, as applicable, are complied with,
directly or through an intermediary.
Backup withholding and information reporting generally will apply to
dividends paid to addresses inside the United States on shares of Common Stock
to beneficial owners that are not "exempt recipients" and that fail to provide
in the manner required certain identifying information.
The payment of the proceeds of the disposition of Class A Common Stock to or
through the U.S. office of a broker is subject to information reporting unless
the disposing holder, under penalty of perjury, certifies its Non-United States
status or otherwise establishes an exemption. Generally, U.S. information
reporting and backup withholding will not apply to a payment of disposition
proceeds if the payment is made outside the U.S. through a Non-United States
office of a Non-United States broker. However, information reporting
requirements (but not backup withholding) will apply to a payment of disposition
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proceeds outside the U.S. if (a) the payment is made through an office outside
the U.S. of a broker that is either (i) a U.S. person, (ii) a foreign person
which derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the U.S., or (iii) a "controlled foreign
corporation" for U.S. Federal Income tax purposes and (b) the broker fails to
maintain documentary evidence that the holder is a Non-United States Holder and
that certain conditions are met, or that the holder otherwise is entitled to an
exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the Internal
Revenue Service.
FEDERAL ESTATE TAXES
An individual Non-United States Holder who is treated as the owner of or has
made certain lifetime transfers of an interest in the Class A Common Stock will
be required to include the value thereof in his gross estate for U.S. Federal
estate tax purposes, and may be subject to U.S. Federal estate tax unless an
applicable estate tax treaty provides otherwise.
CONSEQUENCES TO THE COMPANY
LIMITATION ON USE OF NET OPERATING LOSSES
Under Section 382 of the Code, if the percentage of stock (by value) of a
corporation (the "Loss Corporation") that is owned by one or more "five-percent
shareholders" has increased by more than 50 percentage points over the lowest
percentage of stock owned by the same shareholders during a three year testing
period (an "ownership change"), the use of pre-ownership change net operating
losses of the Loss Corporation following such Ownership Change will be limited
based on the value of the Loss Corporation on the date the Ownership Change
occurs (a "Section 382 Limitation"). As of the end of its most recent taxable
year, the Company had net operating losses that are currently subject to Section
382 Limitations. Although the Company believes that the issuance of the Common
Stock should not result in an Ownership Change, future equity issuances or
transactions among shareholders may trigger an Ownership Change. If such an
Ownership Change occurs, the Company's use of its net operating losses will be
subject to a Section 382 Limitation based on the value of the Company on the
date of such an Ownership Change.
The financial statements of the Company do not reflect a provision for
Federal income taxes for the year ended December 31, 1996. A full valuation
allowance has been recorded in the financial statements against the net deferred
tax asset as its realization is uncertain.
THE FOREGOING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT HIS TAX ADVISOR WITH
RESPECT TO THE UNITED STATES FEDERAL INCOME TAX AND FEDERAL ESTATE TAX
CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF CLASS A COMMON STOCK, INCLUDING
THE APPLICATION AND EFFECT OF THE LAWS OF ANY STATE, LOCAL, FOREIGN, OR OTHER
TAXING JURISDICTION.
LEGAL MATTERS
The validity of the Class A Common Stock and certain other legal matters in
connection with the Class A Common Stock offered hereby will be passed upon for
the Company by Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the
Americas, New York, NY 10019-6064. Certain legal matters in connection with the
Offerings will be passed upon for the Underwriters by Cravath, Swaine & Moore,
Worldwide Plaza, 825 Eighth Avenue, New York, New York.
77
<PAGE>
EXPERTS
The consolidated financial statements of Metromedia Fiber Network, Inc.
(formerly National Fiber Network, Inc.) at December 31, 1996 and for the year
then ended, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing. The consolidated balance sheet of the Company as of December 31, 1995
and the related consolidated statements of operations, stockholders' deficiency
and cash flows for the twelve months then ended have been audited by M.R. Weiser
& Co. LLP, Certified Public Accountants, as stated on their report, which is
included herein upon the authority of such firm as experts in accounting and
auditing. Their report contains an explanatory paragraph regarding an
uncertainty as to the Company's ability to continue as a going concern. The
statements of operations, changes in stockholders' (deficiency) equity and cash
flows for the year ended December 31, 1994 were audited by Richard A. Eisner &
Company, LLP, independent auditors, as stated in their report dated June 5,
1995, which is included herein and in the Registration Statement, upon the
authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is not currently subject to the information requirements of the
Exchange Act. As a result of the Offerings, the Company will be required to file
reports and other information with the Commission pursuant to the informational
requirements of the Exchange Act. The Company intends to furnish its
stockholders with annual reports containing consolidated financial statements
audited by independent certified public accountants and such other unaudited
quarterly or other interim reports as it deems appropriate.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the securities offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus, which
is a part of the Registration Statement, omits certain information, exhibits,
schedules and undertakings set forth in the Registration Statement. For further
information pertaining to the Company and the securities offered hereby,
reference is made to such Registration Statement and the exhibits and schedules
thereto. Statements contained in this Prospectus as to the contents or
provisions of any documents referred to herein are not necessarily complete, and
in each instance, reference is made to the copy of the document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
The Registration Statement may be inspected without charge at the office of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of the
Registration Statement may be obtained from the Commission at prescribed rates
from the Public Reference Section of the Commission at such address and at the
Commission's regional offices located at 7 World Trade Center, 13th Floor, New
York, New York 10048, and at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. In addition, registration
statements and certain other filings made with the Commission through its
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are publicly
available through the Commission's site on the Internet's World Wide Web,
located at http://www.sec.gov.
78
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Reports of Independent Auditors....................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996
and June 30, 1997 (Unaudited)....................................................... F-5
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996 and the six months ended
June 30, 1996 and 1997 (Unaudited).................................................. F-6
Consolidated Statements of Changes in Stockholders' (Deficiency) Equity for the
years ended December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1997 (Unaudited)..................................................... F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 (Unaudited)............................................ F-8
Notes to Consolidated Financial Statements............................................ F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Metromedia Fiber Network, Inc.
We have audited the accompanying consolidated balance sheet of Metromedia
Fiber Network, Inc. (formerly National Fiber Network, Inc.) and Subsidiary (the
"Company") as of December 31, 1996, and the related consolidated statements of
operations, stockholders' deficiency and cash flows for the year then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Metromedia Fiber Network, Inc. (formerly National Fiber Network, Inc.) and
Subsidiary as of December 31, 1996, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Ernst & Young LLP
New York, New York
April 30, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Metromedia Fiber Network, Inc.
We have audited the accompanying consolidated balance sheet of Metromedia
Fiber Network, Inc. (formerly National Fiber Network, Inc.) (a Delaware
corporation) and Subsidiary (the "Company") as of December 31, 1995, and the
related consolidated statements of operations, stockholders' deficiency and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Metromedia Fiber Network, Inc. (formerly National Fiber Network, Inc.) and
Subsidiary as of December 31, 1995, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company's significant recurring
losses, operating history and significant working capital deficiency, including
significant amounts of past due payables, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also discussed in Note 1. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might result from the outcome of this uncertainty.
M.R. Weiser & Co. LLP
New York, New York
June 26, 1996
F-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Metromedia Fiber Network, Inc. (formerly National Fiber Network, Inc.)
We have audited the accompanying statements of operations, changes in
stockholders' (deficiency) equity and cash flows of Metromedia Fiber Network,
Inc. (formerly National Fiber Network, Inc.) for the year ended December 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in
all material respects, the results of operations of Metromedia Fiber Network,
Inc. (formerly National Fiber Network, Inc.) and its cash flows for the year
ended December 31, 1994 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred net losses and significant
construction costs and will require additional financing. These issues raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also discussed in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Richard A. Eisner & Company, LLP
New York, New York
June 5, 1995
F-4
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
<S> <C> <C> <C>
1995 1996 1997
------------- -------------- --------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................................ $ 5,913 $ 464,324 $ 22,893,466
Accounts receivable............................................. 182,718 180,790 354,792
Prepaid expenses................................................ 65,425 -- 261,048
------------- -------------- --------------
Total current assets.............................................. 254,056 645,114 23,509,306
Fiber optic transmission network and related equipment, net....... 5,884,679 6,368,653 6,708,854
Property and equipment, net....................................... 467,631 525,268 645,914
Franchise costs, net.............................................. 324,937 299,941 287,442
Deferred charges and other assets................................. 145,717 138,530 499,595
------------- -------------- --------------
$ 7,077,020 $ 7,977,506 $ 31,651,111
------------- -------------- --------------
------------- -------------- --------------
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY
Current liabilities:
Notes payable................................................... $ 3,850,036 $ 5,950,000 $ 500,000
Current portion of settlement agreement......................... 549,282 115,000 90,000
Accounts payable................................................ 3,364,728 5,256,929 1,151,231
Accrued expenses................................................ 1,058,705 683,227 727,794
Due to related parties.......................................... 1,589,866 119,299 --
Notes payable--private placements............................... 1,383,000 1,408,000 12,500
------------- -------------- --------------
Total current liabilities......................................... 11,795,617 13,532,455 2,481,525
Settlement agreement, net of current portion...................... 326,864 180,000 135,000
Deferred revenue.................................................. 275,034 1,107,724 9,976,492
Other............................................................. 15,243 15,243 15,243
Commitments and contingencies
Shareholders' (deficiency) equity:
Preferred stock, $.10 par value, authorized 2,000,000 shares,
150,000 shares issued and outstanding......................... -- 15,000 --
Series B convertible preferred stock $.01 par value 8,403 shares
authorized, issued and outstanding............................ -- -- 84
Common stock, $.01 par value; authorized 60,000,000 shares,
6,239,994, 10,001,310 and 9,564,940 shares issued and
outstanding, respectively..................................... 62,400 100,013 95,649
Additional paid-in capital...................................... (17,400) 8,766,506 52,904,837
Accumulated deficit............................................. (5,380,738) (15,739,435) (33,957,719)
------------- -------------- --------------
(5,335,738) (6,857,916) 19,042,851
------------- -------------- --------------
$ 7,077,020 $ 7,977,506 $ 31,651,111
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
-------------- -------------- --------------- -------------- ---------------
Revenue....................... $ -- $ 56,149 $ 236,082 $ 82,035 $ 541,886
Expenses:
Cost of sales............... -- -- 698,793 265,029 1,081,677
Selling, general and
administrative............ 874,000 3,886,568 2,070,345 1,276,853 2,186,291
Consulting and employment
incentives................ -- -- 3,652,101 3,651,442 13,419,900
Depreciation and
amortization.............. -- 161,576 612,530 292,319 372,935
-------------- -------------- --------------- -------------- ---------------
Loss from operations.......... (874,000) (3,991,995) (6,797,687) (5,403,608) (16,518,917)
Interest income -- -- -- -- 204,175
Interest expense (including
financing costs)............ -- (327,106) (3,561,010) (1,807,956) (679,427)
-------------- -------------- --------------- -------------- ---------------
Net loss...................... $ (874,000) $ (4,319,101) $ (10,358,697) $ (7,211,564) $ (16,994,169)
-------------- -------------- --------------- -------------- ---------------
-------------- -------------- --------------- -------------- ---------------
Net loss per share............ $ (0.10) $ (0.48) $ (0.87) $ (0.66) $ (1.36)
-------------- -------------- --------------- -------------- ---------------
-------------- -------------- --------------- -------------- ---------------
Weighted average number of
shares outstanding.......... 8,721,210 9,094,472 11,851,801 10,993,990 12,599,295
-------------- -------------- --------------- -------------- ---------------
-------------- -------------- --------------- -------------- ---------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIENCY) EQUITY
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL
--------------------- -------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
---------- --------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993................... 1,521,000 $ 15,210 $ (5,210) $ (187,637)
Sale of common stock......................... 4,563,000 45,630 (15,630) --
Net loss for the year........................ -- -- -- (874,000)
---------- --------- --------- --------- ----------- -------------
Balance at December 31, 1994................... 6,084,000 60,840 (20,840) (1,061,637)
Issuance of common stock as an inducement for
entering into a loan agreement............. 155,994 1,560 3,440 --
Net loss for the year........................ -- -- -- (4,319,101)
---------- --------- --------- --------- ----------- -------------
Balance at December 31, 1995................... 6,239,994 62,400 (17,400) (5,380,738)
Issuance of common stock in 1996 for legal
services rendered.......................... 491,105 4,911 902,390 --
Issuance of common stock and warrants in
conjunction with sale of Senior
Subordinated Notes in 1996................. 381,087 3,811 685,202 --
Issuance of shares to holder of Senior
Subordinated Notes in exchange for
warrants................................... 228,150 2,282 (2,282) --
Issuance of common stock in April 1996 to
extend maturity of private placement
subordinated notes......................... 59,359 594 106,728 --
Issuance of common stock in exchange for
management services........................ 1,521,000 15,210 2,744,790 --
Issuance of additional common stock to the
holder of the Senior subordinated notes in
connection with antidilution provisions.... 38,025 380 (380) --
Issuance of common stock in April 1996 and
July 1996 in connection with the exercise
of Warrants................................ 190,543 1,905 (1,905) --
Issuance of common stock to related
electrical contractor in May 1996 as
payment for services....................... 456,300 4,563 688,324 --
Issuance of common stock to majority
shareholder in May 1996 in exchange for
debt....................................... 152,100 1,521 598,479 --
Sale of common stock and warrants in June
1996....................................... 38,025 380 99,620 --
Issuance of common stock in July 1996 in
exchange for services rendered............. 12,168 122 21,078 --
Issuance of common stock for services
rendered................................... 182,520 1,825 332,975 --
Sale of common stock in September 1996....... 10,934 109 23,391 --
Issuance of warrants for legal services
rendered (to purchase 152,100 shares at
$.06 per share)............................ -- -- 200,000 --
Issuance of warrants in connection with debt
issuance (to purchase 94,302 shares at
$5.92 per share)........................... -- -- 13,640 --
Issuance of warrants in connection with debt
issuance (to purchase 190,543 shares at
$.006 per share)........................... -- -- 250,550 --
Issuance of warrants in connection with debt
issuance (to purchase 107,078 shares)...... 111,306
Sale of preferred stock with warrants in
December 1996.............................. 150,000 $ 15,000 2,010,000
Net loss for the year........................ -- -- -- (10,358,697)
---------- --------- --------- --------- ----------- -------------
Balance at December 31, 1996................... 10,001,310 100,013 150,000 15,000 8,766,506 (15,739,435)
Issuance of common stock in connection with the
exercise of warrants (unaudited)............. 152,100 1,521 8,479
Issuance of options to employees (to purchase
2,372,760 shares) (unaudited)................ 13,419,900
Issuance of warrants in connection with debt
extension (to purchase 57,682 shares)
(unaudited).................................. 220,036
Dividends (unaudited).......................... (76,562)
Repurchase and retirement of Series A preferred
stock and warrants (unaudited)............... (150,000) (15,000) (2,010,000) (13,438)
Repurchase and retirement of common stock and
warrants (unaudited)......................... (588,470) (5,885) (1,134,115)
Sale of Series B preferred stock (unaudited)... 8,403 84 32,499,916
Net loss for the period (unaudited)............ (16,994,169)
---------- --------- --------- --------- ----------- -------------
Balance at June 30, 1997 (unaudited)........... 9,564,940 $ 95,649 8,403 $ 84 $52,904,837 $(33,957,719)
---------- --------- --------- --------- ----------- -------------
---------- --------- --------- --------- ----------- -------------
<CAPTION>
TOTAL
------------
<S> <C>
Balance at December 31, 1993................... $ (177,637)
Sale of common stock......................... 30,000
Net loss for the year........................ (874,000)
------------
Balance at December 31, 1994................... (1,021,637)
Issuance of common stock as an inducement for
entering into a loan agreement............. 5,000
Net loss for the year........................ (4,319,101)
------------
Balance at December 31, 1995................... (5,335,738)
Issuance of common stock in 1996 for legal
services rendered.......................... 907,301
Issuance of common stock and warrants in
conjunction with sale of Senior
Subordinated Notes in 1996................. 689,013
Issuance of shares to holder of Senior
Subordinated Notes in exchange for
warrants................................... --
Issuance of common stock in April 1996 to
extend maturity of private placement
subordinated notes......................... 107,322
Issuance of common stock in exchange for
management services........................ 2,760,000
Issuance of additional common stock to the
holder of the Senior subordinated notes in
connection with antidilution provisions.... --
Issuance of common stock in April 1996 and
July 1996 in connection with the exercise
of Warrants................................ --
Issuance of common stock to related
electrical contractor in May 1996 as
payment for services....................... 692,887
Issuance of common stock to majority
shareholder in May 1996 in exchange for
debt....................................... 600,000
Sale of common stock and warrants in June
1996....................................... 100,000
Issuance of common stock in July 1996 in
exchange for services rendered............. 21,200
Issuance of common stock for services
rendered................................... 334,800
Sale of common stock in September 1996....... 23,500
Issuance of warrants for legal services
rendered (to purchase 152,100 shares at
$.06 per share)............................ 200,000
Issuance of warrants in connection with debt
issuance (to purchase 94,302 shares at
$5.92 per share)........................... 13,640
Issuance of warrants in connection with debt
issuance (to purchase 190,543 shares at
$.006 per share)........................... 250,550
Issuance of warrants in connection with debt
issuance (to purchase 107,078 shares)...... 111,306
Sale of preferred stock with warrants in
December 1996.............................. 2,025,000
Net loss for the year........................ (10,358,697)
------------
Balance at December 31, 1996................... (6,857,916)
Issuance of common stock in connection with the
exercise of warrants (unaudited)............. 10,000
Issuance of options to employees (to purchase
2,372,760 shares) (unaudited)................ 13,419,900
Issuance of warrants in connection with debt
extension (to purchase 57,682 shares)
(unaudited).................................. 220,036
Dividends (unaudited).......................... (76,562)
Repurchase and retirement of Series A preferred
stock and warrants (unaudited)............... (2,038,438)
Repurchase and retirement of common stock and
warrants (unaudited)......................... (1,140,000)
Sale of Series B preferred stock (unaudited)... 32,500,000
Net loss for the period (unaudited)............ (16,994,169)
------------
Balance at June 30, 1997 (unaudited)........... $ 19,042,851
------------
------------
</TABLE>
See accompanying notes.
F-7
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
---------- ----------- ------------ ----------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................... $ (874,000) $(4,319,101) $(10,358,697) $(7,211,564) $ (16,994,169)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation and amortization............. -- 161,576 612,530 292,319 372,935
Common stock issued for services.......... -- -- 5,395,132 5,248,986 13,639,936
Changes in operating assets and
liabilities:
Accounts receivable..................... -- (182,718) 1,928 7,817 (174,002)
Prepaid expenses........................ (73,000) (44,674) 65,425 2,336 (261,048)
Deferred charges and other assets....... -- (111,869) (52,495) 36,157 (255,170)
Accounts payable and accrued expenses... -- 2,417,155 1,516,723 (653,938) (4,174,932)
Due to related parties.................. 475,000 (377,243) (177,680) (1,370,632) (119,299)
Settlement agreement.................... -- 876,146 (581,146) (300,344) (70,000)
Advance payments received from
customers............................. -- 275,034 832,690 100,000 8,868,768
Other................................... (10,000) 14,877 -- -- --
---------- ----------- ------------ ----------- -------------
Net cash used in operating activities....... (482,000) (1,290,817) (2,745,590) (3,848,863) 833,019
---------- ----------- ------------ ----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures on fiber optic
transmission network and related
equipment................................. (548,000) (3,709,928) (974,107) (86,456) (662,722)
Capital expenditures on property and
equipment................................. -- (476,378) (95,356) (49,427) (150,655)
Other....................................... (76,000) -- --
---------- ----------- ------------ ----------- -------------
Net cash used in investing activities....... (624,000) (4,186,306) (1,069,463) (135,883) (813,377)
---------- ----------- ------------ ----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of preferred stock
and warrants.............................. -- -- 2,025,000 -- 32,500,000
Proceeds from issuance of common stock...... 30,000 -- 123,500 1,409,887 10,000
Repayment of note payable................... (3,350,036) (2,850,036) (5,450,000)
Proceeds from note payable.................. -- 3,850,036 5,450,000 5,400,000
Proceeds from stockholder's note............ 1,326,000 -- -- -- --
Dividend.................................... -- -- -- -- (76,562)
Net Proceeds from notes payable--private
placements................................ -- 1,383,000 25,000 25,000 (1,395,500)
Purchase of common stock.................... -- -- -- -- (1,140,000)
Purchase of preferred stock................. -- -- -- -- (2,038,438)
---------- ----------- ------------ ----------- -------------
Net cash provided by financing activities... 1,356,000 5,233,036 4,273,464 3,984,851 22,409,500
---------- ----------- ------------ ----------- -------------
Net increase (decrease) in cash 250,000 (244,087) 458,411 105 22,429,142
Cash--beginning of period -- 250,000 5,913 5,913 464,324
---------- ----------- ------------ ----------- -------------
Cash--end of period......................... $ 250,000 $ 5,913 $ 464,324 $ 6,018 $ 22,893,466
---------- ----------- ------------ ----------- -------------
---------- ----------- ------------ ----------- -------------
</TABLE>
See accompanying notes.
F-8
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS OPERATIONS AND LINE OF BUSINESS
Metromedia Fiber Network, Inc. (formerly National Fiber Network, Inc.) and
its subsidiary, National Fiber Network of New Jersey, Inc. (the "Company"), was
a development stage company for the period from inception (April 8, 1993)
through October 1995. Effective December 20, 1993, the Company was granted a
nonexclusive right from the City of New York to provide telecommunication
services and construct a fiber optic network for the purpose of providing these
services. In October 1995, the basic backbone of the Fiber Optic Cable Network
was completed and the Company began servicing its customers.
The Company incurred significant costs in connection with the construction
of the initial backbone of the fiber optic network and expects to continue to
incur more costs when the Company extends its network construction.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company.
All material intercompany balances and transactions have been eliminated in
consolidation.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. Since inception,
the Company has suffered significant recurring losses and, as of December 31,
1996, the Company had a working capital deficiency of approximately $12,887,000
and a stockholders' deficiency of approximately $6,858,000. Further, at December
31, 1996, substantially all of its trade payables and certain current
liabilities were past due. In addition, the Company was not in compliance with
certain debt and settlement agreements. These factors, raised substantial doubt
about the Company's ability to continue as a going concern. On April 30, 1997
the Company sold 8,403.325 shares of Series B preferred shares in exchange for
$32,500,000 in cash. A portion of the cash was used to satisfy the
aforementioned obligations. Management believes that these funds are sufficient
to meet the Company's obligations for at least the next year.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECOGNITION OF REVENUE
The Company recognizes revenue on telecommunications services ratably over
the term of the applicable agreements with customers.
F-9
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED REVENUE
Deferred revenue represents prepayments received from customers for future
use of the Company's fiber optic network.
ORGANIZATION COSTS
Costs incurred in connection with the organization of the Company were
capitalized and are being amortized over five years on a straight-line basis.
CONSULTING AND EMPLOYMENT INCENTIVES
The amounts represent the value of common stock, warrants and options issued
to consultants and officers of the Company as incentive for the consultants and
officers to provide services to the Company.
The 1997 amounts represent the value of options to purchase 2,372,760 shares
of the Company's common stock issued in 1997 to executive officers of the
Company. The options have been valued in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees" at the difference between the
exercise price of the options and the fair market value of the Company's common
stock.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". The Company applies APB Opinion No.
25, "Accounting for Stock Issued to Employees", and related interpretations in
accounting for its stock options.
FIBER OPTIC TRANSMISSION NETWORK AND RELATED EQUIPMENT
The fiber optic transmission network and related equipment are stated at
cost. Various costs are capitalized during the installation and expansion of the
network. Depreciation is computed using the straight-line method through the
expiration date of the franchise agreement, December 20, 2008.
LONG LIVED ASSETS
In fiscal 1996, the Company adopted SFAS No.121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
The Company reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. No such impairment
indicators have been identified by the Company.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line and accelerated cost recovery methods over the shorter of the
estimated useful lives of the assets or the term of the lease.
ACCRUED EXPENSES
Accrued expenses includes accrued interest of approximately $124,000,
$683,000 and $262,900 as of June 30, 1997, December 31, 1996 and 1995
respectively.
The Company incurred accrued capital expenditures on fiber optic
transmission network and related equipment of $1,281,000 during 1994.
F-10
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FRANCHISE COSTS
Amortization of franchise costs began upon commencement of service to
customers and is computed on the straight-line method through December 20, 2008
(159 months), the expiration date of the franchise agreement.
INCOME TAXES
The Company recognizes deferred tax liabilities and assets, if any, for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. Valuation
allowances are provided when the expected realization of tax assets does not
meet a more likely than not criterion.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments with an original maturity of three
months or less when purchased to be cash equivalents.
RECAPITALIZATION
In April 1997, the Company increased its authorized common stock of $.01 par
value to 60,000,000 shares; in addition, authorized preferred stock with a par
value of $.01 was increased to 2,000,000 shares.
On February 17, 1995, the Company effected a 4,000 for one stock split of
its outstanding shares of common stock. The financial statements give
retroactive effect to this stock split.
On April 29, 1997, the Company effected a 3 for one stock split of its
outstanding shares of common stock. The financial statements give retroactive
effect to this stock split.
In September 1997, the Company effected a .507 for 1 reverse stock split.
The financial statements give retroactive effect to this stock split.
EARNINGS PER SHARE
Net loss per share computations are based upon net loss divided by the
weighted average number of shares of common stock outstanding during the
respective periods. The weighted average number of common shares outstanding
have been calculated in accordance with Staff Accounting Bulletin 83 ("SAB 83")
of the Securities and Exchange Commission. SAB 83 requires that shares of common
stock and options issued one-year prior to the initial filing of a registration
statement relating to an initial public offering at amounts below the public
offering price be considered outstanding for all periods presented in the
Company's registration statement. In computing the effect of stock options,
using the treasury stock method, the Company assumed that the market value of
the stock was $15.00 per share.
UNAUDITED INFORMATION
The unaudited financial statements at June 30, 1997 and for the six months
ended June 30, 1996 and 1997 reflect adjustments, all of which are of a normal
recurring nature, which are, in the opinion of
F-11
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
management, necessary to a fair presentation. The results for the interim
periods presented are not necessarily indicative of full year results.
2. FIBER OPTIC TRANSMISSION NETWORK AND RELATED EQUIPMENT
Fiber optic transmission network and related equipment consist of the
following:
<TABLE>
<CAPTION>
1995 1996 JUNE 30, 1997
------------- ------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
Engineering and layout costs....................................... $ 3,058,917 $ 3,243,448 $ 3,297,683
Material--fiber optic cable........................................ 975,815 1,219,067 985,740
Electrical installation costs...................................... 407,642 407,642 407,642
Headends........................................................... 363,343 363,343 363,343
Fiber optic cable installation costs............................... 802,886 1,230,041 1,637,151
Other.............................................................. 389,243 508,412 945,475
------------- ------------- --------------
5,997,846 6,971,953 7,637,034
Less accumulated depreciation...................................... (113,167) (603,300) (928,180)
------------- ------------- --------------
$ 5,884,679 $ 6,368,653 $ 6,708,854
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30
1995 1996 1997 USEFUL LIFE
----------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Furniture and equipment.................................. $ 6,452 $ 42,776 $ 190,165 5 years
Leasehold improvements................................... 469,926 528,958 532,225 174 months
----------- ----------- ------------
476,378 571,734 722,390
Less accumulated depreciation and amortization........... (8,747) (46,466) (76,476)
----------- ----------- ------------
$ 467,631 $ 525,268 $ 645,914
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
4. RELATED PARTY TRANSACTIONS
In connection with the installation of the Company's fiber optic network,
the Company engaged the services of an electrical contractor controlled by the
Company's majority shareholder. During 1995 the Company incurred charges for
labor and materials of $692,887. As of December 31, 1995, $692,887 was owed to
this related company. In May 1996, the Company and the assignee of this related
party entered into an agreement whereby the full amount of this indebtedness was
satisfied by the issuance of 456,300 shares of the Company's common stock. The
value of the stock was based upon the invoices rendered for services performed
based upon negotiations between the Company and the electrical contractor.
The Company's majority shareholder made loans to the Company which at
December 31, 1994 totaled $1,967,109. In April 1995 the majority shareholder of
the Company agreed to contribute to the Company's capital $1.7 million of
amounts due to him. By agreement between the Company and the
F-12
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
majority shareholder in May 1996 the transaction was rescinded. During 1995, the
Company made repayments (net of additional advances) of $1,070,130. As of
December 31, 1995, the Company owed the majority shareholder $896,979. Pursuant
to an agreement dated May 21, 1996, the Company issued 152,100 shares of its
common stock to the majority shareholder in consideration for the cancellation
of $600,000 of the outstanding balance. The value of the stock was recorded as
the amount of the note repaid based upon negotiations between the Company and
its majority shareholder. In May 1997, the remaining balance of the note was
repaid in full.
In March and June 1997, the Company entered into two one year leases for
office space with an affiliate. Rent expense charged to operations under such
leases was approximately $33,000 for the period ending June 30, 1997.
5. NOTES PAYABLE
Notes payable-other consists of the following:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Tomen America, Inc............................................................... a) $ 2,850,036 $ --
Stockholder note................................................................. b) 500,000 --
AT&T Wireless.................................................................... c) 500,000 500,000
U.S. One Communications.......................................................... d) -- 4,900,000
Sterling Capital Bridge Loan..................................................... e) -- 550,000
------------- -------------
$ 3,850,036 $ 5,950,000
------------- -------------
------------- -------------
</TABLE>
a) On April 27, 1995, the Company entered into a bridge financing agreement
with Tomen America, Inc. ("Tomen"). The agreement provided for maximum
aggregate borrowings of $2,500,000 consisting of the following: (i) working
capital advances of $1,500,000, and (ii) equipment and materials procurement
of $1,000,000. A supplemental agreement executed on July 11, 1995 increased
these limits to $1,800,000 and $1,050,000, respectively, for an aggregate
line of credit of $2,850,000. As of December 31, 1995, the Company had
outstanding borrowings aggregating $2,850,036.
All amounts advanced under this agreement were scheduled to mature on April
26, 1996 and bore interest at a rate equal to Tomen's base lending rate plus
1.75%. The outstanding balance was collateralized as follows: (i) a security
interest in the assets of the Company, (ii) a pledge of shares of common
stock of the Company personally owned by the Company's president, and (iii)
the personal guaranty of the Company's president.
The agreement also provided for the Company to reimburse Tomen for certain
transaction expenses. As of December 31, 1995, a total of $152,604 of such
costs was included in accrued expenses.
On April 16, 1996, the Company repaid the entire principal balance, all
accrued and unpaid interest, and all expenses concurrent with the execution
of the refinancing agreement with U.S. One Communications.
F-13
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
5. NOTES PAYABLE (CONTINUED)
b) On March 16, 1995, the Company entered into a loan agreement with one of the
Company's directors for $500,000 bearing interest at 10% per annum, due on
March 16, 1996. As an inducement for entering into this loan agreement, the
Company issued 155,994 shares of common stock. This share issuance was
recorded at an amount equal to the value of the discounted interest rate
that the note bears over the term of the loan, or $5,000. This loan was
collateralized by 38 shares of the Company's common stock owned by the
Company's president, and was personally guaranteed by the president. This
loan and all accrued interest was fully repaid in March 1996.
c) On April 18, 1995, the Company entered into a loan agreement with AT&T
Wireless for $500,000 bearing interest at 11% per annum, originally due 120
days from the date of this loan. Pursuant to a supplemental agreement dated
January 12, 1996, the parties agreed to extend the maturity date of this
loan to November 18, 1996. Pursuant to a second supplemental agreement dated
March, 1997 the parties agreed to extend the maturity date to June 30, 1997.
In July 1997 the note was repaid in full.
On February 16, 1995, the Company issued to this party a warrant entitling
the holder to purchase a total of 669,167 shares of the Company's common
stock. This warrant, was canceled and replaced by a new warrant issued on
February 13, 1997 for 456,300 of non assessable shares of common stock at a
purchase price of $4.85 per share. The new warrant expires on February 13,
2000.
d) On April 16, 1996, the Company entered into an agreement with U.S. One
Communications ("U.S. One") for the exclusive usage rights for 8 to 12
fibers on the Company's fiber optic transmission network. The initial term
of the agreement was for a period beginning April 1996 and expiring December
2008. The agreement was renewable, at the option of U.S. One, for an
extended term of 13 years expiring December 2021. Concurrent with the
execution of the original agreement, the Company and U.S. One entered into a
bridge financing agreement. This was done for the purpose of refinancing the
Company's existing indebtedness to Tomen America and to obtain additional
funding until the construction borrowing arrangement was secured. In
connection with this agreement, the Company borrowed $4,900,000 from U.S.
One, of which $3,227,867 was immediately used to repay all amounts owed to
Tomen America as of April 16, 1996.
On April 30, 1997 the Company amended this agreement which allows U.S. One
to have the exclusive right to use 888 fiber miles of the network.
Additionally, pursuant to the amended agreement, U. S. One received an
option to acquire from the Company up to 1,620 additional fiber miles upon
payment of a predetermined amount. In accordance with the amended agreement
the following occurred: (i) all interest accrued from the inception of the
bridge loan to the closing date of the agreement was waived by U.S. One, and
(ii) the $4,900,000 principal balance of the loan was offset against the
$3,530,000 scheduled payment due from U.S. One to the Company under the
amended lease agreement. (iii) the Company paid to U.S. One the difference
of $1,370,000 on April 30, 1997 with proceeds from the Metromedia
transaction.
F-14
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
5. NOTES PAYABLE (CONTINUED)
In connection with the execution of the aforementioned lease and bridge
financing agreements, the Company entered into a letter agreement with U.S.
One providing for the sale of a warrant to purchase common stock of the
Company. Under this arrangement, the warrant is exercisable for a number of
shares to be determined at the Company's discretion subject to a minimum
number of 76,050 shares and a maximum number of 456,300 shares. The per
share exercise price is to be determined pursuant to a formula, but in no
event shall the aggregate purchase price exceed $1,250,000.
e) On September 24, 1996, the Company entered into a loan agreement with
Sterling Capital ("Sterling") for $550,000. The loan bears interest at 10%
per annum and matures on March 1, 1997. The loan was secured by all of NFN's
assets and was subordinated to the aforementioned U.S. One loan. As an
incentive for the loan, NFN issued to Sterling warrants to purchase 94,302
shares of common stock at an exercise price of $5.92. The warrants can be
exercised on the later of (i) the third anniversary or (ii) twelve months
after the Company has completed a public offering. On May 1, 1997 the
Company repaid the loan in full and all accrued interest with proceeds from
the sale of convertible preferred stock to Metromedia.
6. SENIOR SUBORDINATED NOTES
On February 13, 1996, the Company entered into an investment agreement with
an individual (the "Investor") pursuant to which the Company borrowed $1,000,000
in consideration for the issuance of 12% senior subordinated promissory notes
maturing on November 1, 1996. The notes are guaranteed personally by the
Company's president. The notes are convertible at a price of $2.62 per unit for
each $1,000 of principal outstanding. Each unit consists of the following: (i)
one share of stock, and (ii) one warrant to purchase one share of stock at $5.27
per share. As an inducement for entering into the investment agreement, the
Company issued to the investor the following: (i) 381,087 fully paid shares of
common stock, and (ii) a warrant to purchase 381,087 shares of common stock at
$5.27 per share, exercisable for a five year period beginning August 15, 1997
and expiring August 15, 2002. The Company recorded non-cash charges of $689,013
for such issuances.
On March 19, 1996, a supplemental investment agreement was executed with the
same investor providing for an additional advance of $500,000 with the same
maturity date, interest rate, conversion rights, and guaranty features as the
initial $1,000,000 investment. This advance was subsequently repaid, along with
interest on April 16, 1996. In connection with this supplemental agreement, the
Company issued a warrant to purchase 190,543 shares of common stock at $5.27 per
share, exercisable for a five year period beginning August 15, 1997 and expiring
August 15, 2002. The Company also issued a warrant to purchase an additional
190,543 shares at $0.006 per share (the "Penny Warrants"), exercisable for a
period beginning August 15, 1997 and expiring August 15, 2002. The Company
recorded a noncash charge of $250,550 for such issuance.
On April 11, 1996, a memorandum of understanding was entered into between
the parties pursuant to which the warrants issued on February 13, 1996 to
purchase 381,087 shares at $5.27 per share and the warrants issued on March 19,
1996 to purchase 190,543 shares at $5.27 per share were surrendered
F-15
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
6. SENIOR SUBORDINATED NOTES (CONTINUED)
by the investor to the Company in consideration for the issuance of 228,150
shares of the Company's common stock.
In April and July 1996, the investor purchased 152,100 and 38,443 shares of
common stock, respectively, at $.006 per share in connection with an exercise of
the Penny Warrants. The Company granted the investor the right to exercise prior
to the stated exercise period.
Further, in accordance with the investment agreement an additional 38,025
shares of common stock was issued to the investor in compliance with the
anti-dillutive requirements in the agreement.
7. NOTES PAYABLE--PRIVATE PLACEMENTS
a. In August 1995, the Company initiated a $600,000 private offering of
subordinated notes. These notes were scheduled to mature in March 1996 and
bear interest at an annual rate of 15%, payable quarterly in arrears.
Concurrent with the issuance of these notes, warrants were issued by the
Company to the noteholders which were exercisable for common shares of the
Company in an amount equal to 0.7% of the outstanding shares of common stock
immediately following an initial public offering of the Company's common
stock, at an exercise price equal to 60% of the initial public offering
price. These warrants are exercisable over a three-year period beginning on
the effective date of such initial public offering.
In April 1996, the Company offered the warrantholders fully paid shares of
common stock equal to 0.7% of the common stock then issued and outstanding,
in exchange for the surrender and cancellation of the outstanding warrants,
and in consideration for the extension of the maturity date of the notes
through June 30, 1996. In 1996 the Company repaid $50,000 of the private
placement debt. All of the warrantholders accepted this offer and,
accordingly, the Company issued a total of 59,359 shares of the Company's
common stock. The Company recorded a noncash charge of $107,322 in
connection with such issuance.
b. In October 1995, the Company initiated a private offering of $858,000 of
convertible subordinated notes. Through December 31, 1995, $783,000 of
convertible notes were sold pursuant to this offering, and an additional
$75,000 of notes were sold during January and February of 1996. These notes
were scheduled to mature during the period October 1996 through February
1997 and bear interest at an annual rate of 15%, payable at maturity. The
notes are convertible, at the Company's option, at any time into shares of
common stock at a rate of 1.52 shares of common stock per $1,000 of note
principal, at a conversion price equal to 60% of the per share price of an
initial public offering of the Company's common stock. Concurrent with the
issuance of these notes, warrants were issued by the Company to the
noteholders which are exercisable at a rate of 15,210 shares of common stock
per $100,000 of note principal. Such warrants, entitling the holders to
purchase an aggregate of 130,502 shares, are exercisable at a price equal to
50% of the per share price of an initial public offering of common stock
over a three-year period beginning on the effective date of such initial
public offering.
c. In December 1996, the Company offered the Private Placement Noteholders
Common Stock Purchase Warrants to purchase 107,078 shares of its common
stock exercisable at one half of the price for which shares are sold in an
initial public offering for a period of three years following such
F-16
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
7. NOTES PAYABLE--PRIVATE PLACEMENTS (CONTINUED)
offering; in exchange for the extension of the due dates of the notes. All
of the noteholders accepted this offer and accordingly, the Company recorded
a non cash charge of $111,306.
8. SETTLEMENT AGREEMENTS
In February 1996, the Company entered into a settlement agreement with the
Company's former chief financial officer regarding the termination of such
officer's services. This agreement provided for the Company to make payments to
the officer totaling $1,003,000, including interest. The former officer's
services effectively terminated prior to December 31, 1995. Accordingly, as of
December 31, 1995, the Company recorded $876,146 as a liability in accordance
with the terms of the settlement agreement.
The settlement agreement also reaffirmed the option previously issued to
this former officer on May 1, 1995, which entitles the holder to purchase
207,883 shares of the Company's common stock at $.006 per share through February
1, 1999. In 1997 the Company repurchased and retired the warrant.
On November 14, 1996, the Company amended the above referenced settlement
agreement with the former officer, whereby a consultant to the Company agreed to
purchase common stock of the Company from the former officer and certain of his
affiliates in exchange for $640,000 and the complete satisfaction of the
aforementioned liability.
On February 11, 1997, the Company entered into an agreement (the
"Agreement") with a consultant/director. Pursuant to the Agreement the Company
agreed to pay the consultant/director a fee of $250,000 in full and complete
payment for all services provided to the Company by the consultant/ director and
for any fees or compensation due to the consultant/director resulting from any
prior agreements with the Company, and the consultant/director agreed to release
the Company from any claims against the Company.
9. STOCK ISSUED TO LEGAL COUNSEL
On January 12, 1996, the Company entered into an agreement with its legal
counsel which calls for the issuance by the Company of common stock as
additional consideration for legal services provided. Pursuant to this
agreement, and the subsequent amendment dated April 16, 1996, the Company issued
a total of 491,105 shares during March and April of 1996. Management has
estimated that the value of the 491,105 shares issued is equal to $907,301 and
has recorded a noncash charge in connection with such issuance.
10. STOCK TRANSACTIONS
COMMON STOCK
In June 1996, the Company sold a total of 38,025 shares of common stock to
two individuals for total proceeds of $100,000. Concurrent with the issuance of
these shares, warrants were issued by the Company to these shareholders
entitling the holders to purchase a total of 38,025 shares at $2.62 per share
for a three year period. In the event of an initial public offering of the
Company's common stock during the exercise period, the exercise price will be
reduced to the lesser of $2.62 or 50% of the per share price of the initial
public offering.
F-17
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
10. STOCK TRANSACTIONS (CONTINUED)
In July 1996, the Company issued 12,168 shares of common stock as
consideration for consulting services. The Company recorded a noncash charge of
$21,200 for such issuance. In addition, the Company issued 150,579 shares to
three employees for services rendered. The transaction was later rescinded and
the shares were returned to the Company.
In August 1996, the Company issued 182,520 shares of common stock for
consulting services. The Company has recorded a noncash charge of $334,800 for
such issuance.
In September 1996, the Company sold 10,934 shares of common stock to three
individuals for total proceeds of $23,500.
On April 15, 1996, the Company entered into a stock purchase agreement with
Vento & Company of New York, LLC ("VCNY"). Pursuant to this agreement, the
Company issued 1,521,000 shares of common stock to VCNY as consideration for
services provided by VCNY. The Company estimated the value of the stock issued
approximated $2,760,000.
Concurrent with the execution of the aforementioned stock purchase
agreement, the parties entered into a consulting agreement. The term of the
agreement was from April 15, 1996 to April 15, 2001. Under the terms of the
agreement, VCNY was to provide guidance and advice with respect to the
management of the day-to-day operations of the Company's fiber optic
transmission network. In consideration for such services, the Company reimbursed
VCNY for all reasonable personnel and travel costs incurred by VCNY with respect
to the performance of these services.
On October 9, 1996 (the "execution date") the Company entered into a
settlement agreement with the Company's former chief executive officer and VCNY
regarding the termination of such officer's employment and services provided by
VCNY. The agreement provided for VCNY to deliver a total of 1,521,000 shares of
common stock in exchange for payments made by the Company. The payments were not
made and the sale of the shares and the Company's obligation to buy the shares,
was deemed null and void.
On October 28, 1996, a shareholder granted to the Company's Chairman of the
Board an option to purchase 399,889 shares of Common Stock of the Company for an
aggregate exercise price of $500,000. By letter dated December 3, 1996, the
option was amended to reduce the number of option shares to 323,839 shares. The
option was thereafter assigned by the Chairman to the Company. On February 11,
1997, the Company exercised the option by payment of the sum of $500,000 to the
shareholder.
STOCK WARRANTS
In June 1996, the Company granted 152,100 common stock purchase warrants to
the Company's legal counsel exercisable at $.06 per share for a period of four
years as additional consideration for legal services provided. The Company has
recorded a noncash charge of $200,000 for such issuance.
In September 1996, the Company granted 94,302 common stock purchase warrants
to Sterling at an exercise price of the lesser of $5.92 per share, the price at
which the Company shall issue its securities in the future less $5.92, or one
half the price at which the common stock of the Company is offered in an initial
public offering exercisable on the later date of September 24, 1999 or twelve
months
F-18
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
10. STOCK TRANSACTIONS (CONTINUED)
and 90 days after the date the warrant shares have been covered by a
registration statement. The Company has recorded a noncash charge of $13,640 for
such issuance.
In December 1996, the Company offered the private placement noteholders
Common Stock purchase warrants to purchase 107,078 shares of common stock
exercisable at one half of the price for which shares are sold in an initial
public offering for a period of three years following such offering, in exchange
for the extension of the due dates of the notes. All of the noteholders accepted
this offer and accordingly, the Company recorded a noncash charge of $111,306.
In March 1997 the Company issued purchase warrants to private placement
noteholders to purchase 57,682 shares of common stock exercisable at one half of
the price for which shares are sold in an initial public offering for a period
of three years following such offering in exchange for the extension of the due
dates of the notes. The Company has recorded a noncash charge of $220,036 for
such issuance.
As of December 31, 1996 the Company has reserved approximately 2,129,400
shares of its common stock for exercise of warrants, contingent warrants and
conversion of debt.
On December 13, 1996, the Company issued and sold to Penny Lane Partners,
L.P. ("Penny Lane"), for aggregate cash consideration of $2,025,000, (i) 150,000
shares of 10% cumulative convertible preferred stock (the "Series A Preferred
Stock") bearing dividends at a rate of $1.35 per share per annum, (ii) warrants
to purchase 114,075 shares of Common Stock at an exercise price of $4.93 per
share (the "Penny Lane Warrants") and (iii) a contingent stock subscription
warrant to purchase a number of shares of Common Stock (such number to be
determined based on certain future events) at an exercise price of $0.02 per
share (the "Contingent Warrants"). In March 1997, Penny Lane agreed to permit
the Series A Preferred Stock and the contingent Warrants to be redeemed at an
aggregate redemption price of $2,115,000 (which includes accrued but unpaid
dividends on the Series A Preferred Stock) and in connection therewith the
number of Penny Lane Warrants was increased from 114,075 to 228,150.
STOCK OPTIONS
In February and April 1997, the Company granted to certain executives
options to purchase up to 2,372,760, shares of its Common Stock. The options
have an exercise price of $1.97 per share and expire on April 2007. The Company
has recorded a noncash charge of $13,419,900 for such issuance.
11. INCOME TAXES
There was no provision for federal or state income taxes for the years ended
December 31, 1994, 1995 and 1996. At December 31, 1996, the Company has
approximately $10,000,000 of net operating loss carryforwards, expiring in the
years 2009 through 2011. The Company has recorded a full valuation allowance
against the deferred tax asset as its realization is uncertain.
F-19
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
12. COMMITMENTS AND CONTINGENCIES
a. The Company entered into a franchise agreement with the City of New York on
December 20, 1993, whereby the Company was granted a nonexclusive franchise
to install, operate, repair, maintain and replace cable, wire, fiber or
other transmission medium and the related equipment and facilities on, over
and under the property of the City of New York. In exchange, the Company is
obligated to pay franchise fees commencing on the completion date of the
initial backbone of the fiber optic cable network through December 20, 2008.
In connection with the agreement, among other requirements, the Company
maintains a performance bond in the amount of approximately $1,750,000 and
has provided the City with a $500,000 letter of credit as a security fund.
Franchise fees are based on a percentage of the Company's gross sales: 10%
for the first and second years, 6% for the third year and 5% for the fourth
and each year thereafter. However, during each year of the term, the
franchise fee shall be no less than $200,000.
Franchise fees charged to operations in connection with this agreement
amounted to $200,000 in both 1996 and 1995 ($100,000 for the six months
ending June 30, 1996 and 1997).
b. The Company entered into a license agreement with Jersey City, New Jersey on
July 10, 1995, whereby the Company was granted a license to construct a
fiber-optic system within Jersey City. The term of this agreement continues
until written notice of termination is given by either party.
c. The Company entered into a conduit occupancy agreement with New York
Telephone Company in May 1993, whereby the Company was granted a right to
place and maintain cable facilities in the conduit system of New York
Telephone Company. The term of this agreement is for one year from the date
of the agreement and thereafter until three months after written notice of
termination is given by either party.
The Company also has the right to place and maintain cable facilities in the
conduit system of Empire City Subway Company, Ltd., by virtue of the
franchise agreement with the city of New York.
Occupancy fees charged to operations in connection with this agreement were
approximately $152,000 for the year ending December 31, 1996.
d. The Company leases its office facility under an operating lease expiring on
March 31, 2010.
Rent expense charged to operations was approximately $158,000 and $148,000
for the years ending December 31, 1996 and 1995.
e. On June 1, 1995, the Company entered into two lease agreements with the Port
Authority of New York and New Jersey, whereby the Company was granted a
nonexclusive right to lease two ducts in the North and South tubes of the
Holland Tunnel to install, maintain, operate and provide telecommunications
equipment for its customers. The term of these agreements is for ten years
through June 1, 2005.
Lease expense charged to operations in connection with these leases was
approximately $107,000 and $63,000 for the years ending December 31, 1996
and 1995.
f. On August 11, 1995, the Company entered into a service agreement with an
unrelated party, for the maintenance of the Company's telecommunication
equipment located in Jersey City. The term of
F-20
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
this agreement is for one year with an option to renew this agreement
annually for up to five consecutive one year renewal terms.
g. Approximate minimum annual franchise, license, lease and service fees and
conduit payments under the aforementioned agreements are as follows:
<TABLE>
<S> <C>
For the year ended December 31:
1997................................. $ 644,500
1998................................. 644,500
1999................................. 644,500
2000................................. 635,500
2001................................. 464,500
Thereafter........................... 3,352,500
-----------
$ 6,386,000
-----------
-----------
</TABLE>
h. A former investment advisor to the Company has made a claim in the amount of
$305,731 pursuant to an agreement made on June 27, 1995, for the payment of
certain fees and expenses. The Company has rejected the claim based on the
failure of the investment advisor to properly perform its services and
fiduciary duties. Accordingly, the Company has not made provision in the
consolidated financial statements for this claim.
i. On or about April 18, 1997, Howard Katz, Realprop Capital Corp. and Evelyn
Katz commenced an action against, among others, the Company, Stephen A.
Garofalo, Peter Sahagen and Peter Silverman in the United States District
Court for the Southern District Court of New York captioned KATZ, ET AL. v.
NATIONAL FIBER NETWORK, INC., ET AL., No. 97 Civ. 2764 (JGK) (the "Katz
Litigation"). (National Fiber Network, Inc. is the former name of the
Company). On May 28, 1997, the plaintiffs filed an amended complaint and on
September 15, 1997 the plaintiffs filed a second amended complaint. The
amended complaint alleges causes of action for, among other things, common
law fraud, violations of Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder, breach of fiduciary duty and
negligent misrepresentation for alleged misrepresentations and omissions
made in connection with the repurchase of the Katz Securities (as defined
below under "Certain Relationships and Related Transactions"). The amended
complaint also contains allegations of corporate waste against the Company
and Mr. Garofalo. Plaintiffs seek, among other things, compensatory damages
of not less than $12 million, punitive damages in the amount of $100 million
and, in the alternative, rescission of the purchase by the Company of the
Common Stock and Warrants. On June 11, 1997, various defendants, including
the Company and Stephen A. Garofalo moved to dismiss the amended complaint.
The Company intends to vigorously defend itself against these allegations
based on its belief that MFN acted appropriately in connection with the
matters at issue in this litigation. No assurance can be made, though, that
the Company will not determine that the advantages of entering into a
settlement outweigh the risks and expense of protracted litigation or that
ultimately the Company will be successful in its defense of the allegations.
If the Company is unsuccessful in its defense of the allegations, an award
of the magnitude being sought by the plaintiffs in the Katz litigation would
have a material adverse effect on the Company's financial condition or
results of operations.
F-21
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In addition, the Company is subject to various claims and proceedings in the
ordinary course of business. Based on information currently available, the
Company believes that none of such current claims, or proceedings,
individually or in the aggregate, including the Katz Litigation, will have a
material adverse effect on the Company's financial condition or results of
operations, although there can be no assurances in this regard.
13. METROMEDIA TRANSACTIONS
Through April 30, 1997, Metromedia loaned the Company an aggregate of
$4,000,000. On April 30, 1997, the Metromedia Loan was repaid with a portion of
the proceeds from the Metromedia Investment. The Metromedia Loan bore interest
at the prime rate announced by The Chase Manhattan Bank and was convertible into
Common Stock based on a formula if the principle and interest was not repaid in
full by August 31, 1997.
A portion of the proceeds from the Metromedia Loan were used to fund an
escrow account which repurchased on behalf of the Company, 588,470 shares of
Common Stock and warrants to purchase 207,883 shares of Common Stock. Pursuant
to an escrow arrangement, such securities were pledged to Metromedia as security
for the Loan.
On April 30, 1997, the Company sold an aggregate of 8,403.325 shares of
series B convertible preferred stock to Metromedia and affiliates, for an
aggregate purchase price of $32.5 million, (the "Metromedia Investment").
The proceeds from the Metromedia Investment were used to redeem the Series A
Preferred Stock and Contingent Warrants ($2,115,000), repay the Metromedia Loan
and accrued interest thereon ($4,058,127), and repay other short-term
indebtedness ($3,485,000). Upon repayment of the Metromedia Loan, the
repurchased shares were released from escrow and delivered to the Company.
F-22
<PAGE>
GLOSSARY
<TABLE>
<S> <C>
Access Charge:............................... The fees paid by long distance carriers to
LECs for originating and terminating long
distance calls on the LECs' local networks.
Analog Transmission:......................... A way of sending voice, video and data
signals electronically in which the
transmitted signal is analogous to the
original signal.
ATM (Asynchronous Transfer Mode):............ An information transfer standard that is one
of a general class of packet technologies
that relay traffic by way of an address
contained within the first five bytes of a
standard fifty-three-byte-long packet or
cell. The ATM format can be used by many
different information systems, including
local area networks to deliver traffic at
varying rates, permitting a mix of voice,
data and video (multimedia).
Backbone:.................................... The backbone is the part of the
telecommunications network which carries the
most traffic. It is the through-portion of a
transmission network, as opposed to spurs
which branch off the though-potions.
Bandwidth:................................... The range of analog frequencies or digital
signals that can be passed through a
transmission medium, such as fiber optic
cable. The greater the bandwidth, the greater
the information carrying capacity. Bandwidth
is measured in Hertz (analog) or Bits Per
Second (digital).
Bit:......................................... A contraction of the term Binary Digit, it is
the basic unit in data communications. Bits
are typically represented by ones or zeros.
Capacity:.................................... The information carrying ability of a
telecommunications facility.
Central Office:.............................. Telephone company facility where subscribers'
lines are joined to switching equipment for
connecting other subscribers to each other,
locally and long distance.
Channel:..................................... A path of communication either electrical or
electromagnetic, between two or more points.
Also called a circuit, facility, line, link,
or path.
</TABLE>
G-1
<PAGE>
<TABLE>
<S> <C>
CLEC (Competitive Local Exchange Carrier):... A company that competes with local exchange
carriers in the local services market.
Coaxial Cable:............................... A cable composed of an insulated central
conducting wire wrapped in another
cylindrical conducting wire. It is typically
used to carry high-speed data.
Collocation:................................. Collocation refers to the physical location
of a telecommunication carrier's switch in
the ILECs premises to facilitate the
interconnection of their respective switching
equipment.
Common Carrier:.............................. A government defined group of private
companies offering telecommunications
services or facilities to the general public
on a non-discriminatory basis.
Conduit:..................................... A pipe, usually made of metal, ceramic or
plastic, that protects buried cables.
Dark Fiber:.................................. Fiber optic cable without any of the
electronic or optronic equipment necessary to
use the fiber for transmission.
Digital:..................................... Describes a method of storing, processing and
transmitting information through the use of
distinct electronic or optical pulses that
represent the binary digits 0 and 1. Digital
transmission/switching technologies employ a
sequence of discrete, distinct pulses to
represent information, as opposed to the
continuously variable analog signal.
DS-3:........................................ DS is the standard telecommunications
industry designation of a hierarchy of
digital signal speeds used to classify
capacities of lines and trunks. DS-3 service
has a bit rate of approximately 45 megabits
per second and can transmit roughly 672
simultaneous voice conversations.
FCC (Federal Communications Regulatory body established pursuant to the
Commission):............................... Communications Act of 1934; it has the
authority to regulate all interstate
communications originating in the United
States.
Fiber Miles.................................. The number of strands of fiber in a length of
fiber optic cable multiplied by the length of
the cable in miles.
</TABLE>
G-2
<PAGE>
<TABLE>
<S> <C>
Fiber Optics:................................ A technology in which light is used to
transport information from one point to
another. Fiber optic cables are thin
filaments of glass through which light beams
are transmitted over long distances carrying
enormous amounts of data. Modulating light on
thin strands of glass produces major benefits
in high-bandwidth, relatively low cost, low
power consumption, small space needs, total
insensitivity to electromagnetic interference
and great insensitivity to being bugged.
Frame Relay.................................. A high-speed, data-packet switching service
used to transmit data between computers.
Frame Relay supports data units of variable
lengths at access speeds ranging from 56
kilobits per second to 1.5 megabits per
second. This service is well-suited for
connecting local area networks, but is not
presently well-suited for voice and video
applications due to the variable delays which
can occur. Frame Relay was designed to
operate at high speeds on modern fiber optic
networks.
ILEC (Incumbent Local Exchange Carrier):..... A company historically providing local
telephone service. Often refers to one of the
Regional Bell Operating Companies (RBOCs).
Often referred to as "LEC" (Local Exchange
Carrier).
ISP (Internet Service Provider):............. A vendor who provides direct access to the
Internet. The ISP also usually provides a
core group of Internet utilities and services
like E-mail and News Group Readers.
IXC (Interexchange Carrier):................. Literally, a company providing services which
cross local exchange boundaries. Refers to
long distance providers.
LAN (Local Area Network):.................... A short distance data communications network
(typically within a building or campus) used
to link together computers and peripheral
devices (such as printers) under some form of
standard control.
Lit Fiber:................................... Fiber activated or equipped with the
requisite electronic and optronic equipment
necessary to use the fiber for transmission.
Metered Telecommunications Service:.......... Service provided by phone companies where
charges are levied based on use, as opposed
to unmetered service, where charges are
levied according to a flat, fixed rate.
</TABLE>
G-3
<PAGE>
<TABLE>
<S> <C>
OC-3, OC-12, OC-48 and OC-192:............... OC, or Optical Carrier, is a measure of a
SONET transmission optical carrier level. The
number following the OC designation is equal
to the corresponding number of DS-3s. (e.g.
OC-192 is equal to 192 DS-3s).
POP (Point of Presence):..................... The place where an IXC terminates an end
user's long distance lines just before those
lines are connected to the end user's local
phone company's lines or the end-user's own
direct hookup.
Private Line:................................ A direct channel specifically dedicated to a
customer's use between specified points.
RBOCs (Regional Bell Operating Companies):... The seven local telephone companies (formerly
part of AT&T) established as a result of the
AT&T Divestiture Decree.
Regeneration/Amplifier:...................... Devices which automatically re-transmit or
boost signals on an out-bound circuit.
Route Miles.................................. The number of miles spanned by fiber optic
cable calculated without including physically
overlapping segments of cable.
SONET (Synchronous Optical Network):......... An electronics and network architecture for
variable bandwidth products which enables
transmission of voice, data and video
(multimedia) at very high speeds. SONET ring
architecture provides for virtually
instantaneous restoration of service in the
event of a fiber cut by automatically
rerouting traffic in the opposite direction
around the ring.
Switch:...................................... A device which opens or closes circuits,
completes or breaks an electrical path, or
selects paths or circuits. Switching is the
process of interconnecting circuits to form a
transmission path between users. It also
captures information for billing purposes.
Tier I....................................... The top 15 cities in the United States based
on population.
Unbundled.................................... Services, programs, software and training
sold separately from the hardware.
Video Services............................... The provision of video over a channel. Akin
to voice dial tone.
Wireless..................................... A communications system that operates without
wires. Cellular service is an example.
</TABLE>
G-4
<PAGE>
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH
INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................ 3
Risk Factors.................................. 9
Use of Proceeds............................... 21
Dividend Policy............................... 21
Dilution...................................... 22
Capitalization................................ 23
Selected Consolidated Financial and Operating
Data........................................ 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 26
Business...................................... 30
Management.................................... 46
Principal Stockholders........................ 56
Certain Relationships and Related
Transactions................................ 57
Description of Capital Stock.................. 61
Shares Eligible for Future Sale............... 70
Underwriting.................................. 72
Certain Federal Tax Consequences.............. 75
Legal Matters................................. 77
Experts....................................... 78
Additional Information........................ 78
Index to Consolidated Financial Statements.... F-1
Glossary...................................... G-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS OR WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
6,600,000 SHARES
METROMEDIA FIBER
NETWORK, INC.
CLASS A COMMON STOCK
($.01 PAR VALUE)
[LOGO]
SALOMON BROTHERS INC
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
PROSPECTUS
DATED , 1997
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
ALTERNATE PAGE
SUBJECT TO COMPLETION
DATED SEPTEMBER 23, 1997
PROSPECTUS
6,600,000 SHARES
METROMEDIA FIBER NETWORK, INC.
CLASS A COMMON STOCK
($.01 PAR VALUE)
All of the shares of Class A Common Stock, par value $.01 per share (the "Class
A Common Stock") offered hereby are being sold by Metromedia Fiber Network, Inc.
("MFN" or the "Company"). Of the 6,600,000 shares of Class A Common Stock
offered hereby, 990,000 shares of Class A Common Stock are being offered by the
International Underwriters (as defined herein) outside the United States and
Canada (the "International Offering") and 5,610,000 shares of Class A Common
Stock are being offered by the U.S. Underwriters (as defined herein) in a
concurrent offering in the United States and Canada (the "U.S. Offering" and,
together with the International Offering, the "Offerings"), subject to transfers
between the International Underwriters and the U.S. Underwriters (collectively,
the "Underwriters"). The initial public offering price and the aggregate
underwriting discount per share will be identical for the Offerings. See
"Underwriting." The closing of the International Offering and the U.S. Offering
are conditioned upon each other. Each share of Class A Common Stock entitles its
holder to one vote, whereas each share of the Company's Class B Common Stock,
par value $.01 per share (the "Class B Common Stock"), entitles its holder to
ten votes per share. In addition, holders of the Class B Common Stock vote as a
separate class to elect at least 75% of the members of the Company's Board of
Directors. Metromedia Company and its partners beneficially own all of the
outstanding shares of Class B Common Stock.
Prior to the Offerings, there has been no public market for the Class A Common
Stock. It is currently anticipated that the initial public offering price will
be between $14.00 and $16.00 per share of Class A Common Stock. See
"Underwriting" for information relating to the factors considered in determining
the initial public offering price. An application to list the Class A Common
Stock on the Nasdaq National Market under the symbol "MFNX" has been made.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1)
Per Share......................... $ $ $
<S> <C> <C> <C>
Total(2).......................... $ $ $
</TABLE>
(1) Before deducting offering expenses payable by the Company, estimated at
$1,000,000.
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of 990,000 additional shares of Class A Common Stock at the
Price to Public, less the Underwriting Discount, solely to cover
over-allotments, if any. If the Underwriters exercise such option in full,
the total Price to Public, Underwriting Discount and Proceeds to Company
will be $ , $ and $ , respectively. See
"Underwriting."
The shares of Class A Common Stock are offered subject to receipt and acceptance
by the Underwriters, to prior sale and to the Underwriters' right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the shares of Class A Common Stock
offered hereby will be made at the office of Salomon Brothers Inc, Seven World
Trade Center, New York, New York, or through the facilities of The Depository
Trust Company, on or about , 1997.
SALOMON BROTHERS INTERNATIONAL LIMITED
DONALDSON, LUFKIN & JENRETTE
SECURITIES
CORPORATION
The date of this Prospectus is , 1997.
<PAGE>
Alternate page
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among the Company and the International Underwriters (the "International
Underwriting Agreement"), the Company has agreed to sell to each of the
International Underwriters named below (the "International Underwriters"), and
each of the International Underwriters, for whom Salomon Brothers International
Limited, Donaldson, Lufkin & Jenrette Securities Corporation and are
acting as the International representatives (the "International
Representatives"), has severally agreed to purchase from the Company the number
of shares of Class A Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL UNDERWRITERS OF SHARES
- ------------------------------------------------------------------------------ -------------
<S> <C>
Salomon Brothers International Limited........................................
Donaldson, Lufkin & Jenrette Securities Corporation...........................
-------------
Total....................................................................... 990,000
-------------
-------------
</TABLE>
The Company has been advised by the International Representatives that the
several International Underwriters initially propose to offer such shares of
Class A Common Stock to the public at the public offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $ per share of Class A Common Stock. The
International Underwriters may allow, and such dealers may re-allow, a
concession not in excess of $ per share of Class A Common Stock to other
dealers. After the Offerings, the public offering price and such concessions may
be changed.
The Company has granted to the International Underwriters and certain
underwriters in the United States and Canada (the "U.S. Underwriters" and,
collectively with the International Underwriters, the "Underwriters") an option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to 990,000 additional shares of Class A Common Stock from the
Company at the price to public less the underwriting discount, solely to cover
over-allotments. To the extent that the International Underwriters and the U.S.
Underwriters exercise such option, each of the International Underwriters and
the U.S. Underwriters, as the case may be, will be committed, subject to certain
conditions, to purchase a number of option shares proportionate to such
International Underwriter's or U.S. Underwriter's initial commitment.
The Company has entered into a U.S. Underwriting Agreement with the U.S.
Underwriters named therein, for whom Salomon Brothers Inc, Donaldson, Lufkin &
Jenrette Securities Corporation and are acting as the representatives (the
"U.S. Representatives" and, together with the International Representatives, the
"Representatives"), providing for the concurrent offer and sale of 5,610,000
shares of Class A Common Stock (in addition to the shares covered by the
over-allotment options described above) in the United States and Canada. Both
the International Underwriting Agreement and the U.S. Underwriting Agreement
provide that the obligations of the International Underwriters and the U.S.
72
<PAGE>
Alternate page
Underwriters are such that if any of the shares of Class A Common Stock are
purchased by the International Underwriters pursuant to the International
Underwriting Agreement, or by the U.S. Underwriters pursuant to the U.S.
Underwriting Agreement, all the shares of Class A Common Stock agreed to be
purchased by either the International Underwriters or the U.S. Underwriters, as
the case may be, pursuant to their respective agreements must be so purchased.
The price to public and underwriting discount per share of Class A Common Stock
for the International Offering and the U.S. Offering will be identical. The
closing of the U.S. Offering is a condition to the closing of the International
Offering and the closing of the International Offering is a condition to the
closing of the U.S. Offering.
Each International Underwriter has severally agreed that, as part of the
distribution of the 990,000 shares of Class A Common Stock offered by the
International Underwriters, (i) it is not purchasing any shares of Class A
Common Stock for the account of any United States or Canadian Person and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
shares of Class A Common Stock or distribute any Prospectus relating to the
International Offering to any person in the United States or Canada or to any
United States or Canadian Person. Each U.S. Underwriter has severally agreed
that, as part of the distribution of the 5,610,000 shares of Class A Common
Stock offered by the U.S. Underwriters, (i) it is not purchasing any shares of
Class A Common Stock for the account of anyone other than a United States or
Canadian Person and (ii) it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Class A Common Stock or distribute this
Prospectus to any person outside of the United States or Canada or to anyone
other than a United States or Canadian Person.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Agreement Between U.S. Underwriters
and International Underwriters. "United States or Canadian Person" means any
person who is a national or resident of the United States or Canada, any
corporation, partnership or other entity created or organized in or under the
laws of the United States or Canada or of any political subdivision thereof, and
any estate or trust the income of which is subject to United States or Canadian
federal income taxation, regardless of the source of its income (other than the
foreign branch of any United States or Canadian Person), and includes any United
States or Canadian branch of a person other than a United States or Canadian
Person.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the International Underwriters and the
U.S. Underwriters of such number of shares of Class A Common Stock as may be
mutually agreed. The price of any shares of Class A Common Stock so sold shall
be the public offering price, less an amount not greater than the concession to
securities dealers. To the extent that there are sales between the International
Underwriters and the U.S. Underwriters pursuant to the Agreement Between U.S.
Underwriters and International Underwriters, the number of shares of Class A
Common Stock initially available for sale by the International Underwriters or
by the U.S. Underwriters may be more or less than the amount specified on the
cover page of this Prospectus.
Any offer of the shares of Class A Common Stock in Canada will be made only
pursuant to an exemption from the registration and qualification requirements in
any jurisdiction in Canada in which such offer is made.
The International Underwriting Agreement and the U.S. Underwriting Agreement
provide that the Company will indemnify the International Underwriters and the
U.S. Underwriters against certain liabilities and expenses, including
liabilities under the Securities Act, or contribute to payments the
International Underwriters and the U.S. Underwriters may be required to make in
respect thereof.
The Company, and each of its directors and officers and certain other
stockholders have agreed not to offer, sell, contract to sell or otherwise
dispose of, directly or indirectly, or announce the offering of any shares of
Class A Common Stock, including any such shares beneficially or indirectly owned
or controlled by the Company, or any securities convertible into, or
exchangeable or exercisable for, shares of Class A Common Stock, for 180 days
from the date of this Prospectus, without the prior written
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<PAGE>
Alternate page
consent of Salomon Brothers Inc, except for (i) shares issued in connection with
any employee benefit or incentive plans of the Company existing on the date of
this Prospectus, (ii) shares issued in respect of obligations existing before
the date of this Prospectus and (iii) shares in connection with the Offerings.
At the Company's request, the Underwriters have reserved up to 330,000
shares of Class A Common Stock (the "Directed Shares") for sale at the public
offering price to persons who are directors, officers or employees of, or
otherwise associated with, the Company and its affiliates and who have advised
the Company of their desire to purchase such shares of Class A Common Stock. The
number of shares of Class A Common Stock available for sale to the general
public will be reduced to the extent of sales of Directed Shares to any of the
persons for whom they have been reserved. Any shares of Class A Common Stock not
so purchased will be offered by the Underwriters on the same basis as all other
shares of Class A Common Stock offered hereby.
Certain persons engaged in the distribution of the shares of Class A Common
Stock may engage in stabilizing transactions, syndicate covering transactions
and penalty bids in accordance with Rule 104 under the Exchange Act. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of shares of Class A Common Stock in the open
market after the distributions has been completed in order to cover syndicate
short positions. Penalty bids permit an underwriter to reclaim a selling
concession from a syndicate member when the shares of Class A Common Stock
originally sold by such syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Underwriters and prospective
underwriters intend to engage in passive market making in accordance with Rule
103 under the Exchange Act, which, in general, permits entities which are Nasdaq
market makers to continue to maintain bids for the shares of Class A Common
Stock so long as certain price and daily quantity limits are observed. Such
stabilizing transactions, syndicate covering transactions, penalty bids and
passive market making may cause the price of the Class A Common Stock to be
higher than it would otherwise be in the absence of such transactions.
Prior to the Offerings, there has been no public market for the Class A
Common Stock. The initial public offering price was determined by negotiations
between the Company and the Representatives. Among the factors considered in
determining the initial public offering price were the information set forth in
this Prospectus and otherwise available to the Representatives, the history of
and future prospects for the industry in which the Company competes, the ability
of the Company's management, the general conditions of the securities market at
the time of the Offerings and the market prices of securities and certain
financial and operating information of companies engaged in activities similar
to those of the Company. There can be no assurance that the price at which the
shares of Class A Common Stock will sell in the public market after the
Offerings will not be lower than the price at which they are sold in the
Offerings by the Underwriters.
The International Underwriters and the U.S. Underwriters do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
This Company has applied to have the Class A Common Stock quoted in the
Nasdaq National Market under the proposed symbol MFNX.
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<PAGE>
ALTERNATE PAGE
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH
INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................ 3
Risk Factors.................................. 9
Use of Proceeds............................... 21
Dividend Policy............................... 21
Dilution...................................... 22
Capitalization................................ 23
Selected Consolidated Financial and Operating
Data........................................ 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 26
Business...................................... 30
Management.................................... 46
Principal Stockholders........................ 56
Certain Relationships and Related
Transactions................................ 57
Description of Capital Stock.................. 61
Shares Eligible for Future Sale............... 70
Underwriting.................................. 72
Certain Federal Tax Consequences.............. 75
Legal Matters................................. 77
Experts....................................... 78
Additional Information........................ 78
Index to Consolidated Financial Statements.... F-1
Glossary...................................... G-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS OR WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
6,600,000 SHARES
METROMEDIA FIBER
NETWORK, INC.
CLASS A COMMON STOCK
($.01 PAR VALUE)
[LOGO]
SALOMON BROTHERS
INTERNATIONAL LIMITED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
PROSPECTUS
DATED , 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, in connection with the issuance and distribution of
the securities registered hereby. All the amounts shown are estimates, except
for the Securities and Exchange Commission registration fee, the NASD filing fee
and the Nasdaq National Market listing fee. All of the following fees and
expenses will be paid by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................ $ 34,849
NASD filing fee................................................................ 12,000
Nasdaq National Market listing fee............................................. 50,000
Printing and engraving expenses................................................ 250,000
Legal fees and expenses........................................................ 400,000
Accounting fees and expenses................................................... 200,000
Blue Sky fees and expenses (including counsel fees and expenses)............... 25,000
Transfer Agent and Registrar fees and expenses................................. 25,000
Miscellaneous.................................................................. 3,151
----------
Total...................................................................... $1,000,000
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware
provides that a Delaware corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no cause to believe his conduct was unlawful.
Section 145(b) provides that a Delaware corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted under similar standards, except that no indemnification may be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the court in which such action or suit was brought shall determine that despite
the adjudication of liability, such person is fairly and reasonably entitled to
be indemnified for such expenses which the court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to in subsections (a) and (b) or in the defense of any claim, issue, or
matter therein, he shall be indemnified against expenses actually and reasonably
incurred by him in connection therewith; that indemnification provided for by
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and
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that the corporation may purchase and maintain insurance on behalf of a director
or officer of the corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under such Section 145.
Section 102(b)(7) of the General Corporation Law provides that a corporation
in its original certificate of incorporation or an amendment thereto validly
approved by stockholders may eliminate or limit personal liability of members of
its board of directors or governing body for breach of a director's fiduciary
duty. However, no such provision may eliminate or limit the liability of a
director for breaching his duty of loyalty, failing to act in good faith,
engaging in intentional misconduct or knowingly violating a law, paying a
dividend or approving a Stock repurchase which was illegal, or obtaining an
improper personal benefit. A provision of this type has no effect on the
availability of equitable remedies, such as injunction or rescission, for breach
of fiduciary duty. The Company's Charter contains such a provision.
The Company's Charter further provides that the Company shall indemnify its
officers and directors and, to the extent authorized by the Board, employees and
agents of the Company, to the fullest extent permitted by and in the manner
permissible under the laws of the State of Delaware.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has issued the following
securities, none of which have been registered under the Securities Act.
As of December 31, 1995, the Company owed its majority shareholder $896,979.
Pursuant to an agreement dated May 21, 1996, the Company issued 152,100 shares
of its Class A Common Stock to the majority shareholder in consideration for the
cancellation of a portion of the outstanding balance.
The Company engaged the services of an electrical contractor controlled by
the Company's majority shareholder in connection with the construction of the
fiber optic network. As of December 31, 1995, the entire $692,887 was owed to
this related company. In May 1996, the Company and the assignee of this related
party entered into an agreement whereby the full amount of this indebtedness was
satisfied by the issuance of 456,300 shares of the Company's Class A Common
Stock.
On May 1, 1995, the Company issued Option Warrants to Realprop for 207,883
shares of Class A Common Stock at $.01 per share, exercisable prior to February
1, 1999. The warrants were redeemed by the Company as part of the Katz
Securities.
On March 16, 1995, the Company entered into the Rubin Loan Agreement with
one of the Company's directors for $500,000 bearing interest at 10% per annum
due on March 16, 1996. As an inducement for entering into this loan agreement,
the Company issued to the director 155,994 shares of Class A Common Stock.
On April 18, 1995, the Company entered into a loan agreement with a customer
for $500,000 bearing interest at 11% per annum, originally due 120 days from the
date of this loan. Pursuant to a supplemental agreement dated January 12, 1996,
the parties agreed to extend the maturity date of this loan to November 18,
1996. Pursuant to a second supplemental agreement dated March 1997, the parties
agreed to extend the maturity date to June 30, 1997. On February 16, 1995, the
Company issued to this party a warrant entitling the holder to purchase a total
of 669,167 shares of the Company's Class A Common Stock. This warrant was
cancelled and replaced by a new warrant issued on February 13, 1997 for 456,300
nonassessable shares of Class A Common Stock at a purchase price of $4.85 per
share. The new warrant expires on February 13, 2000.
On April 16, 1996, the Company entered into an agreement with US ONE for the
lease of exclusive usage rights for 8 to 12 fibers on the Company's fiber optic
transmission network. On April 30, 1997, the Company amended this agreement.
Concurrent with the execution of the original lease agreement, the
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<PAGE>
Company and US ONE entered into a bridge financing agreement. Concurrent with
the execution of the aforementioned lease and bridge financing agreements, the
Company entered into a letter agreement with US ONE providing for the sale of a
warrant to purchase Class A Common Stock of the Company. Under this agreement,
the warrant is exercisable for a number of shares to be determined at the
Company's discretion subject to a minimum number of 150,000 shares and a maximum
number of 900,000 shares. The per share exercise price is to be determined
pursuant to a formula, but in no event shall the aggregate purchase price exceed
$1,250,000.
On September 24, 1996, the Company entered into a loan agreement with
Sterling Capital, LLC ("'Sterling") for $550,000. As an incentive for the loan,
MFN issued to Sterling warrants to purchase 94,302 shares of Class A Common
Stock at an exercise price of the lesser of $5.92 per share, the price at which
the Company shall issue its securities in the future less $5.92, or one half the
price at which the Class A Common Stock of the Company is offered in an initial
public offering. The warrants can be exercised at the later of (i) the third
anniversary or (ii) twelve months and 90 days after the Company has completed a
public offering.
On February 13, 1996, the Company entered into an investment agreement with
an individual, Patrice Knobel (the "Investor"), pursuant to which the Company
borrowed $1,000,000 in consideration for the issuance of 12% senior subordinated
promissory notes maturing on November 1, 1996. The notes were convertible at a
price of $1.33 per unit for each $1,000 of principal outstanding. Each unit
consists of the following: (i) .507 shares of Class A Common Stock, and (ii) one
warrant to purchase one share of Class A Common Stock at $5.27 per share. As an
inducement for entering into the investment agreement, the Company issued to the
investor the following: (i) 381,087 paid shares of Class A Common Stock, and
(ii) a warrant to purchase 381,087 shares of Class A Common Stock at $5.27 per
share, exercisable for a five year period beginning August 15, 1997 and ending
August 15, 2002. On March 19, 1996, a supplemental investment agreement was
executed with the same investor providing for an additional advance of $500,00
with the same maturity date, interest rate, conversion rights, and guaranty
features as the initial $1,000,000 investment. This advance was subsequently
repaid, along with interest on April 16, 1996. In connection with this
supplemental agreement, the Company issued a warrant to purchase 190,543 shares
of Class A Common Stock at $5.27 per share, exercisable for a five year period
beginning on August 15, 1997 and expiring August 15, 2002. The Company also
issued a warrant to purchase an additional 190,543 shares at $.006 per share
(the "Penny Warrants"), exercisable for a period beginning August 15, 1997 and
expiring August 15, 2002. On April 11, 1996, a memorandum of understanding was
entered into between the parties pursuant to which the warrants issued on
February 13, 1996 to purchase 381,087 shares at $5.27 per share and the warrants
issued on March 19, 1996 to purchase 190,543 shares at $5.27 per share were
surrendered by the investor to the Company in consideration for the issuance of
228,150 shares of the Company's Class A Common Stock. In April and July 1996,
the investor purchased 152,100 and 38,443 shares of Class A Common Stock,
respectively, at $.003 per share in connection with an exercise of the Penny
Warrants. The Company granted the investor the right to exercise prior to the
stated exercise period. Further, in accordance with the investment agreement an
additional 38,025 shares of Class A Common Stock was issued to the investor in
compliance with the anti-dilutive requirements in the agreement.
In August 1995, the Company initiated a $600,000 private offering of
subordinated notes. Those notes were scheduled to mature in March 1996 and bear
interest at an annual rate of 15%, payable quarterly in arrears. Concurrent with
the issuance of these notes, warrants were issued by the Company to the
noteholders which were exercisable for common shares of the Company in an amount
equal to 0.7% of the outstanding shares of Class A Common Stock immediately
following an initial public offering of the Company's Class A Common Stock, at
an exercise price equal to 60% of the initial public offering price. These
warrants are exercisable over a three-year period beginning on the effective
date of such initial public offering. In April 1996, the Company offered the
warrant holders fully paid shares of Class A Common Stock equal to 0.7% of the
Class A Common Stock then issued and outstanding, in exchange
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<PAGE>
for the surrender and cancellation of the outstanding warrants, and in
consideration for the extension of the maturity date of the notes through June
30, 1996. All of the warrant holders accepted this offer and accordingly, the
Company issued a total of 59,359 shares of the Company's Class A Common Stock.
In October 1995, the Company initiated a private offering of $858,000 of
convertible subordinated notes. Through December, 1995, $783,000 of convertible
notes were sold pursuant to this offering, and an additional $75,000 of notes
were sold during January and February of 1996. These notes were scheduled to
mature during the period October 1996 through February 1997 and bear interest at
an annual rate of 15%, payable at maturity. The notes are convertible, at the
Company's option, at any time into shares of Class A Common Stock at a rate of
1.521 shares of Class A Common Stock per $1,000 of note principal, at a
conversion price equal to 60% of the per share price of an initial public
offering of the Company's Class A Common Stock. Concurrently with the issuance
of these notes, warrants were issued by the Company to the noteholders which are
exercisable at a rate of 15,210 shares of Class A Common Stock per $100,000 of
note principal. Such warrants, entitling the holders to purchase an aggregate of
130,502 shares, are exercisable at a price equal to 50% of the per share price
of an initial pubic offering of Class A Common Stock over a three-year period
beginning on the effective date of such public offering.
In December 1996, the Company offered the private placement noteholders
Common Stock purchase warrants to purchase 107,078 shares of its Class A Common
Stock exercisable at one half of the price for which shares are sold in an
initial public offering for a period of three years following such offering in
exchange for the extension of the due dates of the notes. All of the noteholders
accepted this offer.
In March 1997 the Company issued purchase warrants to private placement
noteholders to purchase 57,682 shares of common stock exercisable at one half of
the price for which shares are sold in an initial public offering for a period
of three years following such offering in exchange for the extension of the due
dates of the notes. The Company has recorded a noncash charge of $220,036 for
such issuance.
On January 12, 1996, the Company entered into an agreement with its then
legal counsel which called for the issuance by the Company of Class A Common
Stock as additional consideration for legal services provided. Pursuant to this
agreement, and a subsequent amendment dated April 16, 1996, the Company issued a
total of 491,105 shares during April and March of 1996.
In June 1996, the Company sold a total of 38,025 shares of Class A Common
Stock to two individuals for total proceeds of $100,000. Concurrent with the
issuance of these shares, warrants were issued by the Company to these
shareholders entitling the holders to purchase a total of 38,025 shares at $2.62
per share for a three year period. In the event of an initial public offering of
the Company's Class A Common Stock during the exercise period, the exercise
price will be reduced to the lesser of $2.62 or 50% of the per share price of
the initial public offering.
In July 1996, the Company issued 12,168 shares of Class A Common Stock as
consideration for consulting services. In addition, the Company issued 150,579
shares to three employees for services rendered. The transaction was later
rescinded and the shares were returned to the Company.
In August 1996, the Company issued 182,520 shares of Class A Common Stock
for consulting services to Marc Pelson.
In September 1996, the Company sold 10,935 shares of Class A Common Stock to
three individuals for total proceeds of $23,500.
On April 15, 1996, the Company entered into a stock purchase agreement with
VCNY. Pursuant to this agreement, the Company issued 1,521,000 shares of Class A
Common Stock to VCNY as consideration for services provided by VCNY.
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<PAGE>
In June 1996, the Company granted 152,100 Class A Common Stock purchase
warrants to the Company's legal counsel exercisable at $.06 per share for a
period of four years as additional consideration for legal services provided.
This warrant was exercised in January 1997.
On December 13, 1996, the Company issued and sold to Penny Lane Partners,
L.P. ("Penny Lane"), for aggregate cash consideration of $2,025,000, (i) 150,000
shares of 10% cumulative convertible preferred Stock (the "Series A Preferred
Stock") bearing dividends at a rate of $1.35 per share per annum, (ii) warrants
to purchase 114,075 shares of Class A Common stock at an exercise price of $4.93
per share (the "Penny Lane Warrants") and (iii) a contingent Stock subscription
warrant to purchase a number of shares of Class A Common Stock (such number to
be determined based on certain future events) at an exercise price of $.02 per
share (the "Contingent Warrants"), In March 1997, Penny Lane agreed to permit
the Series A Preferred Stock and the Contingent Warrants to be redeemed at an
aggregate redemption price of $2,115,000 (which includes accrued but unpaid
dividends on the Series A Preferred Stock) and in connection therewith the
number of Penny Lane Warrants was increased from 114,075 to 228,150.
Through April 30, 1997, Metromedia loaned the Company an aggregate of
$4,000,000. The Metromedia Loan bore interest at the prime rate announced by The
Chase Manhattan Bank and was convertible into Class A Common Stock based on a
formula if the principal and interest was not repaid in full by August 31, 1997.
On April 30, 1997, the Metromedia Loan was repaid with a portion of the proceeds
from the Metromedia Investment.
On April 30, 1997, the Company sold an aggregate of 4,260.486 shares of
Series B Preferred Stock to Metromedia and certain of its affiliates, for an
aggregate price of $32.5 million. The shares of Series B Preferred Stock were
exchanged for shares of Class B Common Stock in the Series B Reclassification.
Each of the foregoing transactions was effected without registration under
the Securities Act in reliance on the exemption from registration provided
pursuant to Section 4(2) and Regulation D promulgated thereunder.
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<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of Metromedia Fiber Network, Inc.
3.2* Amended and Restated Bylaws of Metromedia Fiber Network, Inc.
4.1* Specimen Class A Common Stock Certificate of Metromedia Fiber Network,
5.1* Opinion of Paul, Weiss, Rifkind, Wharton & Garrison.
10.1* Metromedia Fiber Network, Inc. 1997 Incentive Stock Plan.
10.2* Employment Agreement by and between National Fiber Network, Inc. and Stephen A. Garofalo, dated as of
February 26, 1997.
10.3* Employment Agreement by and between National Fiber Network, Inc. and Howard Finkelstein, dated as of
April 30, 1997.
10.4* Agreement made as of April 30, 1997, as amended by a Modification Agreement made as of September ,
1997 by and among Metromedia Company, Stuart Subotnick, Arnold Wadler, Silvia Kessel, Stephen A.
Garofalo and National Fiber Network, Inc.
10.5 Franchise Agreement between The City of New York and National Fiber Network, Inc., dated as of December
20, 1993.
10.6 Conduit Occupancy Agreement by and between New York Telephone Company and National Fiber Network, Inc.,
dated as of May 1993.
10.7* Consulting Agreement between National Fiber Network and Realprop Capital Corporation, dated as of
February 1, 1996.
10.8 Letter Agreement from National Fiber Network, Inc. to Peter Sahagen dated February 11, 1997.
10.9 Office Lease by and between National Fiber Network, Inc. and 110 East 42nd Street Associates, dated as
of March 19, 1997.
10.10 Office Lease by and between National Fiber Network, Inc. and 110 East 42nd Street, dated as of June
1997.
10.11 Trademark License Agreement by and between Metromedia Company and Metromedia Fiber Network, Inc., dated
as of August 14, 1997.
10.12* Fiber Optic Use Agreement between National Fiber Network, Inc. and a CLEC to be disclosed later, dated
as of June 3, 1997.
10.13* Amended and Restated Agreement for the Provision of a Fiber Optic Transmission Network dated as of the
Effective Date by and between US ONE Communications of New York, Inc. and National Fiber Network, Inc.
11.1 Statement Re Computation of Per Share Earnings.
21.1* List of Subsidiaries of Metromedia Fiber Network, Inc.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
23.1* Consent of Paul, Weiss, Rifkind, Wharton & Garrison (contained in the opinion filed as Exhibit 5.1
hereto).
23.2 Consent of Ernst & Young, LLP
23.3 Consent of M. R. Weiser & Co., LLP
23.4 Consent of Richard A. Eisner & Company, LLP
23.5 Consent of David Rockefeller.
24.1** Power of Attorney from officers and directors (contained on signature page).
27.1 Financial Data Schedule.
</TABLE>
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* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedules.
None.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification for such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To provide to the Underwriters at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this amendment to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on September 23, 1997.
<TABLE>
<S> <C> <C>
By: /s/ STEPHEN A. GAROFALO
-----------------------------------------
Stephen A. Garofalo
CHAIRMAN, CHIEF EXECUTIVE OFFICER &
SECRETARY
</TABLE>
II-8
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the registration statement has been signed by the following persons
in the capacities and on the dates indicated.
SIGNATURES TITLE OR CAPACITIES DATE
- ------------------------------ --------------------------- -------------------
* Chairman of the Board,
- ------------------------------ Chief Executive Officer September 23, 1997
Stephen A. Garofalo and Secretary
/s/ HOWARD M. FINKELSTEIN President, Chief Operating
- ------------------------------ Officer and Director
Howard M. Finkelstein September 23, 1997
Attorney-in-fact
* Chief Financial Officer and
- ------------------------------ Chief Accounting Officer September 23, 1997
Stephen W. Ellis
* Senior Vice President--
- ------------------------------ Business Development and September 23, 1997
Vincent A. Galluccio Director
* Director
- ------------------------------ September 23, 1997
John W. Kluge
* Director
- ------------------------------ September 23, 1997
Silvia Kessel
* Director
- ------------------------------ September 23, 1997
Stuart Subotnick
* Director
- ------------------------------ September 23, 1997
Arnold L. Wadler
- ------------------------
<TABLE>
<S> <C> <C>
/s/ HOWARD M. FINKELSTEIN
-----------------------------------------
Howard M. Finkelstein
*By: ATTORNEY-IN-FACT
</TABLE>
II-9
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of National Fiber Network, Inc.
3.2* Amended and Restated Bylaws of Metromedia Fiber Network, Inc.
4.1* Specimen Class A Common Stock Certificate of Metromedia Fiber Network, Inc.
5.1* Opinion of Paul, Weiss, Rifkind, Wharton & Garrison.
10.1* Metromedia Fiber Network, Inc. 1997 Incentive Stock Plan.
10.2* Employment Agreement by and between National Fiber Network, Inc. and Stephen A. Garofalo, dated as of
February 26, 1997.
10.3* Employment Agreement by and between National Fiber Network, Inc. and Howard Finkelstein, dated as of
April 30, 1997.
10.4* Agreement made as of April 30, 1997, as amended by a Modification Agreement made as of September ,
1997 by and among Metromedia Company, Stuart Subotnick, Arnold Wadler, Silvia Kessel, Stephen A.
Garofalo and National Fiber Network, Inc.
10.5 Franchise Agreement between The City of New York and National Fiber Network, Inc., dated as of December
20, 1993.
10.6 Conduit Occupancy Agreement by and between New York Telephone Company and National Fiber Network, Inc.,
dated as of May 1993.
10.7* Consulting Agreement between National Fiber Network and Realprop Capital Corporation, dated as of
February 1, 1996.
10.8 Letter Agreement from National Fiber Network, Inc. to Peter Sahagen dated February 11, 1997.
10.9 Office Lease by and between National Fiber Network, Inc. and 110 East 42nd Street Associates, dated as
of March 19, 1997.
10.10 Office Lease by and between National Fiber Network, Inc. and 110 East 42nd Street, dated as of June
1997.
10.11 Trademark License Agreement by and between Metromedia Company and Metromedia Fiber Network, Inc., dated
as of August 14, 1997.
10.12* Fiber Optic Use Agreement between National Fiber Network, Inc. and a CELC to be disclosed later, dated
as of June 3, 1997.
10.13* Amended and Restated Agreement for the Provision of a Fiber Optic Transmission Network dated as of the
Effective Date by and between US ONE Communications of New York, Inc. and National Fiber Network, Inc.
11.1 Statement Re Computation of Per Share Earnings.
21.1* List of Subsidiaries of Metromedia Fiber Network, Inc.
23.1* Consent of Paul, Weiss, Rifkind, Wharton & Garrison (contained in the opinion filed as Exhibit 5.1
hereto).
23.2 Consent of Ernst & Young, LLP
23.3 Consent of M. R. Weiser & Co., LLP
23.4 Consent of Richard A. Eisner & Company, LLP
23.5 Consent of David Rockefeller.
24.1** Power of Attorney from officers and directors (contained on signature page).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
<PAGE>
Exhibit 10.5
================================================================================
FRANCHISE AGREEMENT
Between
THE CITY OF NEW YORK
and
NATIONAL FIBER NETWORK, INC.
Franchise for Local High-Capacity
Telecommunications Services
Dated: December 20, 1993
================================================================================
<PAGE>
APPENDICES
Appendix A . . . . . . District
Appendix B . . . . . . Examples and guidelines for the application of the Gross
Revenue definition
Appendix C . . . . . . Initial Backbone
Appendix D . . . . . . Telecommunications Services the franchisee intends (as
of the Effective Date) to offer and additional
Telecommunications Services authorized to be offered by
the franchisee
Appendix E . . . . . . Services to be provided to the City, and related
obligations
Appendix F . . . . . . Investigations Clause
Appendix G . . . . . . Ownership and Control of franchisee as of the Effective
Date and any approved mortgages, pledges and leases
Appendix H . . . . . . MacBride Principles
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1 -- DEFINED TERMS.....................................................2
SECTION 2 -- GRANT OF AUTHORITY................................................6
2.1 Term...............................................................6
2.2 Certain Actions by the Company Before Execution....................6
2.3 Nature of Franchise, Effect of Termination and Renewal.............7
2.3.1 Nature of Franchise..........................................7
2.3.2 Effect of Termination........................................7
2.3.3 Renewal......................................................7
2.4 Conditions and Limitations on Franchise............................8
2.4.1 Not Exclusive................................................8
2.4.2 Construction of System.......................................8
2.4.3 Public Works and Improvements................................8
2.4.4 No Waiver....................................................9
2.4.5 No Release...................................................9
2.5 Renegotiation of Agreement.........................................9
SECTION 3 -- SERVICE..........................................................10
3.1 No Interference...................................................10
3.2 No Monopoly.......................................................10
3.3 No Discrimination.................................................10
3.4 Service...........................................................10
SECTION 4 -- TARIFF FILINGS...................................................10
4.1 Tariffs...........................................................10
SECTION 5 -- CONSTRUCTION AND TECHNICAL REQUIREMENTS..........................11
5.1 General Requirement...............................................11
5.2 Quality...........................................................11
5.3 Licenses and Permits..............................................11
5.4 Relocation of the System..........................................11
5.4.1 New Grades or Lines.........................................11
5.4.2 City Authority to Move Wires................................12
5.4.3 Company Required to Move Wires..............................12
5.5 Protect Structures................................................12
i
<PAGE>
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----
5.6 No Obstruction....................................................12
5.7 Safety Precautions................................................12
5.8 Performance Bond/Security Fund....................................13
5.8.1 General Requirement.........................................13
5.8.2 Indemnification.............................................13
5.8.3 Other Purposes..............................................13
5.8.4 Withdrawals from the Performance Bond/Security Fund.........14
5.8.5 Notice of Withdrawals.......................................14
5.8.6 Replenishment...............................................15
5.8.7 Not a Limit on Liability....................................15
5.8.8 Form........................................................15
SECTION 6 -- EMPLOYMENT AND PURCHASING........................................16
6.1 Right to Bargain Collectively.....................................16
6.2 Local Preference..................................................16
6.3 City Vendors......................................................16
6.4 Executive Order No. 50............................................16
6.5 Enforcement.......................................................17
SECTION 7 -- COMPENSATION AND OTHER PAYMENTS..................................17
7.1 Compensation......................................................17
7.1.1 Compensation................................................17
7.1.2 Timing......................................................18
7.1.3 Records and Audits..........................................19
7.1.4 Reservation of Rights.......................................19
7.1.5 Ordinary Business Expense...................................19
7.2 Other Payments....................................................19
7.2.1 Franchising Costs...........................................19
7.2.2 Future Costs................................................19
7.3 No Credits or Deductions..........................................20
7.4 Interest on Late Payments.........................................21
7.5 Method of Payment.................................................21
7.6 Continuing Obligation and Holdover................................21
SECTION 8 -- OVERSIGHT AND REGULATION.........................................21
8.1 Confidentiality...................................................21
8.2 Oversight.........................................................22
8.3 Notification to City..............................................22
8.4 Regulation by City................................................22
8.5 Reports...........................................................22
ii
<PAGE>
Page
----
8.5.1 Status Reports..............................................22
8.5.2 Financial Reports...........................................23
8.5.3 Additional Reports..........................................23
8.5.4 Additional Information and Reports..........................23
8.6 Additional Filings................................................23
8.7 Books and Records/Audit...........................................23
8.7.1 Books and Records.................................................23
8.7.2 Right of Inspection.........................................24
8.7.3 Protection from Disclosure..................................25
8.8 Compliance With "Investigations Clause............................25
SECTION 9 -- RESTRICTIONS AGAINST
ASSIGNMENT AND OTHER TRANSFERS...................................25
9.1 Transfer of Interest..............................................25
9.2 Transfer of Control or Stock......................................25
9.3 Petition..........................................................26
9.4 Consideration of the Petition.....................................26
9.5 Conditions........................................................26
9.6 Permitted Encumbrances............................................27
9.7 Consent Not a Waiver..............................................27
9.8 Petitions From Persons Other Than the Company
Seeking Control Over the Company................................27
SECTION 10 -- LIABILITY AND INSURANCE.........................................28
10.1 Liability and Indemnity...........................................28
10.1.1 Company...................................................28
10.1.2 No Liability for Public Work, etc.........................28
10.1.3 No Liability for Damages..................................28
10.1.4 Defense of Claim, etc.....................................29
10.2 Insurance.........................................................29
10.2.1 Specifications............................................29
10.2.2 Maintenance...............................................29
10.2.3 Adjusted Insurance Coverage...............................30
10.2.4 Liability Not Limited.....................................30
SECTION 11 -- SPECIFIC RIGHTS AND REMEDIES....................................30
11.1 Non Exclusive.....................................................30
11.2 Default...........................................................31
11.2.1 Events of Default.........................................31
11.2.2 Cure Procedures...........................................31
iii
<PAGE>
Page
----
11.2.3 Remedies of the City......................................32
11.3 Termination.......................................................32
11.3.1 Termination Events........................................32
11.3.2 Rights Upon Termination...................................33
11.3.3 Price.....................................................34
11.3.4 Company's Obligations.....................................35
11.4 Removal...........................................................36
11.4.1 Discretion of DTE.........................................36
11.4.2 Failure to Commence Removal...............................36
11.4.3 No Condemnation...........................................37
11.5 Return of Performance Bond/Security Fund..........................37
11.6 Other provisions..................................................37
SECTION 12 -- SUBSEQUENT ACTION...............................................38
12.1 Compensation......................................................38
12.2 Procedure for Subsequent Invalidity...............................38
12.2.1 Declaration of Invalidity or Injunction...................38
12.2.2 Continued Compliance......................................38
12.2.3 Negotiations to Amend Agreement...........................39
SECTION 13 -- MISCELLANEOUS...................................................39
13.1 Appendices........................................................39
13.2 Action Taken by City..............................................39
13.3 Entire Agreement..................................................40
13.4 Delays and Failures Beyond Control of Company.....................40
13.5 Notices...........................................................40
13.6 General Representations, Warranties and
Covenants of the Company........................................41
13.6.1 Organization, Standing and Power..........................41
13.6.2 Authorization; Non Contravention..........................41
13.6.3 Consent...................................................42
13.6.4 Compliance with Law.......................................42
13.6.5 Litigation; Investigations................................42
13.6.6 Fees......................................................43
13.6.7 Criminal Acts.............................................43
13.6.8 Misrepresentation.........................................43
13.7 Additional Covenants..............................................43
13.7.1 Compliance with laws; Licenses and Permits................43
13.7.2 Criminal Acts.............................................44
13.7.3 Maintain Existence........................................44
13.7.4 Condition of System.......................................45
13.8 Binding Effect....................................................45
iv
<PAGE>
Page
----
13.9 No Waiver; Cumulative Remedies....................................45
13.10 No Opposition.....................................................45
13.11 Partial Invalidity................................................46
13.12 Headings..........................................................46
13.13 No Agency.........................................................46
13.14 Governing Law.....................................................46
13.15 Survival of Representations and Warranties........................46
13.16 Delegation of City Rights.........................................46
13.17 Claims Under Agreement............................................47
13.18 Modification......................................................47
13.19 Maintain Office...................................................47
13.20 Service of Process................................................47
13.21 Compliance With Certain City Requirements.........................48
13.22 Matching Provision................................................48
13.23 Joint Services....................................................49
v
<PAGE>
THIS AGREEMENT, dated as of the 20th day of December, 1993 (the
"Effective Date"), is by and between THE CITY OF NEW YORK (as defined in Section
I hereof, the "City") and NATIONAL FIBER NETWORK, INC., whose principal place of
business is located at 150-50 14th Road, Whitestone, New York (as defined in
Section 1 hereof, the "Company").
W I T N E S S E T H :
WHEREAS, the New York City Department of Telecommunications and
Energy (as defined in Section 1 hereof, "DTE"), on behalf of the City, has the
authority to grant franchises involving the occupation or use of the Inalienable
Property (as defined in Section 1 hereof) of the City in connection with the
provision of Telecommunications Services (as defined in Section 1 hereof),
including renewals thereof; and
WHEREAS, the Company has submitted to DTE its proposal in response
to a Request for Proposals issued by DTE pursuant to Resolution No. 404 (adopted
by the New York City Council on March 26, 1992); and
WHEREAS, on December 6, 1993 the New York City Franchise and
Concession Review Committee (as defined in Section 1 hereof, the "FCRC") held a
public hearing on the Company's petition for a franchise to install cable, wire,
fiber optic telecommunications cable or other transmission medium that may be
used in lieu of cable, wire or fiber optic telecommunications cable for the same
purposes and related equipment and facilities on, over, and under the City's
Inalienable Property to be used in providing Telecommunications Services, which
was a full public proceeding affording due process in compliance with the
requirements of Chapter 14 of the City Charter; and
WHEREAS, at said hearing, the FCRC reviewed the Company's financial,
legal and technical ability to carry out its obligations pursuant to this
Agreement; reviewed the Company's plan for constructing, operating, maintaining
and upgrading the System (as defined in Section 1 hereof); and determined that
this Agreement granting the Company a nonexclusive franchise complies with all
applicable City laws and regulations; and
WHEREAS, DTE reviewed the proposed action for its potential
environmental impacts and determined that this action is properly classified as
a "Type II" action, pursuant to Executive Order 91, City Environmental Review,
August 24, 1977; and
<PAGE>
2
WHEREAS, the New York City Department of City Planning determined,
as evidenced in its letter dated April 23, 1992, that the proposed
franchise would have no land use impacts and that review pursuant to Section
197c of the New York City Charter (the "City Charter") would not be necessary;
and
WHEREAS, the City intends to exercise the full scope of its
municipal powers, including both its police power and contracting authority, to
promote the public interest, to enhance the health, welfare and safety of the
public, and to stimulate commerce by assuring the widespread availability of
reliable high-capacity telecommunications services; and, in pursuit of these
goals, among other purposes, desires to maximize the availability of such
Telecommunications Services and to develop innovative uses by the City and its
institutions of such Services.
NOW, THEREFORE, in consideration of the foregoing clauses, which
clauses are hereby made a part of this Agreement, the mutual covenants and
agreements herein contained, and other good and valuable consideration, the
parties hereby covenant and agree as follows:
SECTION 1 -- DEFINED TERMS
For purposes of this Agreement, the following terms, phrases, words,
and their derivatives shall have the meanings set forth in this Section, unless
the context clearly indicates that another meaning is intended.
1.1 "Affiliated Person" means each Person who falls into one or more
of the following categories: (ii) each Person having, directly or indirectly, a
Controlling Interest in the Company; (ii) each Person in which the Company has,
directly or indirectly, a Controlling interest; (iii) each officer, director,
general partner, limited partner holding an interest of five percent (5%) or
more joint venturer or joint venture partner of the Company; and (iv) each
Person, directly or indirectly, controlling, controlled by or under common
Control with the Company; provided that "Affiliated Person" shall in no event
mean the City, any limited partner holding an interest of less than five percent
(5%) of the Company or any creditor of the Company solely by virtue of its
status as a creditor and which is not otherwise an Affiliated Person.
1.2 "Agreement" means this agreement, together with the Appendices
attached hereto and all amendments, modifications or renewals hereof or thereof.
1.3 "City" means the City of New York or, as appropriate in the case
of specific provisions of this Agreement, any board, bureau, authority, agency,
<PAGE>
3
commission department or any other entity of the City of New York, or any
authorized officer, official, employee or agent thereof or any successor
thereto.
1.4 "Commissioner" means the Commissioner of DTE, or his or her
designee, or any successor in function to the Commissioner.
1.5 "Company" means National Fiber Network, Inc., a corporation
organized and existing under the laws of the State of Delaware, whose principal
place of business is located at 150-50 14th Road, Whitestone, New York.
1.6 "Comptroller" means the Comptroller of the City, the
Comptroller's designee, or any successor in function to the Comptroller.
1.7 "Control" or "Controlling Interest* means actual working control
in whatever manner exercised, including, without limitation, working control
through ownership, management, debt instruments or negative control, as the case
may be, of the System or of the Company. A rebuttable presumption of the
existence of Control or a Controlling Interest shall arise from the beneficial
ownership, directly or indirectly, by any Person, or group of Persons acting in
concert, of more than five percent (5%) of any Person (which Person or group of
Persons is hereinafter referred to as "Controlling Person"). "Control" or
"Controlling Interest" as used herein may be held simultaneously by more than
one Person or group of Persons.
1.8 "Customer" means any Person lawfully receiving any Service
provided by the Company by means of the System.
1.9 "DTE" means the Department of Telecommunications and Energy of
the City of New York or any successor thereto.
1.10 "District" means the City of New York, unless a smaller area is
depicted in Appendix A to this Agreement.
1.11 "Effective Date" means December 20, 1993.
1.12 "FCC" means the Federal Communications Commission, or any
successor thereto.
1.13 "FCRC" means the Franchise and Concession Review Committee
ofthe City of New York, or any successor thereto.
1.14 "Fiber" means fiber optic telecommunications cable or other
transmission medium that may be used in lieu thereof for the same purposes.
<PAGE>
4
1.15 "Franchise Area" means the District.
1.16 "Gross Revenue" shall include all revenue, as determined in
accordance with generally accepted accounting principles, that is received
directly or indirectly by the Company or by any Affiliated Person from or in
connection with any Telecommunications Services provided in accordance with this
Agreement which originate in and/or terminate in or transit the City (which
shall include a proportional allocation, which allocation shall be fair and
equitable, of revenues received by, or that should have been received by, the
Company, any Affiliated Person or any other Person for Service utilizing any
part of the System, provided, however, that such proportional allocation shall
in no case be less than the fair market value for such Service). The Company
shall, within two years following the Effective Date, submit to the City for the
City's review and approval the method by which such allocation is to be made,
and such approval by the City shall not be unreasonably withheld. If the City's
decision becomes subject to court review, the court shall undertake its review
consistent with the standards established in this Section 1.16. The revenues
described in this paragraph shall include, without limitation, the value of any
free Services provided by the Company (provided, however, that the value of any
free Service provided hereunder to the City pursuant to Section 7.1.1(b) or
Appendix E or to any other governmental entity shall not constitute Gross
Revenue); the fair market value of any nonmonetary transactions between the
Company and any Person other than Affiliated Person, but not less than the
customary prices paid in connection with equivalent transactions, viewing all
components of the transactions taken as a whole; the fair market value of any
nonmonetary transactions between the Company and any Affiliated Person but not
less than the customary prices paid in connection with equivalent transactions,
considering the entirety of all transactions taken as a whole, conducted with
Persons who are not Affiliated Persons; and any revenue received by the Company
or by any Affiliated Person, as reasonably determined from time to time by the
City through any means which is intended to have the effect of evading the
payment of compensation that would otherwise be paid to the City for the
franchise granted herein. Gross Revenue shall also include revenue derived from
the sale or lease of equipment and/or facilities provided by the Company or any
Affiliated Person if such facilities and/or equipment are required for and
integrated with the Services provided by the Company within the District, except
that Gross Revenue shall not include revenue from the sale of equipment that is
readily available for sale in the consumer retail market. Gross Revenue shall
not include: (i) actual payments made to interconnecting telecommunications
service providers outside the boundaries of New York City for services provided
outside the boundaries of New York City; (ii) taxes collected to pay to
legitimate taxing authorities; (iii) any revenues that are already included in
the calculation of franchise fees payable to the City under any other franchise
agreement between (a) the City and (b) the Company or any Affiliated Person,
provided that any services other than "cable service," as defined in the Cable
Communications Policy Act of 1984 as amended by the Cable Television Consumer
<PAGE>
5
Protection and Competition Act of 1992, 47 U.S.C. ss. 521 et seq., shall be
considered to be provided under the franchise granted herein; (iv) any free
Services required by this Agreement; (v) the revenue of any Person (including,
without limitation, a supplier of services) to the extent that such revenue is
also included in Gross Revenue of the Company; (vi) the revenue of the Company
or any Affiliated Person received directly from the sale of any merchandise,
goods or other non-Telecommunications Services that are sold through any Service
distributed over the System (other than that portion of such revenue which
represents or can be attributed to a customer fee or other payment for the use
of the System for the sale of such merchandise, goods or non-Telecommunications
Services, which portion shall be included in Gross Revenue), provided, however,
that the foregoing exclusion from Gross Revenue shall in no way be deemed to
exclude from Gross Revenue any revenue derived from the sale or lease of
equipment and/or facilities provided by the Company or any Affiliated Person if
such facilities and/or equipment are required for and Integrated with the
Services provided by the Company; (vii) Investment income; (viii) the revenue of
any Affiliated Person which represents standard and reasonable amounts paid by
the Company to the Affiliated Person for ordinary and necessary business
expenses of the Company, including, without limitation, professional service
fees and insurance or bond premiums; (ix) advertising commissions deducted by
advertising agencies before advertising revenues are paid over to the Company;
(x) any amount billed to customers and collected by the Company or any
Affiliated Person on behalf of any non-Affiliated telecommunications provider
for services provided by such provider to such customers, where such amount is
passed through in its entirety by the Company or Affiliated Person to such
provider; (xi) the value of any use of the System by the Company or any
Affiliated Person for wholly Internal administrative purposes, including the
distribution of cable programming from one Affiliated Person to another
Affiliated Person, provided that such Affiliated Persons ace substantially owned
by the Company or its parent; (xii) to the extent consistent with generally
accepted accounting principles, consistently applied, bad debt writeoffs; and
(xiii) the value of short-term promotional Services. Appendix B herein sets
forth examples and guidelines for the application of the foregoing definition.
1.17 "Inalienable Property" means the rights of the City in and to
its waterfront, ferries, wharf property, bridges, land under water, public
landings, wharves, docks, streets, avenues, highways, parks, waters, waterways
and all other public places.
1.18 "Initial Backbone" means the backbone depicted in Appendix C to
this Agreement.
1.19 "Mayor" means the chief executive officer of the City, the
Mayor's designee, or any successor to the executive powers of the present Mayor.
<PAGE>
6
1.20 "Person" shall mean any natural person or any association,
firm, Partnership, joint venture, corporation, or other legally recognized
entity, whether for profit or not for profit, but shall not mean the City.
1.21 "PSC" means the New York State Public Service Commission, or
any successor thereto.
1.22 "Service or "Telecommunications Service(s)" means any
telecommunications services provided by the Company within the District which
the Company is authorized to provide under applicable federal, state and local
law, and any equipment and/or facilities required for and integrated with the
Services provided by the Company within the District, except that these terms do
not include "cable service" as defined in the Cable Communications Policy Act of
1984, as amended by the Cable Television Consumer Protection and Competition Act
of 1992 (47 U.S.C. ss. 521 et seq.), and do not include "mobile
telecommunications services" as defined in the authorizing resolution adopted by
the New York City Council on May 23, 1991 (Resolution 985).
1.23 "Signal" means any transmission of electronic, electrical or
radio frequency energy or optical information.
1.24 "System" or "Telecommunications System" means the
telecommunications system which is to be constructed, operated and maintained by
the Company pursuant to this Agreement, including, without limitation, all real
property and interests in real property, all tangible and intangible personal
property, buildings, offices, furniture, Customer lists, cables, wires, optical
fibers, amplifiers and all other electronic devices, equipment and facilities
used in connection therewith and all rights, contracts and understandings with
regard to any matter related thereto.
SECTION 2 -- GRANT OF AUTHORITY
2.1 Term. This Agreement, and the franchise granted hereunder, shall
commence upon the Effective Date, and shall continue for a period of fifteen
(15) years from the Effective Date, unless this Agreement is earlier terminated
upon the earliest to occur of: (a) a revocation of the franchise, as provided by
Section 11.3 hereof, or (b) the expiration of the term of the franchise by
acceleration, or otherwise. The period of time that this Agreement remains in
effect is herein referred to as the "Term."
2.2 Certain Actions by the Company Before Execution. Prior to the
execution of this Agreement, the Company has satisfied certain conditions to the
City's execution of this Agreement by delivering to DTE the following: (a)
evidence that it has deposited with the Comptroller the Performance
Bond/Security Fund required
<PAGE>
7
pursuant to Section 5.8 hereof; (b) a certificate of liability insurance,
pursuant to Section 10.2 hereof, with a copy to the Comptroller; (c) an opinion
of the Company's counsel dated as of the Effective Date opining that this
Agreement has been duly authorized, executed and delivered by the Company and is
a binding obligation of the Company and opining as to such other matters as the
City has requested; (d) the questionnaires required in connection with the
City's Vendor Information Exchange System ("VENDEX"), provided that favorable
completion of the appropriate review in connection therewith shall be a
condition subsequent to the effectiveness of this Agreement; (e) evidence that
the Company has paid the initial portion of its pro rata share of the City's
franchising costs pursuant to Section 7.2.1 herein; and (f) certified copies of
the Company's organizational and governing documents, as amended to date,
pursuant to Section 13.6.1 herein.
2.3 Nature of Franchise, Effect of Termination and Renewal.
2.3.1 Nature of Franchise. (a) The City hereby grants the
Company, subject to the terms and conditions of this Agreement, a nonexclusive
franchise providing the right and consent to install, operate, repair, maintain,
remove and replace cable, wire, Fiber or other transmission medium that may be
used in lieu of cable, wire or Fiber for the same purposes and related equipment
and facilities on, over and under the Inalienable Property of the City in order
to provide Telecommunications Services which originate and/or terminate in or
transit the Franchise Area.
(b) The Telecommunications Services the Company intends
(as of the Effective Date) to offer and the Telecommunications Systems the
Company intends (as of the Effective Date) to construct, operate and maintain,
are set forth on Appendix D to this Agreement.
(c) Before offering or providing any Telecommunications
Services pursuant to this franchise, the Company shall obtain any and all
regulatory approvals, permits, authorizations or licenses for the offering or
provision of such Telecommunications Services from the appropriate federal,
state and local authorities, if required, and shall submit to DTE upon the
written request of the City evidence of all such approvals, permits,
authorizations or licenses.
2.3.2 Effect of Termination. Upon termination of this
Agreement, the franchise shall expire; all rights of the Company in the
franchise shall cease, with no value allocable to the franchise itself; and the
rights of the City and the Company to the System or any pact thereof, shall be
determined as provided in Sections 11.3 through 11.6 hereof. The termination of
this Agreement and the franchise granted hereunder shall not, for any reason,
operate as a waiver or release of any obligation of the Company or any other
Person, as applicable, for any liability (i) pursuant to Section 10.1 hereof,
which arose or arises out of any act or failure to act
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8
required hereunder prior to the termination; (ii) which exists pursuant to
Sections 7, "Compensation," 8.7.2, "Right of Inspection," 11.3 through 11.6,
"Termination," 13.14, "Governing Law" and 13.17, "Claims under Agreement,"
hereof; and (iii) to maintain in full force and effect the Performance
Bond/Security Fund and coverage under the liability insurance policies required
under and in accordance with Sections 5.8 and 10.2 hereof.
2.3.3 Renewal. This Agreement does not grant to the Company
any right to renewal of this Agreement or the franchise granted hereunder, and
there shall be no such right. The Company may submit a written petition to the
City to renew this Agreement and the franchise granted hereunder not later than
twelve (12) months nor more than eighteen (18) months before the expiration of
the Term. Nonetheless, the City shall not be obligated to renew this Agreement
or the franchise granted hereunder.
2.4 Conditions and Limitations on Franchise.
2.4.1 Not Exclusive. Nothing in this Agreement shall affect
the right of the City to grant to any Person a franchise, consent or right to
occupy and use Inalienable Property of the City, or any part thereof, for the
Construction, operation and/or maintenance of a system to provide
telecommunications services in the City for any purpose, or the right of the
City to construct, operate and/or maintain a system to provide
telecommunications services in the City or to acquire and operate the System
pursuant to this Agreement, except that the City shall not use any services,
equipment, cable, wire, Fiber or other transmission medium provided by the
Company pursuant to this Agreement to offer or provide services to
non-governmental entities in competition with the Company.
2.4.2 Construction of System. (a) The Company is authorized to
install cable, wire, Fiber or other transmission medium that may be used in lieu
of cable, wire or Fiber for the same purposes, or related equipment and
facilities at any location on, over or under the Inalienable Property of the
City within the Franchise Area at any time during the Term, without further
approval of DTE, subject to the terms and conditions of this Agreement. The
Company shall use its best efforts to coordinate its construction schedule with
the appropriate City agencies, including, without limitations the appropriate
Borough Engineer and the office of Construction, to minimize unnecessary
disruption.
(b) The Company agrees to commence construction of the
Initial Backbone as soon as feasible after the Effective Date and in any event
no later than four (4) months after the Effective Date, subject to the timely
issuance of necessary permits and licenses, which will be diligently pursued by
the Company. The Company agrees to substantially complete the installation of
the Initial Backbone within
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9
nineteen (19) months after the date of commencement of construction of the
Initial Backbone, subject to the timely issuance of necessary permits and
licenses, which will be diligently pursued by the Company.
(c) The company shall obtain all construction, building
or other permits or approvals necessary before installing such cable, wire,
Fiber or other transmission medium that may be used in lieu of cable, wire or
Fiber for the same purposes, or related equipment and facilities. The Company
shall provide copies of any such permits and approvals to DTE upon request.
2.4.3 Public Works and Improvements. Nothing in this Agreement
shall abrogate the right of the City to perform any public works or public
improvements of any description. In the event that the System interferes with
the construction, operation, maintenance, repair or removal of such public works
or public improvements, the Company shall, at its own cost and expense, promptly
protect or alter or relocate the System, or any part thereof, as directed by the
City. In the event that the Company refuses or neglects to so protect, alter or
relocate all or part of the System, the City shall have the right to break
through, remove, alter, or relocate all or any part of the System without any
liability to the Company, and the Company shall pay to the City the costs
incurred in connection with such breaking through, removal, alteration or
relocation.
2.4.4 No Waiver. Nothing in this Agreement shall be construed
as a waiver of any codes, ordinances or regulations of the City or of the City's
right to require the Company or Persons utilizing the System to secure the
appropriate permits or authorizations for such use, provided that no fee or
charge may be imposed upon the Company for any such permit or authorization,
other than the standard fees or charges generally applicable to all Persons for
such permits or authorizations. Any such standard fee or charge shall not be an
offset against the compensation the Company is required to pay to the City
pursuant to Section 7 of this Agreement.
2.4.5 No Release. Nothing in this Agreement shall be construed
as a waiver or release of the rights of the City in and to the Inalienable
Property of the City. In the event that all or part of the Inalienable Property
within the Franchise Area is eliminated, discontinued, closed or demapped, all
rights and privileges granted pursuant to this Agreement with respect to said
Inalienable Property or any part thereof so eliminated, discontinued, closed or
demapped, shall cease upon the effective date of such elimination,
discontinuance, closing or demapping. If said elimination, discontinuance,
closing or demapping is undertaken for the benefit of any private Person, the
City shall make reasonable efforts to condition its consent to said elimination,
discontinuance, closing or demapping on the agreement of said private Person to
(i) grant the Company the right to continue to occupy and use said
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10
Inalienable Property or (ii) reimburse the Company for the reasonable costs of
relocating the affected part of the System.
2.5 Renegotiation of Agreement. (a) Each party shall have the right,
any one time Following the date seven (7) years after the Effective Date and
upon six (6) months notice to the other party, to require the renegotiation of
the terms of Sections 7 and 8 hereof based an changes in technological,
regulatory or market conditions that have occurred since the Effective Date,
provided, however, that any renegotiated terms shall apply only prospectively to
any contracts entered into by the Company with customers following the effective
date of the renegotiated terms. The parties shall, during renegotiation of said
Sections under this Section 2.5, negotiate in good faith.
(b) If, despite such good faith negotiations, the
parties fail to reach an agreement that is reasonably acceptable to both parties
within a reasonable period, then either party shall have the right, by notice to
the other, that the term of this Agreement and the franchise granted hereunder
shall be accelerated and shall terminate on the date which is one half of the
number of days between the date of such notice and January 1, 2009.
(c) The parties' rights pursuant to this Section 2.5
shall be cumulative and shall be in addition to and not in derogation of all
other rights reserved under other provisions of this Agreement.
SECTION 3 -- SERVICE
3.1 No Interference. In the operation of the System, the Company
shall not interfere with the technical operation of any other telecommunications
system in the City.
3.2 No Monopoly. If, at any time during the Term, it is finally
determined by a court of competent jurisdiction (not subject to further appeal)
that the distribution or provision of any Service in the District by the Company
or any Affiliated Person, or any other action in connection with the operation
of the System, has tended to create or has created a monopoly or a restraint of
trade in violation of law, such determination shall be deemed to be an Event of
Default under this Agreement. In such event, in addition to pursuing any of the
actions set forth in Section 11.2 hereof, DTE may issue a directive to correct
such conditions, consistent with this Agreement and the determination of the
court, without following the procedural requirements of Sections 11.2.2 and
11.2.3 hereof.
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11
3.3 No Discrimination. The Company shall not discriminate in the
provision of Services on the basis of race, creed, color, national origin, sex,
age, handicap, marital status, or real or perceived sexual orientation.
3.4 Service. The Company agrees to market its Services on the System
throughout the Term. In the event the Company, with the consent of the City,
sells or otherwise transfers the System or Control thereof to any Person, the
City or the City's assignee, or in the event the franchise terminates, the
Company shall transfer the System in an orderly, manner in order to maintain
continuity of Service to the City and to other Customers.
SECTION 4 -- TARIFF FILINGS
4.1 Tariffs. The Company shall provide annually to DTE a list of all
and any tariffs or tariff applications, and all amendments or modifications
thereof, that the Company has filed with any federal, state or local regulatory
authorities or other governmental agencies within the previous twelve (12)
months with respect to Telecommunications Services offered within the District
through, over or by use of the System. Each entry on this list must be in a
form, and provide sufficient detail, to allow DTE to readily identify the
services to which the tariffs and tariff applications apply, and must show the
date of each tariff and tariff application and such other information as DTE may
thereafter request. Upon the request of DTE, the Company shall promptly but in
no case later than 10 business days following the request deliver to DTE a
complete copy of any tariff or tariff application.
SECTION 5 --
CONSTRUCTION AND TECHNICAL REQUIREMENTS
5.1 General Requirement. The Company agrees to comply with each of
the terms set forth in this Section governing construction and technical
requirements for its System, in addition to any other requirements or procedures
specified by the Commissioner.
5.2 Quality. All work involved in the construction, operation,
maintenance, repair, upgrade and removal of the System shall be performed in a
safe, thorough and reliable manner using materials of good and durable quality.
If, at any time, it is determined by the City or any other agency or authority
of competent jurisdiction that any part of the System, including, without
limitation, any means used to distribute Signals over or within the System, is
harmful to the public health or safety, then the Company shall, at its own cost
and expense, promptly correct all such conditions.
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12
5.3 Licenses and Permits. The Company shall have the sole
responsibility for obtaining, at its own cost and expense, all permits, licenses
or other forms of approval or authorization necessary to construct operate,
maintain, upgrade or repair the System, including but not limited to any
necessary approvals from Persons to use private property, easements, poles and
conduits. The Company shall obtain any required permit, license, approval or
authorization prior to the commencement of the activity for which the permit,
license, approval or authorization is required.
5.4 Relocation of the System.
5.4.1 New Grades or Lines. If the grades or lines of any
Inalienable Property within the Franchise Area are changed at any time during
the Term in a manner affecting the System, then the Company shall, at its own
cost and expense and upon reasonable notice by the City, promptly protect or
promptly alter or relocate the System, or part thereof, so as to conform with
such new grades or lines. In the event that the Company unreasonably refuses or
neglects to so protect, alter or relocate all or part of the System, the City
shall have the right to break through, remove, alter or relocate such part of
the System without any liability to the Company, and the Company shall pay to
the City the costs incurred in connection with such breaking through, removal,
alteration or relocation.
5.4.2 City Authority to Move Wires. The City may, at any time,
in case of fire, disaster or other emergency, as determined by the City in its
reasonable discretion, cut or move any other optical fibers, wires, cable,
amplifiers, appliances or other parts of the System on, over or under the
Inalienable Property of the City in which event the City shall not be liable
therefor to the Company. The City shall notify the Company in writing prior to,
if practicable, but in any event as soon as possible and in no case later than
the next business day following any action taken under this Section 5.4.2.
5.4.3 Company Required to Move Wires. The Company shall upon
prior written notice by the City or any Person holding a permit to move any
structure, and within the time that is reasonable under the circumstances,
temporarily move its wires to permit the moving of said structure. The Company
may impose a reasonable charge on any Person other than the City for any such
movement of its wires.
5.5 Protect Structures. In connection with the construction,
operation, maintenance, repair, upgrade or removal of the System, the Company
shall, at its own cost and expense, protect any and all existing structures
belonging to the City and all designated landmarks, as well as all other
structures within any designated landmark district. The Company shall obtain the
prior approval of the City before altering any water main, sewerage or drainage
system, or any other municipal structure
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13
one over or under the Inalienable Property of the City required because of the
presence of the System. Any such alteration shall be made by the Company, at its
own cost and expense and in a manner prescribed by the City. The Company agrees
that it shall be liable, at its own cost and expense, to replace or repair and
restore to its prior condition in a manner as may be reasonably specified by the
City, any municipal structure or any other Inalienable Property of the City
involved in the construction, operation, maintenance, repair, upgrade or removal
of the System that may become disturbed or damaged as a result of any work
thereon by or on behalf of the Company pursuant to this Agreement.
5.6 No Obstruction. In connection with the construction, operation
maintenance, upgrade, repair or removal of the System, the Company shall not
unreasonably obstruct the Inalienable Property of the City, subways, railways,
passenger travel, river navigation, or other traffic to, from or within the
Franchise Area without the prior consent of the appropriate authorities.
5.7 Safety Precautions. The Company shall, at its own cost and
expense, undertake all necessary and appropriate efforts to prevent accidents at
its work sites, including the placing and maintenance of proper guards, fences,
barricades, security personnel and suitable and sufficient lighting.
5.8 Performance Bond/Security Fund.
5.8.1 General Requirement. Prior to the execution of this
Agreement, the Company has deposited with the Comptroller an irrevocable,
unconditional letter of credit and surety bond which together total two million
dollars ($2,000,000). Such $2,000,000 constitutes the Company's Performance
Bond/ Security Fund. A minimum of one million dollars ($1,000,000) of this
amount shall be in the form of a surety bond, and the Company may, at its
discretion, further increase the proportion of the Performance Bond/Security
Fund that is in the form of a surety bond so long as at least two hundred fifty
thousand dollars ($250,000) of the Performance Bond/Security Fund remains in the
form of a letter of credit. The total amount of the Performance Bond/Security
Fund may be reduced to one million dollars ($1,000,000), which must consist of
at least a two hundred fifty thousand dollar ($250,000) letter of credit,
following the date 30 days after completion by the Company of the Initial
Backbone. Throughout the Term, and for one hundred twenty (120) days thereafter,
unless the City notifies the Company that a reasonable longer period shall
apply, the Company shall maintain the Performance Bond/Security Fund in the
amount specified in this Section 5.8. At any time during the Term, the City may,
acting reasonably, require the Company to increase the amount of the Performance
Bond/Security Fund if it finds that new risk factors exist, such as an increase
in the amount of compensation payments to be made pursuant to Section 7.1 hereof
or the failure of the Company to perform any of its obligations pursuant to this
Agreement,
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14
which reasonably necessitate an increase in the amount of the Performance
Bond/Security Fund.
5.8.2 Indemnification. The Performance Bond/Security Fund
shall indemnity the City, up to the full face amount of the Performance
Bond/Security Fund, for: (i) the cost to continue any construction of the
portion of the System being constructed for the City pursuant to Section
7.1.1(b) herein and Appendix E hereof; (ii) the cost of maintaining operation of
the System following a termination of this Agreement in excess of all net
revenue actually received through the continued operation of the System during
said period; (iii) any loss or damage to any municipal structure or other
Inalienable Property of the City during the course of any construction of the
System; (iv) any other costs, or loss or damage actually incurred by the City as
a result of the Company's failure to perform its obligations pursuant to this
Agreement; and (v) the removal of all or any part of the System from the
Inalienable Property of the City, as authorized by this Agreement.
5.8.3 Other Purposes. The Performance Bond/Security Fund shall
also serve as security for:
(a) the faithful performance by the Company of all
terms, conditions and obligations of this Agreement;
(b) any expenditure, damage, or loss incurred by the
City occasioned by the Company's failure to comply with all rules, regulations,
orders, permits and other directives of the City and the Commissioner issued
pursuant to this Agreement;
(c) payment of compensation set forth in Section 7
hereof;
(d) the payment of premiums for the liability insurance
required pursuant to Section 10 hereof;
(e) the removal of the System from the Inalienable
Property of the City at the termination of the Agreement, at the election of the
City, pursuant to Section 11.4 hereof;
(f) the payment to the City of any amounts for which the
Company is liable pursuant to Section 10.1.1 hereof which are not paid by the
Company's insurance;
(g) the payment of any other amounts which become due to
the City pursuant to this Agreement or law;
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(h) the timely renewal of the letter of credit that
constitutes the Performance Bond/Security Fund; and
(i) any costs, losses or damages, incurred by the City
as a result of a default of the Company's obligations under this Agreement.
5.8.4 Withdrawals from the Performance Bond/Security Fund. In
accordance with the procedures set forth in Sections 5.8.5, 11.2 and 11.3, the
Comptroller, upon the direction of the Commissioner, may make withdrawals from
the Performance Bond/Security Fund and pay to the City such amounts for the
satisfaction of obligations under Section 5.8.2 hereof, or for the purposes
specified in Section 5.8.3 hereof. Withdrawals from the Performance
Bond/Security Fund shall not be deemed a cure of the default(s) that led to such
withdrawals. The City may not seek recourse against the Performance
Bond/Security Fund for any costs or damages for which the City has previously
been compensated through a withdrawal from the Performance Bond/Security Fund or
otherwise by the Company.
5.8.5 Notice of Withdrawals. Within one (1) week after any
withdrawals from the Performance Bond/Security Fund, the Comptroller shall
notify the Company of the date and amount thereof, provided, however, that the
City shall not make any withdrawals by reason of any breach for which the
Company has not been given notice. The withdrawal of amounts from the
Performance Bond/Security Fund shall constitute a credit against the amount of
the applicable liability of the Company to the City but only to the extent of
said withdrawal.
5.8.6 Replenishment. Within thirty (30) days after receipt of
notice from the Comptroller that any amount has been withdrawn from the
Performance Bond/Security Fund letter of credit, as provided in Section 5.8
hereof, the Company shall restore the Performance Bond/Security Fund to the
amount specified in Section 5.8.1 hereof, provided that, if a court finally
determines that said withdrawal by the City was improper, the City shall refund
the improperly withdrawn amount to the Performance Bond/Security Fund or to the
Company such that the balance in the Performance Bond/ Security Fund shall not
exceed the amount specified in Section 5.8.1 hereof. In case of such an improper
withdrawal, the Company shall receive any interest accrued on the amount
improperly withdrawn from the time of withdrawal to the time of refund to the
Fund. If the Company has not made the required restoration to the Performance
Bond/ Security Fund within such thirty (30) day period, interest on said amount
shall accrue at the rate specified in Section 7.4 hereof, to commence at the
completion of such 30-day period. The Comptroller may withdraw from the
Performance Bond/Security Fund and pay to the City such interest periodically up
to the date on which the Company makes the required principal payment, provided
that the Company shall not be obligated to pay such interest with such principal
payment to the extent such interest has been already withdrawn by the
Comptroller.
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5.8.7 Not a Limit on Liability. The obligation to perform and
the liability of the Company pursuant to this Agreement shall not be limited by
the acceptance of the Performance Bond/Security Fund required by this Section
5.8.
5.8.8 Form. The Performance Bond/Security Fund does, and any
replacement bond shall, contain the following endorsement: "It is hereby
understood and agreed that this bond may not be canceled or not renewed by the
surety nor the intention to cancel or not to renew be stated by the surety until
ninety (90) days after completion of construction of the System and,
notwithstanding the foregoing, shall in no case be canceled or not renewed by
the surety until at least ninety (90) days' written notice to the City of
surety's intention to cancel or not renew this bond." Notwithstanding the
preceding, the letter of credit portion of the Performance Bond/Security Fund
shall not be canceled or not renewed by the issuer until at least sixty (60)
days, notice to the City of the issuer's intention to cancel or not renew the
letter of credit.
SECTION 6 -- EMPLOYMENT AND PURCHASING
6.1 Right to Bargain Collectively. The Company agrees to recognize
the right of its employees to bargain collectively through representatives of
their own choosing in accordance with applicable law. The Company shall
recognize and deal with the representatives duly designated or selected by a
majority of its employees for the purpose of collective bargaining with respect
to rates of pay, wages, hours of employment or any other terms, conditions or
privileges of employment. The Company shall not dominate, interfere with,
participate in the management or control or, or give financial support to any
union or association of its employees.
6.2 Local Preference. The Company shall, at its own cost and
expense, develop and maintain a plan for the recruitment, education, training
and employment of residents of the City, for the opportunities to be created by
the construction, operation, marketing and maintenance of the System. Such
recruitment activities shall include provisions for the posting of employment
and training opportunities at appropriate City agencies responsible for
encouraging employment of City residents. Such plan shall be designed so as to
ensure the promotion of equal employment opportunity for all qualified Persons
employed by, or seeking employment with, the Company. Such plan shall be updated
from time to time as the City deems reasonably necessary. The Company shall,
throughout the Term, implement such plan, at its own cost and expense, by
ensuring, to the maximum feasible extent, the recruitment, education, training,
and employment of City residents.
6.3 City Vendors. To the maximum feasible extent, after taking into
account price and quality considerations, the Company shall utilize vendors
located in
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the City in connection with the construction, operation, marketing and
maintenance of the System. The Company shall, after taking into account price
and quality considerations, in the purchase of comparable materials, equipment,
services or supplies of any nature, give effect to a preference for such items
which are assembled, manufactured, or otherwise produced, in whole or in part,
within the City.
6.4 Executive Order No. 50. The Company agrees to comply in all
respects with the provisions of the Mayor's Executive Order No. 50 (April 25,
1980) and all rules and regulations promulgated thereunder, as such Order or
regulations may be amended, modified or succeeded throughout the Term.
Notwithstanding that Executive Order No. 50 may not apply on its face to the
Company as a franchisee of the City, the Company shall comply in all respects
with the provisions of such order and successor and replacement laws, orders and
regulations adopted following the Effective Date. As required by said Executive
Order No. 50, the provisions of Sections 50.30 and 50.31 of the Final Rule
implementing said Order are incorporated herein by this reference. The Company
agrees to make a reasonable inquiry and to engage in reasonable monitoring
efforts to ensure compliance with all unions to ensure that all contractors and
subcontractors comply with the required contractual language in Section 6.5. The
Company shall not contract with and shall discontinue any contract entered into
after the Effective Date with any union, contractor or subcontractor that
refuses to agree to or fails to comply with the contractual language in Section
6.5.
6.5 Enforcement. The Company shall take steps to ensure that the
requirements of Section 6.4 hereof are adhered to by each union with which the
Company deals, each officer, employee, agent, contractor or subcontractor of the
Company, and each Person performing work pursuant to this Agreement with respect
to the System for, on behalf of, or at the discretion of, the Company. The
requirements of Section 6.4 hereof shall apply to every contract relating to the
System between the Company and: (i) any union; (ii) any contractor; (iii) any
subcontractor; or (iv) any Person with which any of the foregoing Persons has a
relationship in connection with any aspect of the System. To comply with the
obligations of this Section 6.5, the Company shall include, in all contracts
described in the foregoing sentence which are entered into following the
Effective Date (which shall include any renewals, amendments and modifications,
of existing contracts), the following language, stating that such party: "has
received a copy of Section 6.4 of a certain agreement by and between the City of
New York and the Company dated as of December 20, 1993, granting to the Company
a nonexclusive franchise providing the right and consent to install cable, wire,
Fiber or other transmission medium that may be used in lieu of cable, wire or
Fiber for the same purposes and related equipment and facilities on, over and
under the Inalienable Property of the City within the Franchise Area to provide
Telecommunications Services and agrees to comply with each term, condition and
requirement of Section 6.4 of such agreement, which terms, conditions and
requirements are deemed to be incorporated herein by this reference."
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SECTION 7 --
COMPENSATION AND OTHER PAYMENTS
7.1 Compensation.
7.1.1 Compensation. As compensation for the franchise, the
Company shall have the following obligations:
(a) Franchise Fee. The Company's obligation to pay
franchise fees shall commence on the Completion Date. For purposes of this
Section 7.1, the Completion Date shall be the earlier of the date of completion
of the Initial Backbone or January 1, 1995. Commencing on the Completion Date,
the Company shall pay to the City the following percentage of Gross Revenue each
year during the Term:
First year following Completion Date ..........................Ten Percent (10%)
Second year following Completion Date..........................Ten Percent (10%)
Third year following Completion Date............................Six Percent (6%)
Fourth year following Completion Date
and each year thereafter
through the end of the Term..............................Five Percent (5%)
During each year of the Term following the Completion Date, the
Company's compensation payments pursuant to this Section 7.1.1(a) shall not be
less than $200,000.00 (two hundred thousand dollars). To the extent that the sum
of all payments pursuant to this Section 7.1.1(a) with respect to any year is
less than said minimum payment, then the Company's compensation payment to be
made within forty-five (45) days of the last day of December of said year
pursuant to Section 7.1.2 shall include an amount which brings the total amount
paid with respect to said year up to said minimum payment.
(b) Services to City. The Company shall provide services
to the City, and observe its other obligations as specified in Appendix E to
this Agreement. The Company expressly acknowledges and agrees that neither the
provision of Services to the City nor the satisfaction of other obligations
specified in Appendix E to this Agreement shall be chargeable against the
franchisee fees to be paid to the City by the Company pursuant to Section
7.1.1(a) hereof.
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7.1.2 Timing. (a) All payments made pursuant to Section
7.1.1(a) hereof shall be made on a quarterly basis within forty-five (45) days
of the close of each calendar quarter. The Company shall in good faith estimate
each quarterly payment based on anticipated revenues for that quarter.
(b) Within sixty (60) days following the end of the
calendar year, the Company shall calculate the exact fee due to the City
pursuant to Section 7.1.1(a) hereof for said calendar year. Should the total
calculated franchise fee for the year exceed the estimated quarterly payments
made by the Company for the year, the Company shall, within the 60-day period
following the end of the calendar year, remit to the City any balance due.
Should the estimated quarterly payments made by the Company for the year exceed
the total calculated franchise fee for the year, the City will remit the
overpayment within thirty (30) days following notice from the Company of the
balance due.
(c) In no case shall the estimated quarterly payments to
be paid pursuant to paragraph (a) of this Section 7.1.2 be less than one-fourth
(1/4) of the total calculated franchise fee based on Section 7.1.1(a) hereof for
the preceding calendar year.
7.1.3 Records and Audits. The Company shall keep comprehensive
itemized records of all revenues received and of all Services provided, in
sufficient detail to enable the City to determine whether all compensation owed
to the City pursuant to Section 7.1 is being paid to the City.
7.1.4 Reservation of Rights. No acceptance of any compensation
payment by the City shall be construed as an accord and satisfaction that the
amount paid is in fact the correct amount, nor shall such acceptance of any
payment be construed as a release of any claim that the City may have for
further or additional sums payable under the provisions of this Agreement. All
amounts paid shall be subject to audit and recomputation by the City.
7.1.5 Ordinary Business Expense. Nothing contained in this
Section 7.1 or elsewhere in this Agreement is intended to prevent the Company
from treating the compensation and other payments that it may pay pursuant to
this Agreement as an ordinary expense of doing business and, accordingly, from
deducting said payments from gross income in any City, state, or federal income
tax return.
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7.2 Other Payments.
7.2.1 Franchising Costs. The Company has, prior to the
execution of this Agreement, paid a portion of the Company's pro rata share of
costs incurred by the City for the services of third parties (including, without
limitation, attorneys and other consultants) in connection with the award of
this franchise. Within thirty (30) days after receipt of an itemized and
detailed invoice for services rendered, the Company shall pay to DTE, or at the
direction of the Commissioner to a third party, the Company's pro rata share of
all remaining reasonable costs and expenses incurred by the City for the
services of third parties (including, without limitation, attorneys and other
consultants) in connection with the award of this franchise. The Company
expressly agrees that the payments referred to in this Section 7.2.1 are in
addition to and not in lieu of, and shall not be offset against, the
compensation to be paid to the City by the Company pursuant to Section 7.1
hereof.
7.2.2 Future Costs. The Company shall pay to the City or to
third parties, at the direction of the Commissioner, an amount equal to the
reasonable costs and expenses which the City incurs for the services of third
parties (including but not limited to attorneys and other consultants) in
connection with any renewal or Company initiated renegotiation, transfer,
amendment or other modification of this Agreement or the franchise, provided,
however, that in the case of renewal only, the parties shall agree upon a
reasonable financial cap at the outset of negotiations. However, in the event
the City brings any action for termination or for enforcement of this Agreement
against the Company and the Company finally prevails, then the Company shall
have no obligation to reimburse the City or pay any sums directly to third
parties, at the direction of the City, pursuant to this Section with respect to
such termination or enforcement. In the event the Company contests the charges,
it shall pay any uncontested amounts. The Commissioner shall review the
contested charges and the services rendered and shall reasonably determine
whether such charges are reasonable for the services rendered. The Company
expressly agrees that the payments made pursuant to this Section 7.2 are in
addition to and not in lieu of, and shall not be offset against, the
compensation to be paid to the City by the Company pursuant to Section 7.1
hereof.
7.3 No Credits or Deductions. (a) The Company expressly acknowledges
and agrees that:
(i) The compensation and other payments to be made or
Services to be provided pursuant to this Section 7 shall not be deemed to
be in the nature of a tax, and shall be in addition to any and all taxes
or other fees or charges which the Company or any Affiliated Person shall
be required to pay to the City or to any state or federal agency or
authority, all of which shall be separate and distinct obligations of the
Company; and
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(ii) The Company expressly relinquishes and waives its
rights and the rights of any Affiliated Person to a deduction or other
credit pursuant to Section 626 of the New York State Real Property Tax Law
and any successor or amendment thereto, and to any subsequent law, rule,
regulation, or order which would purport to permit any of the acts
prohibited by this Section 7.3; and
(iii) Neither the Company nor any Affiliated Person
shall have or make any claim for any deduction or other credit of all or
any part of the amount of the compensation or other payments to be made or
Services to be provided pursuant to this Agreement from or against any
City or other governmental taxes of general applicability or other fees or
charges which the Company or any Affiliated Person is required to pay to
the City or other governmental agency; and
(iv) Neither the Company nor any Affiliated Person shall
apply or seek to apply all or any part of the amount of the compensation
or other payments to be made or Services to be provided pursuant to this
Agreement as a deduction or other credit from or against any City or other
government taxes of general applicability (other than income taxes) or
other fees or charges, each of which shall be deemed to be separate and
distinct obligations of the Company and the Affiliated Persons; and
(v) Neither the Company nor any Affiliated Person shall
apply or seek to apply all or any part of the amount of any City or other
governmental taxes or other fees or charges of general applicability as a
deduction or other credit from or against any of the compensation or other
payments to be made or Services to be provided pursuant to this Agreement,
each of which shall be deemed to be separate and distinct obligations of
the Company and the Affiliated Persons.
(b) In any situation where the Company believes the
effect of this Section 7.3 is unduly harming, in a manner inconsistent with the
intent of this Section 7.3, an Affiliated Person of the Company, the Company may
petition the City for relief, and such relief shall not be unreasonably
withheld.
7.4 Interest on Late Payments. In the event that any payment
required by this Agreement is not actually received by the City on or before the
applicable date fixed in this Agreement, interest thereon shall accrue from such
date until received at a rate equal to the rate of interest then in effect
charged by the City for late payments of real estate taxes.
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7.5 Method of Payment. Except as provided elsewhere in this
Agreement, all payments made by the Company to the City pursuant to this
Agreement shall be made to the City's Department of Finance, with a copy to DTE.
7.6 Continuing Obligation and Holdover. (a) In the event the Company
continues to operate all or any part of the System after the Term, then the
Company shall continue to comply with all applicable provisions of this
Agreement, including, without limitation, all compensation and other payment
provisions of this Agreement, throughout the period of such continued operation,
provided that any such continued operation shall in no way be construed as a
renewal or other extension of this Agreement or the franchise granted pursuant
to this Agreement, nor as a limitation on the remedies, if any, available to the
City as a result of such continued operation after the Term, including, but not
limited to, damages and restitution.
(b) In the event this Agreement terminates for any
reason whatsoever and the Company falls to cease providing Service over the
System, the City, in addition to all other remedies available to it under this
Agreement or by law, shall be entitled to receive all payments it is entitled to
receive under this Agreement including, but not limited to, the compensation set
forth in Section 7.
SECTION 8 -- OVERSIGHT AND REGULATION
8.1 Confidentiality. The City shall protect from disclosure
confidential, proprietary information of the Company submitted to the City
pursuant to this Agreement in accordance with applicable law, provided that the
Company notifies the City of, and clearly labels the information which the
Company deems to be confidential, proprietary information. Such notification and
labeling shall be the sole responsibility of the Company.
8.2 Oversight. DTE shall have the right to oversee, regulate and
inspect periodically the construction, maintenance, operation and upgrade of the
System, and any part thereof, in accordance with the provisions of this
Agreement and applicable law. The Company shall establish and maintain
managerial and operational records, standards, procedures and controls to enable
the Company to prove, in reasonable detail, to the satisfaction of the City at
all time throughout the Term, that the Company is in compliance times throughout
with this Agreement. The Company shall retain such records for not less than six
(6) years following their creation, and for such additional period as DTE may
direct.
8.3 Notification to City. (a) The Company shall, on an annual basis,
provide DTE with a report describing the Services offered and classes of
customers served by the Company during the previous twelve months. Further, such
Report shall
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describe the Company's plans for the coming twelve months with regard to new
Services that the Company reasonably anticipates might be offered or new classes
of customers that the Company reasonably anticipates might be served.
Notwithstanding the requirements of this Section 8.3(a), the Company shall
provide to the City, upon the City's request, any additional information that
the City reasonably deems necessary during the Term.
(b) The Company shall also, on an annual basis, provide
DTE with a Report describing any construction or installation of cable, wire,
Fiber or other transmission medium that may be used in lieu of cable, wire or
Fiber for the same purposes, or related equipment and facilities, in any areas
outside of the Initial Backbone, that has occurred during the previous twelve
months. Such Report shall also describe the Company's reasonably anticipated
plans for such construction and installation for the coming twelve months.
Notwithstanding the requirements of this Section 8.3(b), the Company shall
provide to the City, upon the City's request, any additional information that
the City reasonably deems necessary during the Term. It is not anticipated that
confidential information will be required under this Section 8.3(b).
8.4 Regulation by City. To the full extent permitted by applicable
law either now or in the future, the City reserves the right to adopt or issue
such rules, regulations, orders, or other directives governing
telecommunications that are consistent with the terms of this Agreement and that
it finds necessary or appropriate in the lawful exercise of its police powers,
and the Company expressly agrees to comply with all such lawful rules,
regulations, orders, or other directives.
8.5 Reports.
8.5.1 Status Reports. The Company shall submit to DTE reports
describing, in detail, the status of the construction of the Initial Backbone
every six (6) months from the Effective Date until its substantial completion.
The Company shall, upon substantial completion of the Initial Backbone, notify
the Commissioner in writing.
8.5.2 Financial Reports. The Company shall submit to the
Comptroller and DTE not later than three (3) months after the end of each annual
fiscal period, a copy of the Company's annual financial statements for such
period which statements shall be signed by the Chief Financial Officer of the
Company, provided, however, that the Comptroller may also require such
statements to be audited and certified by an independent certified public
accountant in accordance with generally accepted accounting principles. Such
statements shall be accurate and complete.
8.5.3 Additional Reports. The Company shall submit to DTE
every twelve months commencing with the date twelve (12) months after the
Effective
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Date, a report describing the Company's compliance with its obligations under
Sections 6.2 and 6.3 hereof. Such report shall be accurate and complete.
8.5.4 Additional Information and Reports. Upon the request of
the Commissioner, one Company shall promptly submit to DTE any information or
report reasonably related to the Company's obligations under this Agreement, its
business and operations, or those of any Affiliated Person, with respect to the
System or its operation, or any Service distributed over the System, in such
form and containing such information as the Commissioner shall specify. Such
information or report shall be accurate and complete.
8.6 Additional Filings. The Company shall provide annually to DTE a
list of any and all material communications, public reports, petitions or other
filings, either received from or submitted to any municipal, county, state or
federal agency or official (and any response thereto submitted by or received by
the Company), which in any way materially affects the operation of the System or
any Service or the Company's representations and warranties set forth herein,
but not including tax returns or other filings which are confidential. Upon the
request of DTE, the Company shall promptly, but in no case later than ten (10)
business days following the request, deliver to DTE a complete copy of any item
on said list.
8.7 Books and Records/Audit.
8.7.1 Books and Records. Throughout the Term, the Company
shall maintain complete and accurate books of account and records of the
business, ownership, and operations of the Company with respect to the System in
a manner that allows the City at all times to determine whether the Company is
in compliance with the Agreement. Should the City reasonably determine that the
records are not being maintained in such a manner, the Company shall alter the
manner in which the books and/or records are maintained so that the Company
comes into compliance with this Section. All financial books and records which
are maintained in accordance with the regulations of the PSC and generally
accepted accounting principles shall be deemed to be acceptable under this
Section. The Company shall also maintain and provide such additional books and
records as the Comptroller or the Commissioner deem reasonably necessary to
ensure proper accounting of all payments due the City.
8.7.2 Right of Inspection. The Commissioner and the
Comptroller, or their designate representatives, shall have the right to
inspect, examine or audit during normal business hours and upon reasonable
notice to the Company under the circumstances, all documents, records or other
information which pertain to the Company or any Affiliated Person with respect
to the System, its operation, its employment and purchasing practices, Services
distributed over the System, and with respect to the Company's obligations
pursuant to this Agreement. All such documents
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shall be made available within New York City or in such other place that the
City may agree upon in writing in order to facilitate said inspection,
examination, or audit, provided, however, that if such documents are located
outside of the City, then the Company shall pay the reasonable expenses incurred
by the Commissioner, the Comptroller or their designated representatives in
traveling to such location. All of such documents shall be retained by the
Company for a minimum of six (6) years following termination of this Agreement.
Access by the City to any of the documents covered by this Section 8.7.2 shall
not be denied by the Company on grounds that such documents are alleged by the
Company to contain confidential, proprietary or privileged information, provided
that this requirement shall not be deemed to constitute a waiver of the
Company's right to assert that confidential, proprietary or privileged
information contained in such documents should not be disclosed, subject to
Section 8.1 hereof. In order to determine the validity of such assertion and
withholding by the Company, the City agrees to review the alleged proprietary
information, and/or a log of the documents believed by the Company to be
privileged reflecting sufficient information to establish the privilege claimed,
at the Company's premises and, in connection with such review, to limit access
to the alleged proprietary information to those individuals who require the
information in the exercise of the City's rights under this Agreement. If the
Corporation Counsel of the City concurs with the Company's assertion regarding
the proprietary nature of such information, the City will hold such information
in confidence to the extent authorized by and in accordance with applicable law
and will not remove from the Company's premises the proprietary portion of any
document or other intangible thing that contains such proprietary information.
If the Corporation Counsel of the City concurs with the Company's assertion
regarding the privileged nature of such information, then the Company will not
be required to disclose such information. If the Corporation Counsel of the City
does not concur with such assertions, then the Company shall promptly provide
such documents, including the alleged proprietary or privileged portion thereof,
to the City, provided that the Company shall not be required to provide the
proprietary or privileged portion thereof during the pendency of any court
challenge to such provision.
8.7.3 Protection from Disclosure. In accordance with
applicable law, the City shall protect from disclosure any confidential,
proprietary information required to be made available to the City pursuant to
Sections 8.7.1 and 8.7.2, provided that the Company notifies the City of, and
clearly labels the information which the Company deems to be confidential,
proprietary information. Such notification and labeling shall be the sole
responsibility of the Company.
8.8 Compliance With "Investigations Clause." The Company agrees to
comply in all respects with the City's "Investigations Clause," a copy of which
is attached at Appendix F hereto.
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SECTION 9 -- RESTRICTIONS AGAINST
ASSIGNMENT AND OTHER TRANSFERS
9.1 Transfer of Interest. Except as provided in Section 9.6 hereof
and Appendix G hereto, and excepting conveyances and leases of real or personal
property in the ordinary course of the operation of the System (but not
excepting leases which by their size or nature are the functional equivalent of
transfers of the System), neither the franchise granted herein nor any rights or
obligations of the Company in the System or pursuant to this Agreement shall be
encumbered, assigned, sold, transferred, pledged, leased, sublet, or mortgaged
in any manner, in whole or in part, to any Person, nor shall title therein,
either legal or equitable, or any right or interest therein, pass to or vest in
any Person, either by act of the Company, by act of any Person holding Control
of or any interest in the Company or the System or the franchise granted herein,
by operation of law, or otherwise, without the prior written consent of the City
pursuant to the procedures set forth in this Section 9, provided that the City
shall consider any such action in accordance with its usual procedural rules.
9.2 Transfer of Control or Stock. A complete description of the
ownership and Control of the Company as of the Effective Date is set forth in
Appendix G to this Agreement. Notwithstanding any other provision of this
Agreement, except as provided in Section 9.6 hereof or as set forth in on
Appendix G, no change in Control of or any interest in the Company, the System
or the franchise granted herein shall occur after the Effective Date, by act of
the Company, by act of any Person holding Control of the Company the System or
the franchise granted herein, by operation of law, or otherwise, without the
prior written consent of the City granted pursuant to the procedures set forth
in this Section 9. The requirements of Section 9.3 hereof shall also apply
whenever any change is proposed of five percent (5%) or more of the ownership or
Control of the Company, the System, the franchise granted herein or of any
Person holding Control of the Company or in the System or in the franchise (but
nothing herein shall be construed as suggesting that a proposed change of less
than five percent (5%) does not require consent of the City (acting pursuant to
the procedures set forth in this Section 9) if it would in fact result in a
change in Control of the Company, the System or the franchise granted herein),
and any other event which could result in a change in ownership or Control of
the Company, regardless of the manner in which such ownership or control is
evidenced (e.g., stock, bonds, debt instruments or other indicia of ownership or
Control).
9.3 Petition. The Company shall promptly notify the Commissioner of
any proposed action requiring the consent of the City pursuant to Sections 9.1
or 9.2 hereof or to which this Section 9.3 applies by submitting to the
Commissioner, with a copy to the Corporation Counsel, a petition requesting the
submission by the Commissioner of such petition to the FCRC and approval thereof
by the FCRC or requesting a determination that no such submission and approval
is required and its
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argument why such submission and approval is not required. Each petition shall
fully describe the proposed action and shall be accompanied by a justification
for the action and, if applicable, the Company's argument as to why such action
would not involve a change in Control of the Company, the System or the
franchise, and such additional supporting information as the Commissioner and/or
the FCRC may reasonably require in order to review and evaluate the proposed
action. The Commissioner shall expeditiously review the petition and shall (a)
notify the Company in writing if the Commissioner determines that the submission
by the Commissioner and the approval of the FCRC is not required or (b) if the
Commissioner determines that such submission and approval is required, either
(i) notify the Company that the Commissioner does not approve the proposed
action and therefore will not submit the petition to the FCRC, or (ii) submit
the petition to the FCRC for its approval.
9.4 Consideration of the Petition. DTE, and the FCRC, as the case
may be, may take such actions as it deems appropriate in considering the
petition and determining whether consent is needed or should be granted. In
considering the petition, DTE and the FCRC, as the case may be, may inquire
into: (i) the qualifications of each Person involved in the proposed action,
(ii) all matters relevant to whether the relevant Person(s) will adhere to all
applicable provisions of this Agreement, (iii) the effect of the proposed action
on competition; and (iv) all other matters it deems relevant in evaluating tho
petition, including whether the Company executed this Agreement under a good
faith belief that it would itself carry out the obligations of the Company
hereunder. After receipt of a petition, the FCRC may, as it deems necessary or
appropriate, schedule a public hearing on the petition. Further, DTE and the
FCRC may review the Company's performance under the terms and conditions of this
Agreement. The Company shall provide all requested assistance to DTE and the
FCRC in connection with any such inquiry and, as appropriate, shall secure the
cooperation and assistance of all Persons involved in said action.
9.5 Conditions. As a condition to the granting of any consent
required by this Section 9, the Commissioner and/or the FCRC may: (i) upon a
determination that the Company did not execute this Agreement under a good faith
belief that it would itself carry out the obligations of the Company pursuant to
this Agreement, require the Company or any Affiliated Person to pay to the City
part or all of the profits earned or to be earned by such Person in connection
with, upon the completion of, or as a result of, any of the actions described in
Sections 9.1 or 9.2 hereof with respect to any of such actions which occur
within four (4) years after the Effective Date; and (ii) require that each
Person involved in any action described in Sections 9.1 or 9.2 hereof shall
execute an Agreement, in a form and containing such conditions as may be
specified by the City, providing that such Person assumes and agrees to be bound
by all applicable provisions of this Agreement and such other conditions which
the City deems necessary or appropriate in the circumstances. The execution of
such agreement by such Person(s) shall in no way relieve the Company or
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any other transferor involved in any action described in Sections 9.1 or 9.2
hereof, of its obligations pursuant to this Agreement.
9.6 Permitted Encumbrances. Nothing in this Section 9 shall be deem
to prohibit any assignment, pledge, lease, sublease, mortgage, or other transfer
of all or any part of the System, or any right or interest therein, for
financing purposes, provided that each such assignment, pledge, lease, sublease,
mortgage, or other transfer shall be subject to the rights of the City pursuant
to this Agreement and applicable law. The consent of the City shall not be
required with respect to any transfer to, or taking of possession by, any
banking or lending institution which is a secured creditor of the Company of all
or any part of the System pursuant to the rights of such secured creditor under
Article 9 of the Uniform Commercial Code, as in effect in the State of New York,
and, to the extent that the collateral consists of real property, under the New
York Real Property Law; provided, further that, the City's rights are in no way
adversely affected or diminished.
9.7 Consent Not a Waiver. The grant or waiver of any one or more of
such consents shall not render unnecessary any subsequent consent, nor shall the
grant of any such consent constitute a waiver of any other rights of the City,
as required in this Section 9.
9.8 Petitions From Persons Other Than the Company Seeking Control
Over the Company. Notwithstanding the foregoing, DTE reserves the right, on a
case by case basis, to accept, hear and/or grant petitions for the transfer of
Control of the Company, the System or the franchise granted herein from Persons
seeking to obtain Control of the Company. The City shall provide the Company
with reasonable notice of any such petitions. The City, its officers, employees,
agents, attorneys, consultants and independent contractors shall not be liable
to the Company or any other Person for exercising its rights herein. The Company
shall be entitled to rely upon publicly filed reports to which it has access in
connection with its determination of the applicability of this Section 9.8,
except to the extent the Company knows or has reason to believe that any such
report is or may be incorrect, or is aware of the information which is the
subject of this Section otherwise than as a result of publicly filed reports.
SECTION 10 -- LIABILITY AND INSURANCE
10.1 Liability and Indemnity.
10.1.1 Company. The Company shall be liable for, and the
Company and each Affiliated Person (not including a limited partner or an
individual shareholder) shall indemnify, defend and hold the City, its officers,
agents, servants, employees, attorneys, consultants and independent contractors
(the "Indemnitees")
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harmless from, any and all liabilities, suits, obligations, fines, damages,
penalties, claims, costs, charges and expenses (including, without limitation,
reasonable attorneys' fees and disbursements), that may be imposed upon or
incurred by or asserted against any of the Indemnitees arising out of the
construction, operation, maintenance, upgrade, repair or removal of the System
or otherwise arising out of or related to this Agreement; provided, however,
that the foregoing liability and indemnity obligation of the Company pursuant to
this Section 10.1 shall not apply to any willful misconduct or gross negligence
of the City, its officers, employees, servants, agents, attorneys, consultants
or independent contractors. Further, it is a condition of this Agreement that
the City assumes no liability for liabilities, suits, obligations, fines,
damages, penalties, claims, costs, charges and expenses (including, without
limitation, reasonable attorneys' fees and disbursements) to either Persons or
property on account of the same, except as expressly provided herein.
10.1.2 No Liability for Public Work, etc. None of the City,
its officers, agents, servants, employees, attorneys, consultants or independent
contractors shall have any liability to the Company for any damage as a result
of or in connection with the protection, breaking through, movement, removal,
alteration, or relocation of any part of the System by or on behalf of the
Company or the City in connection with any emergency, public work, public
improvement, alteration of any municipal structure, any change in the grade or
line of any Inalienable Property of the City, or the elimination,
discontinuation, closing or demapping of any Inalienable Property of the City,
as provided in Sections 2.4.5 and 5.4 hereof. When reasonably possible, the
Company shall be consulted prior to any such activity and shall be given the
opportunity to perform such work itself, but the City shall have no liability to
the Company in the event it does not so consult the Company. All costs to repair
or replace the System, or parts thereof, damaged or removed as a result of such
activity, shall be borne by the Company; provided, however, that the foregoing
obligation of the Company pursuant to this Section 10.1.2 shall not apply to any
willful misconduct or gross negligence of the City, its officers, employees,
servants, agents, attorneys, consultants or independent contractors.
10.1.3 No Liability for Damages. None of the City, its
officers, agents, servants, employees, attorneys, consultants and independent
contractors shall have any liability to the Company for any special, incidental,
consequential, punitive, or other damages as a result of the proper and lawful
exercise of any right of the City pursuant to this Agreement or applicable law,
including, without limitation, the rights of the City to terminate, amend, or
otherwise modify all or any part of this Agreement or the franchise granted
herein; provided, however, that the foregoing limitation on liability pursuant
to this Section 10.1.3 shall not apply to any willful misconduct or gross
negligence of the City, its officers, employees, servants, attorneys,
consultants or independent contractors.
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10.1.4 Defense of Claim, etc. If any claim, action or
proceeding is made or brought against any of the Indemnitees by reason of any
event to which reference is made in Section 10.1.1 hereof, then upon demand by
the City, the Company shall either resist, defend or satisfy such claim, action
or proceeding in such Indemnitee's name, by the attorneys for, or approved by,
the Company's insurance carrier (if such claim, action or proceeding is covered
by insurance) or by the Company's attorneys. The foregoing notwithstanding, upon
a showing that the Indemnitee reasonably requires additional representation,
such Indemnitee may engage its own attorneys to defend such Indemnitee, or to
assist such Indemnitee in such Indemnitee's defense of such claim, action or
proceeding, as the case may be, and the Company shall pay the reasonable fees
and disbursements of such attorneys of such Indemnitee.
10.2 Insurance.
10.2.1 Specifications. Prior to the execution of this
Agreement, the Company has, at its own cost and expense, obtained and furnished
to DTE, with a copy to the Comptroller, a liability or umbrella insurance policy
taking effect no later than the Effective Date, insuring the Company and the
City, its officers, agents, servants, employees, attorneys, consultants and
independent contractors against each and every form of liability referred to in
Section 10.1 herein, in the minimum combined amount of fifty million Dollars
($50,000,000), covering bodily injury, including death, personal injury and
property damage. Such policy or policies have been issued by companies duly
licensed to do business in the State of New York and acceptable to the
Comptroller, carrying a rating by Best's of not less than A. The foregoing
minimum coverage shall not prohibit the Company from obtaining a liability
insurance policy or policies with coverage in excess of such minimum, provided
that the City shall be named as an additional insured to the full extent of any
limitation contained in any such policy or policies obtained by the Company.
10.2.2 Maintenance. (a) The Company shall continuously
maintain one or more liability insurance policies meeting the requirements in
Section 10.2.1 hereof throughout the Term and thereafter until completion of
removal of the System over, under or on the Inalienable Property of the City to
the extent such removal is required pursuant to this Agreement.
(b) Each such liability insurance policy shall contain
the following endorsement: "It is hereby understood and agreed that this policy
may not be canceled nor the intention not to renew be stated until ninety (90)
days after receipt by the City, by registered mail, of a written notice of such
intent to cancel or not to renew." Within sixty (60) days after receipt by the
City of any said notice, and in no event later than thirty (30) days prior to
any said cancellation, the Company shall obtain and furnish to DTE, with a copy
to the Comptroller, replacement insurance
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policies in a form reasonably acceptable to DTE and the Comptroller together
with evidence demonstrating that the premiums for such insurance have been paid.
10.2.3 Adjusted Insurance Coverage. The Company agrees to
adjust the minimum coverage of the liability insurance policy or policies
required by Section 10.2.1 within three (3) months of notice from the City that
the City has reasonably determined that additional amounts or types of insurance
are being commonly carried with respect to systems of a size and nature similar
to the System or other circumstances have arisen which make it reasonably
prudent to obtain such additional amounts or types of insurance.
10.2.4 Liability Not Limited. The liability of the Company and
any Affiliated Person (not including a limited partner or an individual
shareholder) to the City or any Person for any of the matters which are the
subject of the liability insurance policy or policies required by this Section
10.2 shall not be limited by said insurance policy or policies nor by the
recovery of any amounts thereunder; provided, however, that the City shall in no
case be entitled to duplicative recoveries from different sources.
SECTION 11 -- SPECIFIC RIGHTS AND REMEDIES
11.1 Non Exclusive. The Company agrees that the City shall have the
specific rights and remedies set forth in this Section 11. These rights and
remedies are in addition to and cumulative of any and all other rights or
remedies, existing or implied, now or hereafter available to the City at law or
in equity in order to enforce the provisions of this Agreement. Such rights and
remedies shall not be exclusive, but each and every right and remedy
specifically provided or otherwise existing or given may be exercised from time
to time and as often and in such order as may be deemed expedient by the City,
except as provided herein. The exercise of one or more rights or remedies shall
not be deemed a waiver of the right to exercise at the same time or thereafter
any other right or remedy nor shall any such delay or omission be construed to
be a waiver of or acquiescence to any default. The exercise of any such right or
remedy by the City shall not release the Company from its obligations or any
liability under this Agreement.
11.2 Default.
11.2.1 Events of Default. In addition to any other Event of
Default specified herein, any of the following shall constitute an Event of
Default:
(a) any breach of a provision of the Agreement requiring
the Company (i) to replenish the Performance Bond/Security Fund
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(Section 5.8.6); (ii) to maintain the Performance Bond/Security Fund (Section
5.8); (iii) to make any payments to the City; (iv) to maintain a liability
insurance policy (Section 10.2); or (v) to provide or furnish information to the
City, that is not cured within thirty (30) days after notice pursuant to Section
11.2.2;
(b) any substantial breach of a material provision of
this Agreement by the Company that is not cured within thirty (30) days after
notice pursuant to Section 11.2.2; or
(c) any persistent failure by the Company to comply with
any of the provisions, terms or conditions of this Agreement or with any rules,
regulations, orders or other directives of the City after having received notice
of a failure to comply.
11.2.2 Cure Procedures. (a) The Commissioner shall notify the
Company, in writing, of any breach under this Agreement, in accordance with
Section 13.5 hereof. The notice shall specify the alleged breach(es) with
reasonable particularity. The Company shall either (i) within the number of days
set forth in the applicable paragraph of Section 11.2.1 hereof, or such longer
period of time as the Commissioner may specify in such notice, cure such alleged
breach(es); or (ii) in a written response submitted to the Commissioner within
fifteen (15) days after the notice of breach, present facts and arguments in
refutation or excuse of such alleged failure. The submission of such a response
shall toll the running of the applicable cure period as provided in Section
11.2.1 hereof. Notwithstanding the preceding, no Event of Default shall exist if
a breach is curable but work to be performed, acts to be done, or conditions to
be removed which cannot, by their nature, reasonably be performed, done or
removed within the cure period provided, so long as the Company shall have
commenced curing the same within the cure period provided and shall diligently
and continuously prosecute the same promptly to completion.
(b) If the Company fails to cure the breach within the
applicable cure period, and fails to submit a response to the Commissioner
pursuant to subparagraph (a) hereof within the period provided herein for
submitting such response, an Event of Default will be deemed to have occurred.
(c) If, after the Company makes a response to the
Commissioner, the Commissioner determines, in his or her reasonable discretion,
that a breach under this Agreement has occurred, the Company shall cure such
breach within the balance of the time period to cure that remained when the
submission was made. If the Company is not able to cure within the remaining
time, the breach will be deemed to be an Event of Default, provided, however,
that no Event of Default shall exist if a breach is curable but work to be
performed, acts to be done, or conditions to be removed which cannot, by their
nature, reasonably be performed, done
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33
or removed within the cure period remaining, so long as the Company shall have
commenced curing the same within the cure period provided and shall diligently
and continuously prosecute the same promptly to completion.
11.2.3 Remedies of the City. (a) Upon an Event of Default, DTE
may:
(i) cause a withdrawal from the Performance
Bond/Security Fund for any specified amount due the City under this
Agreement;
(ii) assess money damages from the Company as
compensation for such Event of Default;
(iii) revoke the franchise granted pursuant to this
Agreement by termination of this Agreement;
(iv) accelerate the expiration of the Term by decreasing
the term of the franchise provided in Section 2.1 hereof, provided that
the remaining term of the franchise as accelerated pursuant to this
Section 11.2.3(a)(iv) shall not be less than twelve (12) months;
(v) restrain by injunction, the default or reasonably
anticipated default by the Company of any provision of this Agreement; and
(vi) invoke any other available remedy that would be
permitted by law.
(b) DTE shall give the Company when it determines to pursue
one or more remedies, but nothing herein shall prevent DTE from electing more
than on remedy, simultaneously or consecutively, for any default.
11.3 Termination.
11.3.1 Termination Events. (a) The occurrence of any of the
following shall result in termination of the Agreement:
(i) the occurrence of any event relating to the
financial status of the Company which may reasonably lead to the
foreclosure or other judicial or nonjudicial sale of all or any material
part of the System, and the Company fails to demonstrate to the reasonable
satisfaction of the Commissioner within thirty (30) days after notice that
such event will not lead to such foreclosure or other judicial or
nonjudicial sale;
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34
(ii) the condemnation by public authority, other than
the City, or sale or dedication under threat or in lieu of condemnation of
all or substantially all of the System, the effect of which would
materially frustrate or impede the ability of the Company to carry out its
obligations and the purposes of this Agreement and the Company fails to
demonstrate to the reasonable satisfaction of the Commissioner within
thirty (30) days after notice that such condemnation, sale or dedication
would not materially frustrate or impede such ability of the Company;
(iii) if: (A) the Company shall make an assignment of
the Company or the System for the benefit of creditors, shall become and
be adjudicated insolvent, shall petition or apply to any tribunal for, or
consent to, the appointment of, or taking possession by, a receiver,
custodian, liquidator or trustee or similar official pursuant to state or
local laws, ordinances or regulations of or for it or any substantial part
of its property or assets, including all or any part of the System; (B) a
writ or warranty of attachment, execution, distraint, levy, possession or
any similar process shall be issued by any tribunal against all or any
material part of the Company's property or assets; (C) any creditor of the
Company petitions or applies to any tribunal for the appointment of, or
taking possession by, a trustee, receiver, custodian, liquidator or
similar official for the Company or of any material parts of the property
or assets of the Company under the law of any jurisdiction, whether now or
hereinafter in effect, and a final order, judgment or decree is entered
appointing any such trustee, receiver, custodian, liquidator or similar
official, or approving the petition in any such proceedings; or (D) any
final order, judgment or decree is entered in any proceedings against the
Company decreeing the voluntary or involuntary dissolution of the Company;
or
(iv) if there shall occur any denial, forfeiture or
revocation by any federal, state or local governmental authority having
regulatory jurisdiction over the Company of any authorization required by
law or the expiration without renewal of any such authorization, and such
events, either individually or in the aggregate, materially jeopardize the
System or its operation, and the Company fails to take steps to obtain or
restore such authorization within thirty (30) days after notice.
(b) In addition, an Event of Default under Section 11.2
herein may result in termination of the Agreement.
11.3.2 Rights Upon Termination. In the event of any
termination of this Agreement, whether pursuant to Section 11.3.1 hereof, by the
expiration of the Term or by revocation of the franchise by DTE, the Company, at
the City's election, shall (a) sell to the City or to the City's designee the
portions of the
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35
System on, over or under the Inalienable Property of the City and all equipment
necessary for the functioning of such portions of the System; and/or (b) remove
the System, or portions of the System, installed on, over or under the
Inalienable Property of the City at the Company's own cost and expense, pursuant
to Section 11.4 hereof.
11.3.3 Price. (a) The price to be paid to the Company upon an
acquisition pursuant to Section 11.3.2 herein shall be fair value (or, in case
of termination by revocation, an equitable price, determined with due regard to
the injury to the City and its residents) with no value allocable to the
franchise itself, which price shall be the fair value as provided in Section
363(h)(5) of the City Charter, as may be amended, or under any successor
provision. Subject to the limitations found in the next sentence, to the extent
the City effects an acquisition pursuant to Section 11.3.2 herein and
subsequently sells that portion of the System acquired to a third party, and the
amount received by the City from such sale exceeds the price paid by the City to
the Company pursuant to this Section 11.3.3, the City shall pay such excess
amount to the Company after deducting all reasonable expenses incurred by the
City in connection with such acquisition and sale. The preceding sentence shall
apply only in cases where the Agreement has terminated by reason of the
expiration of the full Term or by reason of the occurrence of an event in
Section 11.3.1(a) hereof, and shall not apply in any case where the Agreement
has been terminated for cause. In cases where the Agreement has been terminated
for cause and the City effects an acquisition or transfer of the System for any
reason, and the party acquiring the System acquires it directly from the
Company, then the City shall be entitled to receive from such party any amount
in excess of the price which the City could have received if it had purchased
the System from the Company and subsequently sold the System to such third
party.
(b) The date of valuation for purposes of Section 11.3.2
hereof shall be the date of termination of the Agreement. For the purpose of
determining such valuation, the parties shall select a mutually agreeable
independent appraiser to compute the purchase price in accordance with industry
practice and the aforementioned standards. If they cannot agree on an appraiser
in ten (10) days, the parties will seek an appraiser from the American
Arbitration Association. The appraiser shall be instructed to make the appraisal
as expeditiously as possible, but in no more than sixty (60) days and shall
submit to both parties a written appraisal. The appraiser shall be afforded
access to the Company's books and records, as necessary to make the appraisal.
Notwithstanding the provisions of Section 7.2.2 hereof, the parties shall share
equally the costs and expenses of the appraiser.
(c) The City will notify the Company, within thirty (30)
days after receipt of the appraisal, of its election of rights pursuant to
Section 11.3.2 hereof. If it elects to make the purchase permitted under Section
11.3.2 hereof, it will purchase the same at a closing to occur within a
reasonable time after its election.
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36
(d) The Company agrees at the request of the City, (i)
to operate the System on behalf of the City pursuant to the provisions of this
Agreement and such additional terms and conditions as are equitable to the City
and the Company for a period of up to four (4) months after the termination of
this Agreement, until the City either elects not to purchase any portion of the
System, or closes on such a purchase, or (ii) to cease all construction and
operational activities in a prompt and workmanlike manner.
11.3.4 Company's Obligations. In the event of any acquisition
of the System by the City or the City's designee pursuant to Section 11.3.2
hereof, the Company shall:
(a) cooperate with the City to effectuate an orderly
transfer of all records and information concerning the System to the City;
(b) promptly execute all appropriate documents to
transfer to the City, subject to any liabilities, title to the System as well as
all contracts, leases, licenses, permits, rights of way, and any other rights,
contracts or understandings necessary to maintain and operate the System, as
appropriate; provided, that such transfers shall be made subject to the rights,
under Article 9 of the Uniform Commercial Code as in effect in the State of New
York and, to the extent that any collateral consists of real property, under the
New York Real Property Law, of banking or any other lending institutions which
are secured creditors or mortgagees of the Company at the time of such
transfers; and provided, that, with respect to such creditors or mortgagees, the
City shall have no obligation following said transfers to pay, pledge, or
otherwise commit in any way any general or any other revenues or funds of the
City, other than the gross operating revenues received by the City from its
operation of the System, in order to repay any amounts outstanding on any debts
secured by the System which remain owing to such creditors or mortgagees; and
provided, finally, that the total of such payments by the City to such creditors
and mortgagees, from the gross operating revenues received by the City from its
operation of the System, shall in no event exceed the lesser of: (1) the fair
market value of the System on the date of the transfer of title to the City or
(2) the outstanding debt owed to such creditors and mortgagees on said date.
Nothing in this Section 11.3 shall be construed to limit the rights of any such
secured creditors to exercise its or their rights as secured creditors or
mortgagees at any time prior to the payment of all amounts due pursuant to the
applicable debt instruments; and
(c) promptly supply the Commissioner with all necessary
records (1) to reflect the City's ownership of the System; and (2) to operate
and maintain the System including, without limitation, all Customer records and
plant and equipment layout documents.
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11.4 Removal.
11.4.1 Discretion of DTE. Upon any termination of Service,
DTE, in its sole discretion, may, but shall not be obligated to, direct the
Company to remove, at the Company's sole cost and expense, all, or any portion
designated by DTE, of the System installed by the Company from the Inalienable
Property of the City in accordance with all applicable requirements of the City
and subject to the following:
(a) this provision shall not apply to buried portions of
the System which, in the opinion of DTE, cannot be removed;
(b) in removing the System, or part thereof, the Company
shall refill and compact, at its own cost and expense, any excavation that shall
be made by it and shall leave, in all material aspects, all Inalienable Property
and other property in as good condition as that prevailing prior to the
Company's removal of the System from Inalienable Property of the City and
without affecting, altering or disturbing in any way any electric, telephone or
other cables, wires, structures or attachments;
(c) the City shall have the right to inspect and approve
the condition of such Inalienable Property after removal and, to the extent that
the City determines that said Inalienable Property and other property have not
been materially as good condition, as that prevailing prior to the Company's
removal of the System, the Company shall be liable to the City for the cost of
restoring the Inalienable Property and other property to said condition;
(d) the Performance Bond/Security Fund, liability
insurance and indemnity provisions of this Agreement shall remain in full force
and effect during the entire period, after removal and associated repair of all
Inalienable Property of the City, and for not less than one hundred twenty (120)
days thereafter; and
(e) removal shall be commenced within thirty (30) days
of the removal order by DTE and shall be substantially completed within twelve
(12) months thereafter including all reasonably associated repair of the
Inalienable Property of the City.
11.4.2 Failure to Commence Removal. If, in the reasonable
judgment of the Commissioner, the Company fails to commence removal of the
System as designated by DTE, within thirty (30) days after DTE's removal order,
or if the Company fails to substantially complete such removal, including all
associated repair of the Inalienable Property of the City, within twelve (12)
months thereafter then, to the extent not inconsistent with applicable law, the
City shall have the right to:
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(a) declare that all rights, title and interest to the
System belong to the City with all rights of ownership, including, but not
limited to the right to connect and use the System or to effect a transfer of
all right, title and interest in the System to another Person for operation; or
(b) authorize removal of the System installed by the
Company on, over or under the Inalienable Property of the City at the Company's
cost and expense, by another Person; and
(c) to the extent consistent with applicable law, any
portion of the Company's System on, over or under the Inalienable Property of
the City designated by DTE for removal and not timely removed by the Company
shall belong to and become the property of the City without payment to the
Company notwithstanding the provisions of Section 11.3.2 hereof, and the Company
shall execute and deliver such documents, as the Commissioner shall request, in
form and substance acceptable to the Commissioner, to evidence such ownership by
the City.
11.4.3 No Condemnation. None of the declaration, connection,
use, transfer or other actions by the City, or the Commissioner under Section
11.4.2 shall constitute a condemnation by the City or a sale or dedication under
threat or in lieu of condemnation.
11.5 Return of Performance Bond/Security Fund. Upon the later of the
date one hundred and twenty (120) days after the termination of this Agreement
for any reason or the date of the completion of removal of the System from and
associated repair of the Inalienable Property of the City pursuant to Section
11.4.1 hereof, the Company shall be entitled to the return of the Performance
Bond/Security Fund deposited pursuant to Section 5.8 hereof, or such portion
thereof as remains on deposit with the Comptroller at said termination, provided
that all offsets necessary (a) to compensate the City pursuant to Sections 5.8.2
and/or 5.8.3 hereof, (b) to cover any costs, loss or damage incurred by the City
as a result of any Event of Default, in the event of termination of this
Agreement by the City pursuant to Section 11.3 hereof, and (c) to reimburse the
City for the cost of removal of the System from the Inalienable Property of the
City pursuant to Section 11.4.2 hereof have been taken by the City.
11.6 Other provisions. The City and the Company shall negotiate in
good faith all other terms and conditions of any such acquisition or transfer,
except that the Company hereby waives its rights, if any, to relocation costs
that may be provided by law and except that, in the event of any acquisition of
the System by the City: (i) the City shall not be required to assume any of the
obligations of any collective bargaining agreements or any other employment
contracts held by the Company or any other obligations of the Company or its
officers, employees, or agents, including, without limitation, any pension or
other retirement, or any insurance obligations; and
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(ii) the City may lease, sell, operate, or otherwise dispose of all or any part
of the System in any manner.
SECTION 12 -- SUBSEQUENT ACTION
12.1 Compensation. In the event that, after the Effective Date any
court, agency, commission, legislative body, or other authority of competent
jurisdiction takes any action or enters any judgment which has a materially
adverse effect, with respect to the City or the Company, on the compensation or
other payments to be made by the Company pursuant to Section 7 of this
Agreement, then the Company and DTE shall enter into negotiations to amend this
Agreement in a manner not inconsistent with any such action or judgment so as to
establish a fair and equitable relationship between the parties. In the event
that either party fails to negotiate in good faith to produce an agreement which
is reasonably acceptable to both parties within a reasonable period, then either
party shall have the right, by notice to the other, to accelerate the term of
this Agreement and the franchise granted hereunder such that the term and the
franchise shall terminate on the date which is one half of the number of days
between the date of such notice and January l, 2009, but in no event shall the
City be permitted to reduce the Term of this franchise by virtue of this Section
12.1 such that the term of this franchise is less than 10 years.
12.2 Procedure for Subsequent Invalidity.
12.2.1 Declaration of Invalidity or Injunction. Except as
provided in Section 12.1 hereof, in the event that, after the Effective Date,
any court, agency, commission, legislative body, or other authority of competent
jurisdiction:
(a) declare this Agreement invalid, in whole or in part,
or
(b) requires the City or the Company either to: (i)
perform any act which is inconsistent with any provision of this Agreement or
(ii) cease performing any act required by any provision of this Agreement, then
the Company or the City, as the case may be, shall promptly notify the other
party in writing of such fact.
12.2.2 Continued Compliance. After the occurrence of the
events described in Section 12.2.1 hereof, the Company and the City shall
continue to comply with all provisions of this Agreement, including the affected
provision, until the validity of the declaration or requirement has been finally
adjudicated or a court orders the Company or the City to comply with such
declaration or order, provided
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that either party may comply with any court order which is not stayed during the
pendency of any appeal leading to said final adjudication.
12.2.3 Negotiations to Amend Agreement. Except as provided in
Section 12.1 hereof, to the extent that any statute, rule, regulation, ordinance
or any other law is enacted, adopted, repealed, amended, modified, changed or
interpreted in any way during the term of this Agreement so as to (a) declare
the Agreement invalid, in whole or in part, or (b) require the Company or City
either to: (i) perform any act which is inconsistent with any provision of this
Agreement, or (ii) cease performing any act required by any provision of this
Agreement, the Company and City shall enter into good faith negotiations so as
to modify this Agreement and/or regulate the System, as applicable, to reflect
such enactment, adoption, repeal, amendment, modification, change or
interpretation and the Company agrees to comply with any such modifications or
regulations arising out of such negotiations. In the event that either party
fails to negotiate in good faith to produce an agreement which is reasonably
acceptable to both parties within a reasonable period, then either party shall
have the right, by notice to the other, to accelerate the term of this Agreement
and the franchise granted hereunder such that the term and the franchise shall
terminate on the date which is one half of the number of days between the date
of such notice and January 1, 2009, but in no event shall the City be permitted
to reduce the Term of this franchise by virtue of this Section 12.2.3 such that
the Term of this franchise is less than 10 years.
SECTION 13 -- MISCELLANEOUS
13.1 Appendices. The Appendices to this Agreement, attached hereto,
and all portions thereof and exhibits thereto, are, except as otherwise
specified in said Appendices, incorporated herein by reference and expressly
made a part of this Agreement. The procedures for approval of any subsequent
amendment or modification to said Appendices shall be the same as those
applicable to any amendment or modification hereof.
13.2 Action Taken by City. Any action to be taken by DTE pursuant to
this Agreement shall be taken in accordance with the applicable provisions of
the City Charter as said Charter may be amended or modified throughout the Term.
Whenever, pursuant to the provisions of this Agreement, the City, the Company,
or any other Person is required or permitted to take any action, including,
without limitation, the making of any request or the granting of any consent,
approval, or authorization, the propriety of said action shall be measured
against the standard of reasonableness such that each such action shall be
undertaken in a reasonable manner, unless this Agreement authorizes the City,
the Company, or other Person to take such action in its sole discretion.
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13.3 Entire Agreement. This Agreement, including all Appendices
hereto, embodies the entire understanding and agreement of the City and the
Company with respect to the subject matter hereof and merges and supersedes all
prior representations, agreements and understandings, whether oral or written,
between the City and the Company with respect to the subject matter hereof,
including, without limitation, all prior drafts of this Agreement and any
Appendix to this Agreement and any and all written or oral statements or
representations by any official, employee, agents, attorney, consultant or
independent contractor of the City or the Company.
13.4 Delays and Failures Beyond Control of Company. Notwith standing
any other provision of this Agreement, the Company shall not be liable for delay
in the performance of or failure to perform, in whole or in part, its
obligations pursuant to this Agreement due to strike, war or act of war (whether
an actual declaration of war is made or not), insurrection, riot, act of public
enemy, accident, fire, flood or other act of God, technical failure where the
Company has exercised all due care in the prevention thereof, or other causes or
events, to the extent that such any such causes or events are beyond the control
of the Company. In the event that any such delay in performance or failure to
perform affects only part of the Company's capacity to perform, the Company
shall perform to the maximum extent it is able to do so and shall take all steps
within its power to correct said cause(s). The Company agrees that in correcting
said cause(s), it shall take all reasonable steps to do so in as expeditious a
manner as possible. The Company shall notify DTE in writing of the occurrence of
an event covered by this Section 13.4 within five (5) business days of the date
upon which the Company learns or should have learned of its occurrence.
13.5 Notices. Every notice, order, petition, document, or other
direction or communication to be served upon the City or the Company shall be in
writing and shall be sufficiently given if sent by registered or certified mail,
return receipt requested. Every such communication to the Company shall be sent
to its office located at 150 50 14th Road, Whitestone, New York 11357 or to such
other location in New York City as the Company may designate, from time to time.
Every communication from the Company shall be sent to the individual, agency or
department designated in the applicable section of this Agreement, unless it is
to "the City," in which case such communication shall be sent to the
Commissioner of DTE at 75 Park Place, 6th Floor, New York, New York 10007. A
required copy of each communication from the Company shall be sent to
Corporation Counsel, New York City Law Department, 100 Church Street, New York,
New York 10037, Attention: Chief, Economic Development Division. Except as
otherwise provided herein, the mailing of such notice, direction, or order shall
be equivalent to direct personal notice and shall be deemed to have been given
when mailed. Any notice the Commissioner is required to give to the Company
pursuant to Section 11.2 hereof for which a cure period is ten (10) days at less
must be served by personal delivery, overnight mail service or facsimile
transmission.
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13.6 General Representations, Warranties and Covenants of the
Company. In addition to the representations warranties, and covenants of the
Company to the City set forth elsewhere herein, the Company represents and
warrants to the City and covenants and agrees (which representations,
warranties, covenants and agreements shall not be affected or waived by any
inspection or examination made by or on behalf of the City), that, as of the
Effective Date:
13.6.1 Organization, Standing and Power. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and is duly authorized to do business in the State of
New York and in the City. The Company has all requisite power and authority to
own or lease its properties and assets, to conduct its businesses as currently
conducted and to execute, deliver and perform this Agreement and all other
agreements entered into or delivered in connection with or as contemplated
hereby. Certified copies of the Company's organizational and governing
documents, as amended to date, have been delivered to the Commissioner, and are
complete and correct. The Company is qualified to do business and is in good
standing in the State of New York.
13.6.2 Authorization; Non Contravention. The execution,
delivery and performance of this Agreement any ail other agreements, if any,
entered into in connection with the transactions contemplated hereby have been
duly, legally and validly authorized by all necessary action on the part of the
Company and the Company has furnished the City with a certified copy of
authorizations for the execution and delivery of this Agreement. This Agreement
and all other agreements, if any, entered into in connection with the
transactions contemplated hereby have been duly executed and delivered by the
Company and constitute (or upon execution and delivery will constitute) the
valid and binding obligations of the Company, and are enforceable (or upon
execution and delivery will be enforceable) in accordance with their respective
terms. The Company has obtained the requisite authority to authorize, execute
and deliver this Agreement and to consummate the transactions contemplated
hereby and no other proceedings or other actions are necessary on the part of
the Company to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. Neither the execution and
delivery of this Agreement by the Company nor the performance of its obligations
contemplated hereby will:
(a) conflict with, result in a material breach of or
constitute a material default under (or with notice or lapse of time or both
result in a material breach of or constitute a material default under) (i) any
governing document of the Company or to the Company's knowledge, any agreement
among the owners of the Company, or (ii) any statute, regulation, agreement,
judgment, decree, court or administrative order or process or any commitment to
which it (or any of its properties or assets) is subject or bound;
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(b) result in the creation of, or give any party the
right to create, any material lien, charge, encumbrance or security interest
upon the property and assets of the Company; or
(c) terminate, modify or accelerate, or give any third
party the right to terminate, modify or accelerate any provision or term of any
contract, arrangement, agreement, license agreement or commitments, except for
any event specified in (a) or (b) above which individually or in the aggregate
would not have a material and adverse effect on the business, properties or
financial condition of the Company or the System.
13.6.3 Consent. No consent, approval or authorization of, or
declaration or filing with, any public, governmental or other authority is
required for the valid execution and delivery of this Agreement or any other
agreement or instrument, if any, executed or delivered in connection herewith.
13.6.4 Compliance with Law. The Company certifies that, to the
best of its knowledge after diligent inquiry, it is in compliance with all laws,
ordinances, decrees and governmental rules and regulations applicable to the
System and has filed, has obtained or will file for all government licenses,
permits, and authorizations necessary for the operation, marketing and
maintenance of the System.
13.6.5 Litigation; Investigations. To the best of of the
Company's knowledge after diligent inquiry, except to the extent otherwise
disclosed to the City: (a) there is no civil, criminal, administrative,
arbitration or other proceeding, investigation or claim (including, without
limitation, proceeding with respect to unfair labor practice matters or labor
organization activity matters), pending or threatened against the Company or any
Affiliated Person, at law or in equity, or before any foreign, federal, state,
municipal or other governmental department commission, board, bureau, agency or
instrumentality (including without limitation any matter involving the granting
of a temporary or permanent injunction against the Company or any Affiliated
Person) that is reasonably likely to have a material adverse effect on the
business, operation, properties, assets or financial condition of the Company or
the System, or which questions the validity or prospective validity of this
Agreement, or of any essential element upon which this Agreement depends, or of
any action to be taken by the Company or any Affiliated Person; (b) no
Investigation or review by any governmental entity with respect to the Company
or any Affiliated Person, relating to the System or any of the transactions
contemplated hereby is pending or is threatened against the Company or any
Affiliated Person, nor has any governmental entity indicated to the Company or
any Affiliated Person an intention to conduct the same; and (c) neither the
Company nor any Affiliated Person is subject to any outstanding order, writ,
injunction or decree which materially and adversely affects the business,
operations, properties, assets or financial condition of the System.
<PAGE>
44
13.6.6 Fees. The Company has paid all franchise, license or
other fees and charges which have become due pursuant to any franchise or permit
to which it is a party and has made adequate provisions for any such fees and
charges which have accrued, except where contested in good faith and by
appropriate proceedings.
13.6.7 Criminal Acts. Neither the Company, nor any Person
holding a Controlling Interest in the Company, nor any director or officer of
the Company nor any employee or agent of the Company nor any Controlling Person,
acting pursuant to the express direction, or with the actual consent of the
foregoing has been convicted (where such conviction is a final, nonappealable
judgment) or has entered a guilty plea with respect to: (A) any criminal
offense, excluding Class B misdemeanors, violations, and traffic infractions as
designated in the New York State Penal Law or their equivalents in other
jurisdictions; or (B) any criminal offense, including, without limitation,
bribery or fraud, arising out of or in connection with (i) this Agreement, (ii)
the award of the franchise granted pursuant to this Agreement, or (iii) any act
to be taken following the Effective Date, pursuant to this Agreement by the
City, its officers employees, or agents.
13.6.8 Misrepresentation. No material misrepresentation has
been made, either oral or written, intentionally or negligently, by or on behalf
of the Company in this Agreement, in connection with any submission to DTE or
the Commissioner, including the Proposal, in connection with the negotiation of
this Agreements for the purposes of this Section, Proposal means the responses
to the City's Request for Proposals for Local High CapaCity Telecommunications
Services submitted to the City by the Company, and any amendments thereto.
13.7 Additional Covenants. Until the termination of this Agreement
and the satisfaction in full by the Company of its obligations under this
Agreement, in consideration of the franchise granted herein, the Company agrees
that it will comply with the following affirmative covenants, unless the City
otherwise consents in writing:
13.7.1 Compliance with laws; Licenses and Permits. The Company
shall comply with: (a) all applicable laws, rules, regulations, orders, writs,
decrees and judgments (including, but not limited to, those of the PSC and FCC
and any other federal or state agency or authority of competent jurisdiction)
affecting this Agreement, the franchise, and the System; and (b) all local laws
and all rules, regulations, orders, or other directives of the City, DTE, and
the Commissioner issued pursuant to and in accordance with this Agreement or
otherwise.
The Company shall have the sole responsibility for obtaining or
causing to be obtained all permits, licenses and other forms of approval or
authorization necessary to construct, operate, maintain, upgrade, repair or
remove the System, or
<PAGE>
45
any part thereof. The Company will, prior to any construction, operation, mainte
nance, upgrade, repair or removal of the System, secure all necessary permits,
licenses and authorizations in connection with the construction, operation,
maintenance, upgrade, repair or removal of the System, or any part thereof, and
will file all required registrations, applications, reports and other documents
with the FCC, the PSC and other entities exercising jurisdiction over the
provision of telecommunications services or the construction of delivery systems
therefor, except those which cannot be obtained prior to the date hereof, which
the Company will promptly seek to obtain. The Company will promptly seek to
obtain all leases, easements and equipment rental or other agreements necessary
for the maintenance and operation of the System.
The Company shall not permit to occur, or shall promptly take
corrective action if there shall occur, any event which (a) could result in the
revocation or termination of any such license or authorization, (b) could
materially and adversely affect any rights of the Company, or (c) permits or,
after notice or lapse of time or both, would permit, revocation or termination
of any such license or which materially and adversely affects or reasonably can
be expected to materially and adversely affect the System or any part thereof.
13.7.2 Criminal Acts. The Company shall not permit any of the
convictions or guilty pleas of the types listed in Section 13.6.7 to occur
during the term of this Agreement, arising out of or in connection with (i) this
Agreement, (ii) the award of the franchise granted pursuant to this Agreement,
or (iii) any act to be taken following the Effective Date, pursuant to this
Agreement by the City, its officers, employees, or agents, and it shall be an
Event of Default if any such convictions or guilty pleas shall occur during the
term of this Agreement, provided that the City's right to take enforcement
action under this Agreement in the event of said convictions or guilty pleas
shall arise only with respect to any of the foregoing convictions or guilty
pleas of the Company itself or, with respect to any of the foregoing convictions
or guilty pleas of any of the other Persons specified in Section 13.6.7, if the
Company shall have failed to disassociate itself from, or terminate the
employment of, said Person or Persons within thirty (30) days after the
Commissioner orders such disassociation.
13.7.3 Maintain Existence. The Company will preserve and
maintain its existence, its business, and all of its rights and privileges
necessary or desirable in the normal conduct of said business in the District,
unless any such change shall not have a material and adverse impact on the
Company's ability to construct, operate, maintain and upgrade the System as
provided herein or fulfill the obligations of the Company hereunder. The Company
shall maintain its good standing in its state of organization and continue to
qualify to do business and remain in good standing in the State of New York. The
Company shall conduct business in accordance with its organizational and
governing documents, and shall comply with the material terms of
<PAGE>
46
all mortgages, indentures, leases, contracts and other agreements and
instruments binding upon it except where contested in good faith and by
appropriate proceedings.
13.7.4 Condition of System. All of the properties, assets and
equipment used as part of the System will be maintained in good repair, working
order and good condition.
13.8 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted transferees and assigns. All of the provisions of this Agreement shall
apply to the Company, its successors, and assigns.
13.9 No Waiver; Cumulative Remedies. No failure on the part of the
City to exercise, and no delay in exercising, any right hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such right
preclude any other right, except as provided herein, subject to the conditions
and limitations established in this Agreement. The rights and remedies provided
herein are cumulative and not exclusive of any remedies provided by law, and
nothing contained in this Agreement shall impair any of the rights of the City
under applicable law, subject in each case to the terms and conditions of this
Agreement. A waiver of any right or remedy by the City at any one time shall not
affect the exercise of such right or remedy or any other right or other remedy
by the City at any other time. In order for any waiver of the City to be
effective, it must be in writing. The failure of the City to take any action
regarding a default or an Event of Default by the Company shall not be deemed or
construed to constitute a waiver of or otherwise affect the right of the City to
take any action permitted by this Agreement at any other time regarding such
default or Event of Default which has not been cured, or with respect to any
other default or Event of Default by the Company.
13.10 No Opposition. The Company agrees that it shall not oppose the
intervention by the City in any suit, action, or proceeding involving the
Company with respect to the System or its construction, operation, maintenance,
repair or removal, or to any provision of this Agreement. The Company agrees
that it will not, at any time, set up against the City any claim nor institute
against the City any proceeding alleging that, pursuant to any law, rule or
regulation in effect on the Effective Date, a condition or term of this
Agreement is unreasonable, arbitrary, void, or otherwise unenforceable, or that
the City had no power or authority to make such term or condition. By execution
of this Agreement, the Company accepts the validity of the terms and conditions
of this Agreement in their entirety and hereby waives and relinquishes, to the
maximum extent permitted by applicable law, any and all rights it has, in law or
in equity, to assert in any manner at any time or in any forum that this
Agreement, the franchise granted pursuant to this Agreement, the terms and
conditions of this Agreement or the processes and procedures pursuant to which
this Agreement was
<PAGE>
47
entered into and the franchise was granted are not consistent with applicable
law in effect on the Effective Date.
13.11 Partial Invalidity. If any section, subsection, sentences
clause, phrase, or other portion of this Agreement is, for any reason, declared
invalid, in whole or in part, by any court, agency, commission, legislative
body, or other authority of competent jurisdiction, such portion shall be deemed
a separate, distinct, and independent portion. Except as provided in Section 12
hereof, such declaration shall not affect the validity of the remaining portions
hereof, which other portions shall continue in full force and effect.
13.12 Headings. The headings contained in this Agreement are to
facilitate reference only, do not form a part of this Agreement, and shall not
in any way affect the construction or interpretation hereof. Terms such as
"hereby," "herein," "hereof," "hereinafter," "hereunder," and "hereto" refer to
this Agreement as a whole and not to the particular sentence or paragraph where
they appear, unless the context otherwise requires. The term "may" is
permissive; the terms "shall" and "will"" are mandatory, not merely directive.
All references to any gender shall be deemed to include both the male and the
female, and any reference by number shall be deemed to include both the singular
and the plural, as the context may require. Terms used in the plural include the
singular, and vice versa, unless the context otherwise requires.
13.13 No Agency. The Company shall conduct the work to be performed
pursuant to this Agreement as an independent contractor and not as an agent of
the City.
13.14 Governing Law. This Agreement shall be deemed to be executed
in the City of New York, State of New York, and shall be governed in all
respects, including validity, interpretation and effect, and construed in
accordance with the laws of the State of New York, as applicable to contracts
entered into and to be performed entirely within that State.
13.15 Survival of Representations and Warranties. All
representations and warranties contained in this Agreement shall survive the
Term.
13.16 Delegation of City Rights. The City reserves the right to
delegate and redelegate, from time to time and to the extent permitted by law,
any of its rights or obligations under this Agreement to any governmental body
or organization, or official of any other governmental body or organization, and
to revoke any such delegation or redelegation. Any such delegation or
redelegation by the City shall be effective upon written notice by the City to
the Company of such delegation or redelegation. Upon receipt of such notice by
the Company, the Company shall be bound by all terms and conditions of the
delegation or redelegation not in conflict with
<PAGE>
48
this Agreement. Any such delegation, revocation or redelegation, no matter how
often made, shall not be deemed an amendment to this Agreement or require the
Company's consent.
13.17 Claims Under Agreement. The City and the Company agree that,
except to the extent inconsistent with applicable law, any and all claims
asserted by or against the City arising under this Agreement or related thereto
shall be heard and determined either in a court of the United States located in
New York City ("Federal Court") or in a court of the State of New York located
in the City and County of New York ("New York State Court"). To effect this
Agreement and intent, the Company agrees that:
(a) If the City initiates any action against the Company
in Federal Court or in New York State Court, service of process may be made on
the Company as provided in Section 13.20 hereof;
(b) With respect to any action between the City and the
Company in New York State Court, the Company hereby expressly waives and
relinquishes any rights it might otherwise have (i) to move or dismiss on
grounds of forum non conveniens; (ii) to remove to Federal Court outside of the
City of New York; and (iii) to move for a change of venue to a court of the
State of New York outside New York County;
(c) With respect to any action between the City and the
Company in Federal Court, the Company expressly waives and relinquishes any
right it might otherwise have to move to transfer the action to a United States
Court outside the City of New York; and
(d) If the Company commences any action against the City
in a court located other than in the City and State of New York, then, upon
request of the City, the Company shall either consent to a transfer of the
action to a court of competent jurisdiction located in the City and State of New
York or, if the court where the action is initially brought will not or cannot
transfer the action, the Company shall consent to dismiss such action without
prejudice and may thereafter reinstitute the action in a court of competent
jurisdiction in the City of New York.
13.18 Modification. Except as otherwise provided in this Agreement,
any Appendix to this Agreement or applicable law, no provision of this Agreement
nor any Appendix to this Agreement shall be amended or otherwise modified, in
whole or in part, except by a written instrument, duly executed by the City and
the Company, and approved as required by applicable law.
<PAGE>
49
13.19 Maintain Office. The Company agrees to maintain an office in
the City of New York throughout the Term of this Agreement. Such office is
currently located at: 150 50 14th Road, Whitestone, New York 11357.
13.20 Service of Process. Process may be served either in person,
wherever the Company may be found, or by registered mail addressed to the
Company at its office in the City, or as set forth in Section 13.5 of this
Agreement, to such other location as the Company may provide to the City in
writing, or to the Secretary of State of the State of New York.
13.21 Compliance With Certain City Requirements. The Company agrees
to comply in all respects with the City's "MacBride Principles", a copy of which
is attached at Appendix B hereto. The Company agrees to comply in all respects
with the City's Vendor Information Exchange System, as the same may be amended
from time to time.
13.22 Matching Provision. (a) In the event that the City grants,
renews or renegotiates one or more franchises(s), agreement(s) or similar
authorization(s), for the provision of local, high capacity telecommunications
services or similar services in the District, and such franchises(s),
agreement(s) or authorization(s) contain provisions imposing lesser obligations
on the grantee(s) thereof than are imposed by the provisions of this Agreement,
the Company may, at any time after the date two years after the Effective Date,
petition the City for a modification of this Agreement.
(b) The City shall consider any petition for
modification pursuant to Section 13.22(a) hereof, and shall grant such
prospective modifications to the extent that the City reasonably determines that
such modification(s) must be granted in order to ensure fair and equal treatment
among the Company and other franchisees, provided that the Company establishes
by a preponderance of the evidence each of the following:
(i) that the Company is in compliance with this
Agreement and the other franchise(s), agreement(s) or authorization(s)
were not granted as a result of the Company's failure to comply, on a
timely basis, with the provisions of this Agreement;
(ii) that the other franchise(s), agreement(s) or
authorization(s) allow substantially similar services to those offered by
the Company under this Agreement;
(iii) that the obligations imposed on the Company under
this Agreement, taken as a whole, place the Company at a substantial
<PAGE>
50
competitive disadvantage in relation to the obligations imposed on the
grantee(s) holders of the other franchises(s), agreement(s) or
authorization(s), taken as a whole; and
(iv) that the reason for the City's imposition of or
failure to act with respect to a lesser obligation under the other
franchises(s), agreement(s) or authorization(s) is not due to the
differing nature of the City's regulatory authority with respect to the
other communications systems or justified by the relative benefits, in
whatever form, received by the City due to the operation of other
communications systems.
(c) For the purposes of this Section 13.22, in order to
promote fair comparison, to the extent possible all benefits and burdens shall
be quantified monetarily.
(d) Notwithstanding the two year waiting period in
Section 13.22(a) herein, if any of the other entities (specifically, Cablevision
LightPath, Inc., Time Warner AxS of New York City, L.P., and Urban
Communications Transport Corp.) for which the FCRC approved local high capacity
telecommunications service franchises on December 8, 1993 ultimately enter into
franchise agreements with the City that provide for compensation terms which
materially differ from those approved by the FCRC on December 8, 1993 in a
manner that makes them more favorable to such entities than those provided to
Company in this Agreement, then those more favorable compensation terms will
also be incorporated into this Agreement.
13.23 Joint Services. Notwithstanding any other provision of this
Agreement, in the event the Company provides any Telecommunications Services in
conjunction with, in a joint venture with or in any other arrangement with (the
"Joint Services") any one or more entities that the City has also authorized to
provide local high capacity telecommunications services (the "Other
Franchisees"):
(a) no revenues with respect to Telecommunications Services
being provided by such Other Franchisees, other than Joint Services, shall be
included in the Company's Gross Revenue, so long as the revenues distributed to
or otherwise retained by the Other Franchisees with respect to Joint Services
are subject to the terms of such other Franchisees' own agreements with the
City; and
(b) only those revenues received by the Company with respect
to Joint Services and not distributed to or otherwise retained by the Other
Franchisees shall be included in the Company's Gross Revenue, so long as the
revenues distributed to or otherwise retained by the Other Franchisees with
respect to
<PAGE>
51
Joint Services are subject to the terms of such other Franchisees' own
agreements with the City.
-- end of page --
[signatures appear on next page]
<PAGE>
52
IN WITNESS WHEREOF, the party of the first part, by its Mayor, duly
authorized by the Charter of the City of New York, has caused the corporate name
of said City to be hereunto signed and the corporate seal of said City to be
hereunto affixed and the party of the second part, by its officers thereunto
duly authorized, has caused its name to be hereunto signed and its seal to be
hereunto affixed as of the date and year first above written.
THE CITY OF NEW YORK
By:
--------------------------------
Mayor
--------------------------------
Date
Approved as to form:
- ------------------------------
Acting Corporation Counsel
NATIONAL FIBER NETWORK, INC.
By:
--------------------------------
Name:
Title:
(Seal)
Attest:
------------------------
(title)
<PAGE>
CITY OF NEW YORK )
) ss:
STATE OF NEW YORK )
I, ______________, a Notary Public in and for the State of New York,
residing therein, duly commissioned and sworn, do hereby certify that
___________________ Mayor of the City of New York, party to the above
instrument, personally appeared before me in said State on the _____ day of
_____________, 1993, the said being personally well known to me and who executed
the foregoing instrument and acknowledged to me that he executed the same as his
free act and deed in his capacity as Mayor of the City of New York.
Given under my hand and seal, this ____ day of ________________,
1993.
--------------------------------
Notary Public
My Commission Expires:
---------------
---------------
CITY OF NEW YORK )
) ss:
STATE OF NEW YORK )
I, ______________, a Notary Public in and for the State of New York,
residing therein, duly commissioned and sworn, do hereby certify that
___________________, __________, ____________, party to the above instrument,
personally appeared before me in said State on the ___ day of _____________,
1993, the said being personally well known to me and who executed the foregoing
instrument and acknowledged to me that he executed the same as his free act and
deed.
Given under my hand and seal, this ____ day of ________________,
1993.
--------------------------------
Notary Public
My Commission Expires:
---------------
<PAGE>
Exhibit 10.6
TABLE OF CONTENTS
Page
----
ARTICLE I SCOPE OF AGREEMENT...............................................1
ARTICLE II DEFINITIONS......................................................1
1. Conduit System..............................................1
2. Licensee....................................................1
3. Licensee's Facilities.......................................2
ARTICLE III GENERAL CONDITIONS...............................................2
1. Compliance with Applicable Laws.............................2
2. Rights in Licensor's Conduit System.........................2
3. Requirement to Construct and Maintain a Conduit System......2
4. Other Agreements............................................2
5. Assignment of Rights........................................2
6. Permits and Consents........................................2
ARTICLE IV PROCEDURES.......................................................4
1. Application for Authorization...............................4
2. Multiple Occupancy Applications.............................4
3. Specifications..............................................7
4. Pre-Construction Surveys and Make-Ready Work................8
5. Inspections of Licensee's Facilities.......................10
6. Unauthorized Occupancies...................................11
ARTICLE V OTHER OBLIGATIONS OF LICENSEES..................................12
1. Insurance..................................................12
2. Surety Requirements........................................13
ARTICLE VI LIABILITY AND DAMAGES...........................................14
ARTICLE VII TERMINATIONS OF AUTHORIZATIONS..................................15
ARTICLE VIII RATES AND CHARGES...............................................17
1. Conduit Occupancy Rate.....................................17
2. Charges for Make-Ready Work................................17
3. Charges for Inspections....................................17
4. Payment of Rates and Charges...............................18
ARTICLE IX EQUAL EMPLOYMENT OPPORTUNITIES..................................18
ARTICLE X LICENSE NOT EXCLUSIVE...........................................18
ARTICLE XI WAIVER OR TERMS AND CONDITIONS..................................18
ARTICLE XII TERM OF AGREEMENT...............................................18
i
<PAGE>
CONDUIT OCCUPANCY AGREEMENT
THIS AGREEMENT, made as of the ______ day of May, 1993, between NEW
YORK TELEPHONE COMPANY, a corporation organized and existing under the laws of
the State of New York, having its principal office at 1095 Avenue of the
Americas, New York, New York 10036 (hereinafter called "Licensor"), and National
Fiber Network, Inc., a corporation organized and existing under the laws of the
State of Delaware, having its principal office at 150-50 14th Road, Whitestone,
NY 11357 (hereinafter called "Licensee").
W I T N E S S E T H :
WHEREAS, Licensee for its own use desires to place and maintain
cable facilities in the conduit system of Licensor; and
WHEREAS, Licensor is willing to permit, to the extent it may
lawfully do so, the placement of said cable facilities in its conduit system;
NOW, THEREFORE, in consideration of the mutual covenants, terms and
conditions herein contained, the parties do hereby mutually covenant and agree
as follows:
ARTICLE I
SCOPE OF AGREEMENT
Subject to the provisions of this Agreement, the Licensor will issue
to Licensee for any lawful purpose revocable, nonexclusive licenses authorizing
the installation of Licensee's cable facilities in Licensor's conduit system in
the Franchised Municipality/Municipalities listed on the attached Exhibit E.
ARTICLE II
DEFINITIONS
1. Conduit System. Any reinforced passage or opening in, on,
under/over or through the ground capable of containing communications
facilities, and includes: Main conduit; underground dips such as short sections
of conduit under roadways, driveways, parking lots and similar conduit
installations; laterals to poles or into buildings; ducts; and manholes.
2. Licensee. The person, corporation or other legal entity
authorized by the Licensor under this Agreement to install its facilities in New
York
<PAGE>
2
Telephone's conduit system and the party responsible for compliance with
Licensor's regulations regarding such accommodations.
3. Licensee's Facilities. The cables installed for the sole use of
the Licensee.
ARTICLE III
GENERAL CONDITIONS
1. Compliance with Applicable Laws. The Licensee and the Licensor
shall at all times observe and comply with, and the provisions of this Agreement
are subject to, all laws, ordinances, and regulations which in any manner affect
the rights and obligations of the parties.
2. Rights in Licensor's Conduit System. No use, however extended, of
a conduit system or payment of any fee or charge required hereunder shall create
or vest in the Licensee any ownership or property right in such conduit system.
3. Requirement to Construct and Maintain a Conduit System. Licensor
to construct, reconstruct, retain, extend, repair, place, replace or maintain
any underground facility not needed for the Licensor's own service requirements,
except as provided in Article IV(3)(b) and Article IV(5)(f).
4. Other Agreements. Nothing contained herein shall be construed as
a limitation, restriction, or prohibition against the Licensor with respect to
any agreement(s) and arrangement(s) which the Licensor has entered into, or may
in the future enter into, with others not covered by this Agreement, except that
authorizations for occupancies existing at the time of such future agreements or
arrangements shall not be diminished. The rights of Licensee shall at all times
be subject to such existing and future agreement(s) or arrangement(s). The
Licensor, in negotiating and entering into any such agreement(s) and/or
arrangement(s), shall give due and reasonable regard to the Licensee's continued
accommodation in the conduit system.
5. Assignment of Rights. Licensee shall not assign, sub-license,
sublet or transfer any authorization granted herein, and such authorization
shall not inure to the benefit of Licensee's successors or assigns without the
prior written consent of the Licensor. In the event such consents are granted by
the Licensor, the provisions of this Agreement shall apply to and bind the
Licensee's successors and assigns.
6. Permits and Consents. (a) Licensee shall be responsible for
obtaining from private and/or public authority any necessary easement, right of
way,
<PAGE>
3
license, permit, permission, certification or franchise to construct, operate
and/or maintain its facilities on private and public property at the location of
the conduit and/or manhole into which Licensee installs its facilities. The
Licensor does not warrant the validity or apportionability of any rights it may
hold to place facilities on private property. The Licensor will, upon written
request by the Licensee, provide available information and copies of any
documents in its files pertinent to the nature of the rights the Licensor
possesses over private property. The cost of providing such information and
reproducing documents shall be borne by Licensee.
(b) Where Licensor has an easement over a public or private
right of way sufficiently broad under New York state law to permit Licensee
occupancy, Licensee shall not be required to obtain an independent easement from
the property owner to place its facility. In any case where the Licensor seeks
to obtain any necessary permission from a property owner for Licensee's
facilities, the fully allocable costs of such efforts shall be paid by the
Licensee along with make-ready costs, if any.
7. This Agreement supersedes all previous agreements between the
parties for maintenance and placement of underground cable facilities by the
Licensee and constitutes the entire agreement between the parties. It may not be
modified or amended nor may any obligation of either party be changed or
discharged except in writing signed by the duly authorized officer or agent of
the party to be charged. Notice of changes in the occupancy rate (approved by
the PSC) will be given as covered in Article III(8). Currently effective
licenses, if any, issued pursuant to previous agreements shall remain in effect
as if issued pursuant to this Agreement.
8. Any notice to be given to the Licensor under this Agreement shall
be sent by certified mail to:
National Fiber Network, Inc.
150-50 14th Road
Whitestone, New York 11357
Attn: Stephen Garofalo
Any notice to be given to the Licensee under this Agreement shall be
sent by certified mail to:
Any such notice shall be effective immediately upon being deposited
in the United States mail.
<PAGE>
4
9. If the presence of the Licensee in Licensor's conduit system
causes Licensor to pay any new or additional tax which Licensor would not
otherwise pay, Licensee shall reimburse Licensor to the full extent of such new
or additional tax, as additional rent, within thirty (30) days of receiving a
bill therefor from Licensor.
10. This Agreement shall be governed by, and interpreted according
to, the laws of the State of New York.
ARTICLE IV
PROCEDURES
1. Application for Authorization. (a) Prior to the Licensee
occupying any conduit, Licensee shall make written application for and have
received an authorization therefor. (Exhibit A attached).
(b) Licensee shall file applications for conduit occupancy
authorizations which designate a desired priority of authorizations in blocks of
12 conduit sections or less.
(c) The Licensor will accept applications on a first come
first served basis and shall attempt to satisfy the designated priority of
completions. With respect to occupancy applications received six (6) months in
advance of the desired date of issuance of occupancy authorizations, the
Licensor shall, unless prevented from so doing by circumstances beyond its
control, be obligated to perform the required preconstruction survey and/or
make-ready work to permit the issuance by the Licensor of a total of forty-eight
(48) conduit section occupancy authorizations per month in each of the
Licensor's plant construction operating areas. If more than forty-eight (48)
conduit section occupancies are included in all such applications received for
any one month in each construction operating area, at least one block of 12
conduit sections or less per applicant, will be processed, selected in the
sequence in which the application was received, until the forty-eight (48)
conduit sections has been reached. If one block of 12 or less for each applicant
is processed and the forty-eight (48) conduit section occupancies have not been
exceeded, the remaining applications shall be processed on a first come first
served basis.
2. Multiple Occupancy Applications. The provisions of this Article
IV.2 apply in the case of applications received by the Licensor from two or more
Licensees for occupancy authorizations in the same conduit system, prior to the
completion of the preconstruction survey and the commencement of any make-ready
work required to accommodate any Licensee.
<PAGE>
5
(a) Applications received from multiple applicants for the
same conduit system will be classified as follows:
(1) non-simultaneous - received by the Licensor on
different business days.
(2) simultaneous - received by the Licensor on the
same business day.
(b) Where applications are non-simultaneous, the initial
applicant will be offered the following options after application(s) is received
from the additional applicant(s):
Option 1 - the application of the initial applicant will be processed
as if there is no other occupancy application on file for
the same conduit section.
Option 2 - the applications of the initial and additional applicant(s)
will be processed as if they were simultaneous
applications.
(1) The initial applicant will be required to indicate
the option desired no later than fifteen (15) days after the Licensor has quoted
the make-ready charges that will apply under each option, otherwise the Licensor
will deem the initial applicant to have selected Option 1. Selection of an
option prior to the quotation of the aforementioned make-ready charges is
permissible.
(2) Option 2 will be subject to acceptance by all of the
multiple applicants involved. The additional applicant(s) will have fifteen (15)
days from the date of receipt of written notification from the Licensor that the
initial applicant has selected Option 2, to accept or reject the conditions
applicable under Option 2, otherwise, the Licensor will deem the additional
applicant(s) to have rejected such conditions.
(3) All work in progress on the initial applicant's
application involving multiple applications will be suspended by the Licensor
from the time that the initial applicant is offered Options 1 and 2 until it
notifies the Licensor of the option it elects in accordance with (1) preceding.
(c) Where multiple applicants are simultaneous or the initial
applicant in the case of non-simultaneous applications has selected Option 2,
the multiple applicants must develop mutually agreeable order of facility
availability and overall make-ready work completion schedule. Where multiple
applicants cannot reach mutual agreement regarding order of facility
availability and an overall make-ready work completion schedule within fifteen
(150 days of written notification from the
<PAGE>
6
Licensor of the charges for the required make-ready work, the Licensor will
offer as an alternative to complete the total make-ready work required for all
multiple applicants before simultaneously granting occupancy authorizations to
the multiple applicants.
(d) Any multiple applicant who fails to agree to the alternate
arrangement set forth in (c) preceding within ten (10) days after being advised
in writing of the availability of such alternate arrangement by the Licensor
will be considered by the Licensor to have canceled its application(s) relative
to those facilities which involve pending occupancy applications by other
Licensees.
(e) Where multiple application are non-simultaneous and the
initial applicant has selected Option 1, the Licensor:
(1) will consider the initial applicant as a non-
multiple applicant. Any change of priority or facility availability or work
schedule competition that is desired after either has been initially agreed upon
the initial applicant with the Licensor will be subject to the Licensor's
ability to accommodate such changes in its established work schedule.
(2) will not perform the required make-ready work for
the additional applicant until occupancy authorizations have been granted to the
initial applicant, unless the performance of such work will not delay the
completion of the make-ready work required to accommodate the initial applicant.
(f) Preconstruction survey costs will be allocated as follows:
(1) Simultaneous applications - each applicant will bear
an equal share of the total initial and resurvey costs involved.
(2) Non-simultaneous applications - each applicant will
bear the costs related only to determining the accommodation requirements for
its specific application.
(g) Make-ready cost will be allocated as follows:
(1) Simultaneous applications:
(i) the initial applicant will be charged the
total make-ready cost to accommodate its facilities.
(ii) the additional applicant(s) will be charged
the total added make-ready cost to accommodate the additional applicant's
facilities.
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7
(2) Non-simultaneous applications:
(i) the initial applicant will be charged the
total make-ready cost to accommodate its facilities.
(ii) the additional applicant(s) will be charged
the total added make-ready cost to accommodate the additional applicant's
facilities.
3. Specifications. (a) Licensee's facilities shall be placed,
maintained, relocated or removed in accordance with the requirements and
specifications of the current editions of the Bell Operating Companies Manual of
Construction Procedures (Blue Book), the National Electrical Code (NEC), the
National Electrical Safety Code (NESC) and rules and regulations of the
Occupational Safety and Health Act (OSHA) and any governing authority having
jurisdiction. Where a difference in specification may exist, the more stringent
shall apply. Licensee's facilities shall not physically, electronically or
inductively interfere with the Licensor's facilities.
(1) While many of the standards and technical
requirements for Licensee's cable, equipment and facilities are set forth in (a)
above, Licensor reserves the right to specify the type of cable and construction
standards required in situations not otherwise covered in this Agreement. In
such cases, Licensor will in its discretion furnish to Licensee written material
which will specify and explain the required construction.
(2) Licensee shall provide written notice to the
Licensor, at least fifteen (15) days in advance, of the exact conduit locations
where Licensee's plant is to be constructed.
(3) Rodding of ducts and placing of cable in Licensor's
conduit system shall be done only when specific authorization for such work, and
approval of the person, form or corporation that will perform such work has been
obtained in writing in advance from Licensor. Licensor, retains the right to
prescribe the manner in which such construction will be done and retains the
right to specify what, if any, work shall be performed by Licensor.
(4) Licensor reserves the right to prohibit all
equipment and facilities, other than cable, from its manholes, pull boxes and
handholes. Splices in Licensee's cables shall be located only in manholes, pull
boxes or handholes.
(5) Where a Licensee's duct physically connects with
Licensor's manhole, Licensor shall designate the point of entrance. The section
of duct
<PAGE>
8
which connects with the manhole shall be installed, at the Licensee's expense,
by Licensor, its contractor or a contractor approved by Licensor. The "Manhole
Entrance Fee" is specified in the "Schedule of Rates" (Exhibit D).
(b) If any part of Licensee's facilities is not placed,
maintained or relocated in accordance with the requirements and specifications,
as stated herein, and if Licensee fails to correct any non-compliance with these
standards within fifteen (15) days written notice to the Licensee, the Licensor
may correct said conditions. However, when such conditions pose an immediate
threat to the safety of the Licensor's employees, interfere with the performance
of the Licensor's service obligations, or pose an immediate threat to the
physical integrity of the conduit system or the cable facilities of the
Licensor, the Licensor may perform such work and/or take such action that the
Licensor deems necessary without prior notice to Licensee. The cost of said work
and/or actions shall be borne by Licensee.
4. Pre-Construction Surveys and Make-Ready Work. (a) A
pre-construction survey will be required for each conduit section for which
occupancy is requested to determine the availability of conduit space to
accommodate Licensee's facilities (Exhibit F). In determining the availability
of space in Licensor's conduit system, Licensor will consider its present and
foreseeable communications and maintenance needs for conduit space. If conduit
space is available, a license to occupancy the conduit system will be granted to
Licensee; provided, however, that Licensor will not warrant the condition of
such conduit. The field inspection will be performed by representatives of the
Licensor with optional participation by the Licensee(s).
(b) In the event the Licensor determines that Licensor's cable
facilities need rearrangement to accommodate the facilities of Licensee, the
Licensor will inform Licensee in writing of the cost of the required make-ready
work. Charges for make-ready work, including the cost of post-construction
inspections, shall be as specified in Article VIII, Rates and Charges.
(c) The Licensor shall specify the conduit to be occupied by
Licensee's facilities and the location where and manner in which Licensee's
cable will enter and exist Licensor's manholes, pull boxes or handholes.
Clearing obstructions, repairs, dig-ups and any other work required to make a
duct usable for the initial placing of Licensee's cable shall be done at
Licensee's expense by the Licensor, its contractor or a contractor approved by
Licensor.
(d) Licensee shall have thirty (30) days from the receipt of
written notification from the Licensor of the costs of make-ready work to accept
and pay all make-ready costs; provided, however, that if the Licensor receives a
request from another Licensee for an authorization to occupy the conduit system
for which a written notification of make-ready work costs had been sent to
Licensee, then Licensee
<PAGE>
9
must accept within fifteen (15) days after receipt of notification from the
Licensor of the other occupancy request or until the end of the thirty (30) day
period, whichever period of time is shorter.
(e) All required make-ready work will be performed following
receipt by the Licensor of payment of the cost of the make-ready work. Licensee
shall also reimburse the owner(s) of other facilities occupying said conduit
system for any expense incurred by them in rearranging their facilities to
accommodate Licensee's facilities.
(f) Should the Licensor, or other Licensee, for their own
service requirements, need to install additional facilities in any conduit
system in which Licensee occupies conduit space, Licensee will upon notice from
the Licensor of the additional occupancy, Licensee will rearrange its facilities
in the conduit system as determined by the Licensor so that the additional
facilities of the Licensor, or other Licensee may be accommodated. Licensee
shall not be entitled to reimbursement for the rearrangement of Licensee's
facilities from the Licensor. If Licensee does not rearrange its facilities
within fifteen (15) days after receipt of written notice from the Licensor
requesting such rearrangement, the Licensor may perform or have performed such
rearrangement and Licensee shall pay the cost thereof.
(g) In an emergency, the Licensor may rearrange Licensee's
facilities occupying a conduit or manhole.
(h) If service needs of the Licensor or joint user require
modifications to its facilities, and if such modifications would not be
necessary except for the Licensee's occupancy, such modifications shall be
additional make-ready work and the Licensee shall pay the costs for such
additional make-ready work in accordance with the provisions of Article VIII. In
the event that another Licensee has facilities occupying the conduit, the cost
of such additional make-ready work shall be apportioned equally among the
Licensees.
(i) Upon written notice from the Licensor, Licensee shall
promptly perform any make-ready work necessary on Licensee's facilities to
accommodate another Licensee's occupying the conduit system. The Licensor shall
not be liable for any such expense. If Licensee fails to perform such make-ready
work within fifteen (15) days from the date of written notice from the Licensor,
the Licensor shall have the right to perform the make-ready work and charge
Licensee the cost of performing such work.
(j) Licensee shall reimburse the owner or owners of other
facilities occupying a utility conduit system for any expense incurred by them
in rearrange said facilities to accommodate Licensee's facilities.
<PAGE>
10
(k) Licensee shall notify the Licensor in writing before
adding to, relocating, replacing or otherwise modifying its facilities in a
conduit system where additional space may be required.
(l) Additional make-ready necessitated by changes in the
service needs of Licensor will be billable to Licensee only after two (2) years
have elapsed since the date of initial occupancy authorization, and only when
necessitated by the presence of Licensee facilities. Additional make-ready cost
stemming from the activities of other conduit occupants is not the
responsibility of Licensee. When additional make-ready or related work is
required as a result of circumstances beyond anyone's control, including but not
limited to storms, accidents, or public work projects, Licensee is responsible
for the timely repairing, relocating or replacing of its own facilities and for
the additional costs incurred by Licensor solely resulting from the existence of
Licensee's facilities, if any.
5. Inspections of Licensee's Facilities. (a) The Licensor reserves
the right to make post-construction, subsequent and periodic inspections (of any
part or all) of Licensee's facilities occupying the conduit system at the
expense of the Licensee as specified in Article VIII.
(b) Licensee shall provide written notice to the Licensor, at
least fifteen (15) days in advance, of the exact conduit locations where
Licensee's plant is to be constructed.
(c) The Licensee shall forward Exhibit B to the Licensor
within five (5) days of the date(s) of the occupancy.
(d) Within seven (7) days of the date of completion of a
post-construction inspection, the Licensor shall notify Licensee in writing of
the date of the completion of the Post-Construction Inspection.
(e) Where Post-Construction Inspection by the Licensor has
been completed within thirty (30) days of the date of notice of placement of
Licensee's facilities required in (c) above, Licensee shall be obligated to
correct such non-complying conditions within fifteen (15) days of the date of
the written notice from the Licensor. If corrections are not completed within
said fifteen (15) day period, occupancy authorizations for the conduit system
where non-complying conditions remain uncorrected shall terminate forthwith,
regardless of whether Licensee has energized the facilities occupying said
conduit system, and Licensee shall remove its facilities from said conduit
system in accordance with the provisions of Article VIII. No further occupancy
authorization shall be issued to Licensee until such non-complying conditions
are corrected or until Licensee's facilities are removed from the conduit system
where such non-complying conditions exist.
<PAGE>
11
(f) Where such Post-Construction Inspection by the Licensor
has not been completed within thirty (30) days of the date of notice of
placement of Licensee's facilities, Licensee shall correct such non-complying
conditions within fifteen (15) days of the written notice from the Licensor. If
corrections are not made by Licensee within said fifteen (15) day period, the
Licensor shall perform or have performed such corrections and Licensee shall pay
to the Licensor the cost of performing such work.
(g) Subsequent inspections to determine if appropriate
corrective action has been taken may be made by the Licensor. Licensee shall
reimburse the Licensor for the cost of such inspections as specified in Article
VIII.
(h) The making of post-construction, subsequent and periodic
inspections or the failure to do so shall not operate to relieve Licensee of any
responsibility, obligation or liability specified in this Agreement.
(i) The costs of inspections made during construction and/or
the initial post-construction survey shall be billed to the Licensee upon
completion of the inspections. The cost of periodic inspection or special
inspection found necessary due to the existence of sub-standard or unauthorized
occupancies shall be billed separately.
(j) Period inspections of the entire plant of the Licensee
will not be made more often than once every five years and upon 30 days notice
to Licensee unless in Licensor's judgement such inspections are required for
reasons involving safety or because of an alleged violation of the terms of the
Agreement by Licensee.
6. Unauthorized Occupancies. (a) If any facilities of the Licensee
shall be found occupying a conduit system for which authorization has not been
granted by the Licensor, the Licensor, without prejudice to its other rights or
remedies under this Agreement, including termination or otherwise, may impose a
charge and require the Licensee to submit in writing, within ten (10) days after
receipt of written notification from the Licensor of the unauthorized occupancy,
a conduit occupancy application (Exhibit A). If such applications is not
received by the Licensor within the specified time period, the Licensee will be
required to remove its unauthorized facility within ten (10) days of the final
date for submitting the required application, or the Licensor may remove the
Licensee's facilities without liability, and the cost of such removal shall be
borne by the Licensee.
(b) For the purpose of determining the applicable charge, the
unauthorized conduit occupancy shall be treated as having existed for a period
of five (5) years prior to its discovery; or for the period beginning with the
date of the initial Agreement, whichever period shall be shorter, and the
charges, as specified
<PAGE>
12
in Article VIII, shall be due and payable forthwith whether or not Licensee is
permitted to continue the occupancy of the conduit system.
(c) No act or failure to act by the Licensor with regard to an
unauthorized occupancy shall be deemed as the authorization of the occupancy;
and, if any authorization should be subsequently issued said authorization shall
not operate retroactively or constitute a waiver by the Licensor of any of its
rights or privileges under this Agreement or otherwise, provided, however, that
Licensee shall be subject to all liabilities, obligations and responsibilities
of this Agreement in regard to said unauthorized occupancy from its inception.
ARTICLE V
OTHER OBLIGATIONS OF LICENSEES
1. Insurance. (a) Licensee shall carry insurance policies issued by
an insurance carrier licensed to operate in the State of New York to protect the
Licensor as named or additional insured from and against any and all claims,
demands, actions, judgments, costs, and/or expenses, including attorney's fees,
and liabilities of every kind and nature which may arise or result, directly or
indirectly, from or by reason of such loss, injury or damage as covered in
Article VI.
(b) The amounts of such insurance:
(1) against liability due to injury or to death of
persons shall be not less than $1,000,000 as to any one person and
$1,000,000 to any one occurrence, and
(2) against liability due to damage to property shall be
not less than $1,000,000 as to any one occurrence.
(c) Licensee shall also carry such insurance as will protect
Licensee from all claims under any Worker's Compensation Law in effect that may
be applicable.
(d) All insurance must be effective before the Licensor shall
issue authorization for occupancy of facilities to any conduit system, and shall
remain in force as long as Licensee's facilities remain within any conduit
system. In the event that Licensee shall fail to maintain the required insurance
coverage, the Licensor may pay any premiums thereon falling due and the Licensee
shall reimburse the Licensor for any such payments made.
<PAGE>
13
(e) Licensee shall submit to the Licensor certificates by each
company insuring Licensee for all liabilities of Licensee referred to in Article
VI. Licensee's insurance policies shall provide that Licensee will not cancel or
amend any such policy of insurance issued to Licensee except after thirty (30)
days' prior written notice to the Licensor.
(f) Licensee shall promptly advise the Licensor of all claims
relating to damage to property or injury to or death of persons, arising or
alleged to have arisen in any manner, directly or indirectly, by the
installation, maintenance, repair, replacement, presence, use or removal of the
Licensee's facilities. Copies of all accidents reports and statements made to
the insurer by the Licensee, or others, shall be furnished promptly to the
Licensor.
(g) The Licensee at Licensor's option may be self-insured with
regard to its liability under the terms of this agreement.
2. Surety Requirements. Licensee shall furnish a bond or other
satisfactory evidence of financial security in an amount specified as follows to
guarantee the payment of any sums which may become due to the Licensor for
occupancy fees due hereunder and any other charges for work performed for
Licensee, by the Licensor, including the removal of Licensee's facilities upon
termination of any authorization issued hereunder. Termination of this Agreement
shall not release the Licensee from any liability obligation under the
Agreement.
(a) Licensee shall furnish a cash deposit, bond, irrevocable
Letter of Credit or other security satisfactory to the Licensor in the following
amounts: Security in the amount of ($40,000) for the first 10,000 feet of
conduit to be licensed under this agreement and ($4,000) for each additional
1,000 feet. The amount of security required hereunder shall not exceed $300,000,
nor be less than $40,000. Security will not be required where the total of
Licensee's occupancies do not exceed two hundred and fifty (250) feet.
(b) If the financial security is in the form of a bond or
irrevocable Letter of Credit, such instrument shall be issued by a surety
company or bank satisfactory to the Licensor. The instrument shall contain a
provision that the Surety Company or Bank will pay to the Licensor within the
dollar limits of the instrument any sum demanded by the Licensor as due under
this Agreement, whether or not the Licensee contests its liability to pay such
sum, and whether or not the Licensor exercises or has exercised any option it
may have to terminate. If any such amounts are paid by the Surety Company or
Bank, the Licensee shall restore the Surety Bond or Letter of Credit to the full
amount required under this Article, within thirty (30) days after notice of such
payment is sent to the Licensee.
<PAGE>
14
(c) If the security is in the form of a cash deposit, interest
at the rate generally paid by the Licensor on deposits shall be credited to the
Licensee during the continuance of the deposit. If the Licensee shall fail to
pay any sum demanded by the Licensor as due under the provisions of this
Agreement, the Licensor shall have the right, without prior notice to the
Licensee forthwith to apply any or all amounts on deposit with it to payment of
the sum due, whether or not the Licensee contests its liability to pay such sum,
and whether or not the Licensor exercises or has exercised any option it may
have to terminate. If any such amounts are applied to payment of sums due to the
Licensor, Licensee shall restore to its deposit the amounts so applied within
thirty (30) days after notice to Licensee of such application.
(d) The amount of the bond or the financial security shall not
operate as a limitation upon the obligations of the Licensee.
ARTICLE VI
LIABILITY AND DAMAGES
1. Licensor reserves to itself, its successors and assigns, the
right to relocate and maintain its conduit system and to operate its facilities
in conjunction therewith in such a manner as will best enable it to fulfill its
own service requirements. The Licensor shall be liable to Licensee only for and
to the extent of any damage caused by the negligence of the Licensor's agents or
employees to Licensee's facilities occupying Licensor's conduit system. The
Licensor shall not be liable to Licensee for any interruption of Licensee's
service or for interference with the operation of Licensee's facilities arising
in any manner out of Licensee's use of Licensor's conduit system.
2. Licensee shall indemnify, protect and save harmless the Licensor
from and against any and all claims, demands, causes of action and costs,
including attorneys' fees, for damages to property and injury or death to
persons, including payments made under any Worker's Compensation Law or under
any plan for employees' disability and death benefits, which may arise out of or
be caused by the installation, maintenance, repair, replacement, presence, use
or removal of Licensee's facilities or by their proximity to the facilities of
all parties occupying Licensor's conduit system or by any act of omission of
Licensee's employees, agents or contractors.
3. Licensee shall indemnify, protect and save harmless the Licensor
from any and all damages, costs, and expenses imposed on the Licensor as a
result of the presence of the occupancy in the conduit system and/or acts by the
Licensee, its employees, or its agents or contractors, including but not limited
to damages, costs and
<PAGE>
15
expense of relocating conduit systems resulting from loss of right-of-way or
property owner consents and/or the costs and expense of defending these rights.
4. Licensee shall indemnify, protect and save harmless the Licensor
from any and all claims, demands and costs, including attorneys' fees, which
arise directly or indirectly from the operation of Licensee's facilities,
including taxes, special charges by others, claims and demands for damages or
loss for infringement of copyright, for libel and slander, for unauthorized use
of television broadcast programs, and for unauthorized use of other program
material, and from and against all claims, demands and costs, including
attorneys' fees, for infringement of patents with respect to the manufacture,
use and operation of Licensee's facilities in combination with the utility's
conduit system or otherwise.
5. Should the Licensor remove Licensee's facilities from the
Licensor's conduit system under Article VII, the Licensor will deliver to the
Licensee the facilities so removed upon payment by Licensee of the cost of
removal, storage and delivery, and all other amounts due the Licensor. The
Licensor shall have a lien on Licensee's facilities removed from Licensor's
conduit systems, with power of public or private sale, to cover any amounts due
to Licensor. Such liens shall not operate to prevent the Licensor from pursuing,
at its option, any other remedy in law, equity or otherwise.
ARTICLE VII
TERMINATIONS OF AUTHORIZATIONS
1. In addition to rights of termination provided to the Licensor
under other provisions of this Agreement, the Licensor shall have the right to
terminate conduit occupancy, manhole occupancy, and/or manhole entrance
authorizations and rights granted under provisions of this Agreement where:
(a) the Licensee's facilities are maintained or used in
violation of any law or in aid of any unlawful act or undertaking; or
(b) the Licensee ceases to have authority to construct and
operate its facilities on public or private property at the location of the
particular conduit system covered by the authorization; or
(c) the Licensee fails to comply with any of the terms and
conditions of this Agreement or defaults in any of its obligations thereunder;
or
(d) the Licensee occupies Licensor's conduit system without
having first been issued authorization therefor; or
<PAGE>
16
(e) the Licensee, subject to the provisions specified in
Article III(5), should cease to provide its services;
(f) the Licensees' facilities are used by others not a party
to this Agreement;
(g) the Licensee sublets or apportions part of the Licensed
Conduit System to an entity not a party to this Agreement.
2. The Licensor will properly notify the Licensee in writing of any
instances cited in Article VII(1) preceding. The Licensee shall take corrective
action as necessary to eliminate the noncompliance and shall confirm in writing
to the Licensor within thirty (30) days following such written notice that the
noncompliance has ceased or been corrected. If Licensee fails to discontinue
such noncompliance or to correct same and fails to have the required written
confirmation to the Licensor within the time stated above, the Licensor may
terminate the occupancy authorizations granted hereunder for the conduit or
manhole to which such noncompliance shall have occurred.
3. Conduit system occupancy authorizations and rights as granted
under provisions of this Agreement may be immediately terminated by the Licensor
if:
(a) the Licensee's insurance carrier shall at any time notify
the Licensor that the policy or policies of insurance as required in Article
V(1) will be or have been cancelled or amended so that those requirements will
no longer be satisfied; or
(b) the Licensee shall fail to pay any sum due or to deposit
any sum required under this Agreement, or shall fail to maintain satisfactory
security as required in Article V(2).
(c) any authorization which may be required by any
governmental or private authority for the construction, operation and
maintenance of the Licensee's facilities in the conduit system is denied,
revoked or cancelled.
4. Licensee may at any time remove its facilities from a conduit
system after first giving the Licensor written notice of Licensee's intention to
so remove its facilities (Exhibit C).
5. In the event of termination of any of the Licensee's
authorizations hereunder, the Licensee will remove its facilities from the
conduit system within thirty (30) days of the effective date of the termination;
provided, however, that Licensee shall be liable for and pay all fees and
charges pursuant to provisions of this Agreement to the Licensor until
Licensee's facilities are actually removed from the conduit system.
<PAGE>
17
If the Licensee fails to remove its facilities within the specified period, the
Licensor shall have the right to remove such facilities at the Licensee's
expense and without any liability on the part of the Licensor for damage or
injury to such facilities or interruption of Licensee's services.
6. When Licensee's facilities are removed from a Licensor's conduit
system, no occupancy in the same conduit system shall be permitted until the
Licensee has first complied with all of the provisions of this Agreement as
though no such conduit system occupancy had been previously made and all
outstanding charges due to the Licensor for conduit system occupancy have been
paid in full.
7. Prior to terminating or revoking any license under this Agreement
or the Agreement itself for whatever cause or purpose, a petition may be
brought, by either party, to the Public Service Commission requesting the
Commission to decide the dispute. A Public Service Commission determination
shall be binding on all parties to this Agreement. However, the right of the
Licensor or Licensee for judicial review of the Commission's determination
remains.
ARTICLE VIII
RATES AND CHARGES
The Licensee is responsible for payment of all rates, charges and
costs as specified elsewhere in this Agreement and as set forth below. Licensee
shall be responsible for payment of all charges for preconstruction survey and
make-ready work in advance for work performed or expenses incurred by the
Licensor regardless of whether Licensee subsequently withdraws its application
for occupancy authorizations for the conduit system as to which such work is
performed.
Licensee agrees that, in the event Licensee fails to pay an amount
due and owing within the period of time set forth for payment in this Agreement,
interest shall accrue on the unpaid balance thereof at the rate of 1 1/2% per
month for each month from the expiration of such period until payment is
received by Licensor.
1. Conduit Occupancy Rate. The conduit rates shall be as specified
in a schedule currently filed with the Public Service Commission (Exhibit D).
2. Charges for Make-Ready Work. Make-ready charges shall be billed
in advance. Work on individual conduit sections shall not commence prior to
receipt of payment. All charges for surveys, inspections, engineering, rodding,
swabbing, placement and removal of cable and any other charges for worked
performed for Licensee or fees paid by Licensor on account of Licensee's
presence in the conduit system, shall be based upon the full cost to Licensor
for performing such
<PAGE>
18
work and a premium of 35% shall be added to the Licensor's full costs incurred
on the investment of the labor hours and materials used. When Licensor employs
an outside contractor rather than its own work forces to perform make-ready,
Licensee shall pay an amount equal to the contractor's fees plus a premium equal
to no more than 10% of those fees. Licensor shall make available copies of all
written contracts, agreements, understandings and work orders pertinent to
make-ready work performed by such contractors.
3. Charges for Inspections. (a) The cost of the initial post-
construction inspection shall be billed as part of the charges for make-ready
work.
(b) The cost of periodic inspections will be billed to the
Licensee upon completion of the inspection by the Licensor.
(c) Licensee shall pay the cost of subsequent inspections to
insure correction of variances from required construction and maintenance
parties, determined to exist through post-construction or periodic inspections.
4. Payment of Rates and Charges. Unless otherwise provided elsewhere
in this Agreement, Licensee shall pay all rates and charges, as specified in the
Agreement and/or in the schedule currently filed with the Public Service
Commission, within thirty (30) days from the dates of billing thereof.
ARTICLE IX
EQUAL EMPLOYMENT OPPORTUNITIES
Licensee affirms that the Equal Employment Opportunity provisions
required by law, regulation or executive order to be incorporated in this
Agreement as set forth in a Compliance Undertaking prepared by Licensor have
been read and signed by Licensee, and that the said Compliance Undertaking has
been delivered to Licensor. Such Compliance Undertaking shall continue in effect
until specifically withdrawn in writing by Licensee (Exhibit G).
ARTICLE X
LICENSE NOT EXCLUSIVE
Nothing herein contained shall be construed as a grant of any
exclusive license, right or privilege to Licensee. Licensor shall have the right
to grant, renew and extend rights and privileges to others not parties to this
Agreement, by contract or otherwise, to use any conduit systems covered by this
Agreement.
<PAGE>
19
ARTICLE XI
WAIVER OR TERMS AND CONDITIONS
Failure to enforce or insist upon compliance with any of the terms
or conditions of this Agreement or failure to give notice or declare this
Agreement or the licenses granted hereunder terminated shall not constitute a
waiver or relinquishment of any such term, condition or act but the same shall
be and remain at all times in full force and effect.
ARTICLE XII
TERM OF AGREEMENT
If not terminated in accordance with its terms, this Agreement shall
continue in effect for a term of one (1) year from the date hereof and
thereafter until three (3) months after written notice of termination is given
by either party. Such notice of termination may be given to take effect at the
end of the original one (1) year period or at any time thereafter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
in duplicate on the date and year first above written.
WITNESS (ATTEST) New York Telephone Company
- ----------------------- By
Assistant Secretary -----------------------------------
National Fiber Network, Inc.
WITNESS (ATTEST)
- ----------------------- By
Assistant Secretary -----------------------------------
Stephen Garofalo
Chief Executive officer
National Fiber Network, Inc.
<PAGE>
Exhibit 10.8
NATIONAL FIBER NETWORK, INC.
60 Hudson Street
New York, New York 10013
February 11, 1997
Peter Sahagen
Sahagen Consulting Group
300 Park Avenue Suite 1700
New York, NY 10022
Dear Peter:
This letter shall confirm our agreement and understanding with
respect to the compensation which is due and payable to you for all services
rendered on behalf of National Fiber Network, Inc. (the "Company"), your
services as a director of the Company and other matters referred to herein.
1. The Company will pay to you upon the first equity infusion of a
minimum of $10,000,000, the sum of $250,000 in full and complete payment for (i)
all services of any nature, manner or form which have been provided or performed
by you on behalf of the Company in any capacity; and (ii) any fees, expenses or
compensation due to you pursuant to any agreement, contract or understanding
between you and the Company whether oral or written (with the exception of the
reimbursement of moneys paid by you on behalf of the Company as provided for in
a separate letter agreement between us as of this date.)
2. Subject to the payment of the foregoing sum to you as provided
herein, this letter shall confirm your release of any claims, causes of action,
damages, expenses, wages or salary, known or unknown, liquidated or
unliquidated, which you may have against the Company or any of its officers,
directors, attorneys or agents; and the release by the Company and Stephen
Garofalo of any claims, causes of action, damages, and or expenses, known or
unknown, liquidated or unliquidated which either the Company or Stephen Garofalo
may have against you.
3. You or your designee (who shall be reasonably acceptable to this
Board of directors) will be designated as a director of the Company and will
continue to serve as a director of the Company without compensation for a period
of six months commencing with the date of the execution of this letter
agreement.
<PAGE>
4. The Company, shall direct its counsel, Silverman, Collura &
Chernis, P.C., to file an application with the City of New York under the terms
of the franchise agreement between the Company and the City of New York to
obtain either a waiver or consent to your ownership of more than 5% of the
issued and outstanding stock of the Company.
5. The Company grants to you piggyback registration rights with
respect to common stock of the Company owned by you which piggyback registration
rights shall be in accordance with the same terms as provided for in the form of
warrant which the Company has agreed to issue to US One Communications Corp., a
copy of which terms is annexed hereto.
6. This letter agreement shall be governed by the laws of the State
of New York and may be executed in counterparts and by fax transmission among
the parties.
I would appreciate it if you would sign this letter in the space
provided below in acknowledgement of the foregoing terms which shall serve as
our agreement.
Very truly yours,
NATIONAL FIBER NETWORK, INC.
By:
Stephen Garofalo, Chief Executive
Consented and Agreed to:
Peter Sahagen Stephen Garofalo
SAHAGEN CONSULTING GROUP
By:
Peter Sahagen
2
<PAGE>
5. PIGGYBACK REGISTRATIONS
5.1 Right to Piggyback. Each time following the Company's initial
public offering of securities for its own account pursuant to a registration
statement declared effective under the Securities Act that the Company proposes
to register any of its securities (other than a registration statement on Form
S-8 or Form S-4) under the Securities Act for cash sale and the registration
form to be used may be used for the registration of Registrable Shares, the
Company shall give prompt written notice to the Holders of its intention to
effect such a registration (which notice shall be given not less than 30 days
prior to the date the registration statement is filed) and such notice shall
offer the Holders the opportunity to have any or all of the Registrable Shares
included in such registration statement, subject to the limitations contained in
Section 5.2. In the event the Holders desire to have their Registrable Shares
registered under this Section 5.1, the Holders will so advise the Company in
writing within 20 days after the date of receipt of such notice from the
Company. Subject to Section 5.2 below, the Company shall include in such
registration statement all such Registrable Shares so requested to be included
therein; provided, however, that the Company may at any time withdraw or cease
proceeding with any such registration if it shall at the same time withdraw or
cease proceeding with the registration of all other shares of Common Stock
originally proposed to be registered.
5.2 Priority on Registrations. If the managing underwriter advises
the Company in writing that the number of shares of Registrable Shares requested
to be included in the registration by all Persons (including the Company)
exceeds the number of shares of Common Stock which can be sold in such offering,
the Company will be obligated to include in such registration only (i) first,
any and all shares of Common Stock for sale by the Company, and (ii) second, pro
rata among the Registrable Shares and any other shares of Common Stock requested
to be included pursuant to any other registration rights that may have been, or
may hereafter be, granted by the Company (on the basis of the total number of
shares of Registrable Shares and Common Stock that each holder has requested to
be registered).
5.3 Holdback Agreement. Unless the managing underwriter otherwise
agrees, each of the Holders agrees not to effect any public sale or private
offer or distribution of any Registrable Shares, Common Stock or Common Stock
Equivalents during the ten (10) Business Days prior to any underwritten
registration and during such time period after any underwritten registration
(not to exceed 90 days) (except, if applicable, as part of such underwritten
registration) as the Company and the managing underwriter may agree.
5.4 Registration Procedures. Whenever the Holders have requested
that any Registrable Shares be registered pursuant to this Section 5, the
Company will use all reasonable efforts to effect the registration and the sale
of such Registrable Shares in
3
<PAGE>
accordance with the intended method of disposition thereof, and pursuant thereto
the Company will as expeditiously as possible: (i) prepare and file with the
Commission a registration statement on any appropriate form with respect to such
Registrable Shares and use all reasonable efforts to cause such registration
statement to become effective; (ii) prepare and file with the Commission such
amendments, post-effective amendments, and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective for a period of not less than one
year (or such lesser period as is necessary for the underwriters in an
underwritten offering to sell unsold allotments or to otherwise effect the sale
of the Registrable Shares) and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration statement;
(iii) furnish to each seller of Registrable Shares and the underwriters of the
securities being registered such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement (including each preliminary prospectus), and such
other documents as such seller or underwriters may reasonably request in order
to facilitate the disposition of the Registrable Shares or the sale of such
securities by such underwriters; (iv) use all reasonable efforts to register or
qualify such Registrable Shares under such other securities or blue sky laws of
such jurisdictions as the managing underwriter, if any, or holders of
Registrable Shares reasonably request and do any and all other acts and things
which may be reasonably necessary or advisable to enable such seller to
consummate the disposition of the Registrable Shares owned by such seller in
such jurisdictions (provided, however, that the Company sell not be required to
(A) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph or (B) consent to
general service of process in any such jurisdiction); (v) notify each seller of
Registrable Shares promptly after it shall receive notice thereof, of the time
when such registration statement has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed; (vi)
notify each seller of Registrable Shares promptly of any request by the
Commission for the amending or supplementing of such registration statement or
prospectus or for additional information; (vii) prepare and file with the
Commission promptly, any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel for the Company, the
sellers of Registrable Shares or the managing underwriter, is required in
connection with the distribution of the Registrable Shares; (viii) enter into
such agreements (including underwriting agreements in the managing underwriter's
customary form) as are customary in connection with an underwritten
registration; and (ix) advise each seller of such Registrable Shares, promptly
after it shall receive notice or obtain knowledge thereof, of the issuance of
any stop order by the Commission suspending the effectiveness of such
registration statement or the initiation or threatening of any proceeding for
such purpose and promptly use its best efforts to prevent the issuance of any
stop order or to obtain its withdrawal if such stop order should be issued.
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<PAGE>
5.5. Suspension of Dispositions. Each Holder agrees that, upon
receipt of any notice (a "Suspension Notice") from the Company of the happening
of any event of the kind which, in the opinion of the Company, requires the
amendment or supplement of any prospectus, such Holder will forthwith
discontinue disposition of Registrable Shares until such Holder's receipt of the
copies of the supplemented or amended prospectus, or until it is advised in
writing (the "Advice") by the Company that the use of the prospectus may be
resumed, and has received copies of any additional or supplemental filings which
are incorporated by reference in the prospectus, and, if so directed by the
Company, such Holder will deliver to the Company all copies, other than
permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Shares current at the time of receipt of such notice.
In the event the Company shall give any such notice, the time period regarding
the effectiveness of registration statements set forth in Section 5.4(ii) hereof
shall be extended by the number of days during the period from and including the
date of the giving of the Suspension Notice to and including the date when each
seller of Registrable Shares covered by such registration statement shall have
received the copies of the supplemented or amended prospectus or the Advice.
5.6 Registration Expenses. All expenses incident to the Company's
performance of or compliance with this Section 5 including, without limitation,
all registration and filing fees, all fees and expenses associated with filings
required to be made with the National Association of Securities Dealers, Inc.
("NASD") (including, if applicable, the fees and expenses of any "qualified
independent underwriter" as such term is defined in Schedule E of the By-laws of
the NASD, and of its counsel), as may be required by the rules and regulations
of the NASD, fees and expenses of compliance with securities or "blue sky" laws
(including reasonable fees and disbursements of counsel in connection with "blue
sky" qualifications of the Registrable Shares), rating agency fees, printing
expenses (including expenses of printing certificates for the Registrable Shares
in a form eligible for deposit with Depositary Trust Company and of printing
prospectuses if the printing of prospectuses is requested by a holder of
Registrable Shares), messenger and delivery expenses, fees and expenses of
counsel for the Company and its independent certified public accountants
(including the expenses of any special audit or "cold comfort" letters required
by or incident to such performance), securities acts liability insurance (if the
Company elects to obtain such insurance), the fees and expenses of any special
experts retained by the Company in connection with such registration, and fees
and expenses of other persons retained by the Company (all such expenses being
herein called "Registration Expenses") will be borne by the Company whether or
not any registration statement becomes effective; provided, however, that in no
event shall Registration Expenses include any underwriting discounts or
commissions attributable to the sale of the Registrable Shares or fees and
expenses of counsel to the Holders.
5
<PAGE>
Exhibit 10.9
- --------------------------------------------------------------------------------
LEASE AGREEMENT
110 EAST 42ND STREET ASSOCIATES,
LIMITED PARTNERSHIP,
Landlord
and
NATIONAL FIBER NETWORK, INC.,
Tenant
110 East 42nd Street
New York, New York 10017
Dated as of March 19, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Article Page
1 Premises and Rent ................................................ 1
2 Use .............................................................. 2
3 Preparation of Premises .......................................... 3
4 Taxes ............................................................ 3
5 Intentionally Omitted ............................................ 4
6 Intentionally Omitted ............................................ 4
7 Subordination, Notice to Superior Lessors and Mortgagees ......... 4
8 Quiet Enjoyment .................................................. 6
9 Assignment, Subletting and Mortgaging ............................ 6
10 Compliance with Laws ............................................. 9
11 Insurance ........................................................ 10
12 Rules and Regulations ............................................ 12
13 Tenant's Work; Alterations ....................................... 12
14 Landlord's and Tenant's Property ................................. 16
15 Repairs and Maintenance .......................................... 16
16 Electric Energy .................................................. 17
17 Heat, Ventilation and Air-Conditioning ........................... 18
18 Other Services; Service Interruption ............................. 19
19 Access ........................................................... 20
20 Notice of Occurrences ............................................ 21
21 Non-Liability and Indemnification ................................ 22
22 Damage or Destruction ............................................ 23
23 Eminent Domain ................................................... 24
24 Surrender ........................................................ 26
25 Conditions of Limitation-Insolvency; Default ..................... 26
26 Re-Entry by Landlord ............................................. 28
27 Damages .......................................................... 29
28 Affirmative Waivers .............................................. 31
29 No Waivers ....................................................... 31
30 Curing Tenant's Defaults ......................................... 32
31 Broker ........................................................... 32
32 Notices .......................................................... 33
33 Estoppel Certificates ............................................ 33
34 Memorandum of Lease .............................................. 34
35 Submission Not an Offer .......................................... 34
36 Signage .......................................................... 35
37 Holding Over ..................................................... 35
38 Miscellaneous .................................................... 36
EXHIBIT A -- Plan of Premises .......................................... 43
EXHIBIT B -- Landlord's Work ........................................... 44
EXHIBIT C -- Rules and Regulations ..................................... 45
i
<PAGE>
EXHIBIT D -- Cleaning Specifications ................................... 50
ii
<PAGE>
LEASE, made as of the ____ day of March, 1997, by and between 110 East
42nd Street Associates, Limited Partnership, a Maryland limited partnership with
offices at 110 East 42nd Street, New York 10017 (herein called "Landlord"), and
National Fiber Network, Inc., a Delaware corporation having an address at 60
Hudson Street, New York, New York 10013 (herein called "Tenant").
REFERENCE PAGE
PREMISES: A portion of the 15th floor of the building located at 110 East 42nd
Street, New York, New York 10017, which premises are deemed to be 5,325 square
feet and are approximately as shown on the floor plans annexed hereto as Exhibit
A.
COMMENCEMENT DATE: April 1, 1997.
RENT COMMENCEMENT DATE: The Commencement Date
EXPIRATION DATE: The day immediately preceding the first anniversary of the
Commencement Date.
TERM OF LEASE: One (1) year.
ANNUAL FIXED BASE RENT: $127,800.00
MONTHLY INSTALLMENT OF FIXED BASE RENT: $10,650.00
ELECTRICITY: Direct Meter.
TENANT'S PROPORTIONATE SHARE: .023066 (2.3066%)
REAL ESTATE BROKERS: Colliers ABR, Inc.
The Reference Page information is incorporated into and made a part of the
within Lease. In the event of any conflict between any Reference Page
information and the Lease, the Lease shall control. This Lease includes Exhibits
A through D all of which are made a part hereof.
iii
<PAGE>
W I T N E S S E T H:
The parties hereto covenant and agree as follows:
ARTICLE 1
PREMISES AND RENT
1.01 Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, upon and subject to the terms, covenants, provisions and conditions of
this Lease, the premises located in the building known as 110 East 42nd Street
in the City, County and State of New York (herein called "Building"), which
premises are deemed to be 5,325 square feet and approximately as shown on the
floor plan attached hereto as Exhibit A and made a part hereof (herein called
"Premises").
1.02 (a) The term of this Lease shall commence on the date specified in
Section 1.02(b) (the "Commencement Date"), and shall expire at 11:59 P.M. on the
Expiration Date set forth on the Reference Page, both dates inclusive, or upon
the earlier expiration of the term of this Lease pursuant to the terms of this
Lease or pursuant to law.
(b) The "Commencement Date" of the term of this Lease shall be April
1, 1997.
(c) The "Rent Commencement Date" shall be the Commencement Date.
(d) Subject to the completion of Landlord's Work, as defined in
Exhibit B, Tenant hereby agrees that the Premises are being leased in its
current, "As-Is" condition. Tenant hereby accepts the existing facilities,
materials and work as furnished, installed and performed in the Premises by
Landlord as satisfactory. All other installations, materials and work which may
be undertaken by or for the account of Tenant to prepare, equip, decorate and
furnish the Premises for Tenant's occupancy shall be at Tenant's expense and are
hereinafter referred to as "Alterations."
(e) This Section 1.02 shall be deemed to be an express provision to
the contrary for purposes of Section 223-a of the Real Property Law of the State
of New York and any other law of like import now or hereafter in force.
1.03 (a) From and after the Rent Commencement Date, Tenant shall pay to
Landlord fixed annual base rent, subject to adjustment, at the annual fixed base
rental rate set forth in the Reference Page (herein called "Fixed Base Rent")
which shall be payable in equal monthly installments in advance on the first day
of each and every calendar month during the term of this Lease, except that the
first monthly installment of Fixed Base Rent shall be payable by Tenant upon
execution hereof. In the event that the Rent
<PAGE>
Commencement Date falls on any day other than the first day of a month, the
Fixed Base Rent for such partial month shall be pro-rated on a per diem basis
and Tenant shall pay the amount thereof for such partial month on the Rent
Commencement Date. In such event the amount paid by Tenant upon execution of
this Lease shall be applied to the Fixed Base Rent payable on the first day of
the first month following the Rent Commencement Date.
(b) Any sum other than Fixed Base Rent payable hereunder
(hereinafter called "Additional Rent") shall, unless otherwise stated, be due on
demand therefor and shall be payable whether or not the Rent Commencement Date
has occurred. Fixed Base Rent and Additional Rent shall be paid in lawful money
of the United States by check drawn to Landlord's order. Said checks shall be
sent to Landlord at its address as hereinabove set forth, or to such other party
or parties and/or at such other address(es) as Landlord shall designate by
notice to Tenant.
(c) Tenant shall pay the Fixed Based Rent and Additional Rent
promptly when due without notice or demand therefor and without abatement,
deduction or setoff for any reason whatsoever.
1.04 No payment by Tenant or receipt or acceptance by Landlord of a lesser
amount than the correct Fixed Base Rent or Additional Rent shall be deemed to be
other than a payment on account, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance or pursue any other remedy provided in
this Lease or at law.
1.05 Landlord shall have the same right and remedies (including, without
limitation, the right to commence a summary proceeding) for a default in the
payment of Additional Rent as for a default in the payment of Fixed Base Rent
notwithstanding the fact that Tenant may not then also be in default in the
payment of Fixed Base Rent.
ARTICLE 2
USE
2.01 Tenant shall use and occupy the Premises only for general and
executive offices and for no other purpose.
2.02 If any governmental license or permit (other than a Certificate of
Occupancy for the Building or any other license or permit required of all
tenants occupying space for executive and general office use in the Borough of
Manhattan) shall be required for the proper and lawful conduct of Tenant's
business in the Premises or any part thereof, Tenant
2
<PAGE>
at its expense shall procure and maintain and comply with the terms and
conditions of such license or permit and submit the same to Landlord for
inspection.
2.03 Tenant shall not at any time use or occupy or suffer or permit anyone
to use or occupy the Premises, or do or permit anything to be done in the
Premises, in any manner which, in Landlord's judgment, would (a) violate the
Certificate of Occupancy for the Premises or the Building; (b) cause injury to
the Building or any equipment, facilities or systems therein or any persons in
or about the Building; (c) constitute a violation of the laws or requirements of
any public authority or the requirements of the New York Board of Fire
Underwriters or any other similar body or cause an increase in the rate of fire
insurance on the Building or any other tenant; (d) impair the character,
reputation or appearance of the Building as a first-class office building; or
(e) annoy or inconvenience other tenants or occupants of the Building.
ARTICLE 3
PREPARATION OF PREMISES
3.01 Tenant is leasing the Premises "as is" as of the date hereof, except
for any work which Landlord has expressly agreed to perform in accordance with
Exhibit B annexed hereto.
ARTICLE 4
TAXES
4.01 (a) Tenant shall pay to Landlord upon demand, unless Tenant is
required to pay the applicable taxing authority directly, as Additional Rent,
any occupancy tax or rent tax now in effect or hereafter enacted, which Landlord
now or hereafter is required to pay (i) with respect to the Premises or this
Lease or (ii) upon this transaction or any document to which Tenant is a party
creating or transferring an interest or an estate in the Premises. Nothing
herein shall be construed to require Tenant to pay any portion of the real
estate taxes assessed on the Building or the land.
(b) Tenant agrees to pay, before delinquency, any and all taxes
levied or assessed against Tenant which become payable during the term hereof
upon Tenant's equipment, furniture, fixtures, and other personal property of
Tenant located in the Premises.
3
<PAGE>
ARTICLE 5
INTENTIONALLY DELETED
ARTICLE 6
INTENTIONALLY DELETED
ARTICLE 7
SUBORDINATION, NOTICE TO SUPERIOR
LESSORS AND MORTGAGEES
7.01 This Lease, and all rights of Tenant hereunder, are and shall be
subject and subordinate to all ground leases, overriding leases and underlying
leases of the Land and/or the Building hereafter existing and to all mortgages
which may hereafter affect the Land and/or the Building and/or any of such
leases, whether or not such mortgages shall also cover other lands and/or
buildings and/or leases, to each and every advance made or hereafter to be made
under such mortgages, and to all renewals, modifications, replacements and
extensions of such leases and such mortgages and spreaders and consolidations of
such mortgages. This Section shall be self-operative and no further instrument
of subordination shall be required. In confirmation of such subordination,
Tenant shall promptly execute, acknowledge and deliver any instrument that
Landlord, the lessor under any such lease or the holder of any such mortgage or
any of their respective successors in interest may reasonably request to
evidence such subordination and, if Tenant fails to execute, acknowledge or
deliver any such instruments within 10 days after request therefor, Tenant
hereby irrevocably constitutes and appoints Landlord as Tenant's
attorney-in-fact coupled with an interest to execute and deliver any such
instruments for and on behalf of Tenant. Nothing contained in the preceding
sentence shall limit Landlord's remedies under Section 25.02(e). Any lease to
which this Lease is, at the time referred to, subject and subordinate is herein
called a "Superior Lease" and the lessor of a Superior Lease or its successor in
interest, at the time referred to, is herein called a "Superior Lessor"; any
mortgage to which this Lease is, at the time referred to, subject and
subordinate is herein called a "Superior Mortgage" and the holder of a Superior
Mortgage is herein called a "Superior Mortgagee."
7.02 Tenant agrees that, except for the first month's rent hereunder, it
will pay no rent under this Lease more than 30 days in advance of its due date,
if so restricted by a Superior Lease or Superior Mortgage or by an assignment of
this Lease to the holder of a Superior Mortgage or a Superior Lease. If any act
or omission of Landlord would give Tenant the right, immediately or after lapse
of a period of time, to cancel or terminate this
4
<PAGE>
Lease, or to claim a partial or total eviction, Tenant shall not exercise such
right (a) until it has given written notice of such act or omission to Landlord
and each Superior Mortgagee and each Superior Lessor whose name and address
shall previously have been furnished to Tenant, and (b) until a reasonable
period for remedying such act or omission shall have elapsed following the
giving of such notice and following the time when such Superior Mortgagee or
Superior Lessor shall have become entitled under such Superior Mortgage or
Superior Lease, as the case may be, to remedy the same (which reasonable period
shall in no event be less than the period to which Landlord would be entitled
under this Lease or otherwise, after similar notice, to effect such remedy),
provided such Superior Mortgagee or Superior Lessor shall with due diligence
commence and continue to remedy such act or omission.
7.03 If any Superior Lessor or Superior Mortgagee or purchaser at a
foreclosure sale shall succeed to the rights of Landlord under this Lease,
whether through possession or foreclosure action or delivery of a new lease or
deed, then at the request of such party so succeeding to Landlord's rights
(herein called a "Successor Landlord") and upon such Successor Landlord's
written agreement to accept Tenant's attornment, Tenant shall attorn to and
recognize such Successor Landlord as Tenant's landlord under this Lease. This
attornment shall be self-operative and no further instrument of attornment shall
be required. In confirmation of such attornment, Tenant shall promptly execute,
acknowledge and deliver any instrument that Landlord or any Successor Landlord
may reasonably request to evidence such subordination (which, if so requested,
shall include the substance of the last sentence of this Section 7.03) and, if
Tenant fails to execute, acknowledge and deliver any such instruments within 10
days after request therefor, Tenant hereby irrevocably appoints Landlord and the
Successor Landlord as Tenant's attorneys-in-fact coupled with an interest to
execute and deliver any such instruments for and on behalf of Tenant. Nothing in
the preceding sentence shall be construed to limit Landlord's rights under
Section 25.02(e) hereof. Upon such attornment, this Lease shall continue in full
force and effect as a direct lease between the Successor Landlord and Tenant
upon all of the terms, conditions and covenants as are set forth in this Lease
except that the Successor Landlord shall not (a) be liable for any previous act,
omission or default of Landlord under this Lease; (b) be subject to any offsets,
claims or defenses which theretofore shall have accrued to Tenant against
Landlord; (c) be bound by any covenant to undertake or complete any improvements
to the Premises or the Building or to pay to Tenant any sum, or grant to Tenant
any credit, in the nature of a contribution towards the cost of preparing,
furnishing or moving into the Premises or any portion, thereof; or (d) be bound
by any previous modification, amendment, surrender or cancellation of this Lease
or by any previous prepayment of more than one month's Fixed Base Rent or
Additional Rent, unless such modification, amendment, surrender, cancellation or
prepayment shall have been expressly approved in writing by the Superior Lessor
or the Superior Mortgagor through or by reason of which the Successor Landlord
shall have succeeded to the rights of Landlord under this Lease.
5
<PAGE>
ARTICLE 8
QUIET ENJOYMENT
8.01 So long as Tenant pays all of the Fixed Base Rent and Additional Rent
and performs all of Tenant's other obligations hereunder, Tenant shall peaceably
and quietly have, hold and enjoy the Premises without hindrance, ejection or
molestation by Landlord or any person lawfully claiming through or under
Landlord, subject, nevertheless, to the provisions of this Lease and to Superior
Leases and Superior Mortgages. This covenant shall be construed as a covenant
running with the land, and is not, nor shall it be construed as, a personal
covenant of Landlord, except to the extent of Landlord's interest in the Land
and the Building and only so long as such interest shall continue, and
thereafter this covenant shall be binding only upon subsequent successors in
interest of Landlord's interest in the Land and the Building, to the extent of
their respective interest, as and when they shall acquire the same, and so long
as they shall retain such interest.
ARTICLE 9
ASSIGNMENT, SUBLETTING AND MORTGAGING
9.01 Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns, expressly
covenants that it shall not whether voluntarily, involuntarily, or by operation
of law or otherwise, assign, mortgage or encumber this Lease, nor underlet, or
suffer or permit the Premises or any part thereof to be used or occupied by
others without Landlord's prior written consent, such consent not to be
unreasonably withheld or delayed.
If this Lease be assigned, or if the Premises or any part thereof be
underlet or occupied by anybody other than Tenant, Landlord may, after default
by Tenant, collect rent from the assignee, undertenant or occupant, and apply
the net amount collected to the Fixed Base Rent or Additional Rent herein
reserved, but no assignment, underletting, occupancy or collection shall be
deemed a waiver of the provisions hereof, the acceptance of the assignee,
undertenant or occupant as Tenant, or a release of Tenant from the further
performance by Tenant of covenants on the part of Tenant herein contained. The
transfer of a majority of the partnership interests of Tenant, the voting power
of Tenant or the power to control Tenant shall be deemed an assignment
prohibited by this Article.
9.02 The listing of any name other than that of Tenant, whether on the
doors of the Premises or the Building directory, or otherwise, shall not operate
to vest any right or interest in this Lease or in the Premises on the person or
firm therein named, nor shall it be deemed to be the consent of Landlord to any
assignment or transfer of this Lease or to any sublease of the Premises or to
the use or occupancy thereof by others.
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9.03 If Tenant requests Landlord's consent to a specific assignment or
subletting, Tenant shall submit in writing (i) the name and address of the
proposed assignee or subtenant, (ii) a term sheet setting forth the material
business terms of the proposed transaction, including, without limitation, the
purchase price for all or substantially all of Tenant's assets or stock, as the
case may be, (iii) at least two years of financial statements for the proposed
assignee or subtenant, (iv) information as to the nature and character of the
business and proposed use for the space and (v) all other information reasonably
requested by Landlord.
9.04 (a) The proposed assignment or sublease must specifically provide
that (1) the assignee or sublessee, as the case may be, will not have the right
to further assign or sublet all or part of the demised premises or to allow same
to be used by others, without the consent of Landlord in each instance in
accordance with this Article 9; (2) a consent by Landlord thereto shall not be
deemed or construed to modify, amend or affect the terms and provisions of the
Lease, or Tenant's obligations hereunder; and (3) the receipt by Landlord of any
amounts from sublessee, or other occupant of any part of the demised premises
shall not be deemed or construed as releasing Tenant from Tenant's obligations
under the lease or the acceptance of that party as a direct tenant;
(b) Any such consent of Landlord shall be subject to the terms of
this Article and conditioned upon there being no default by Tenant beyond any
grace and notice period under any of the terms, covenants and conditions of this
Lease at the time that Landlord's consent to any such assignment or subletting
is requested and all basic annual rent and additional rent due to date shall
have been paid on the date of the commencement of the term of any such proposed
sublease or the effective date of any such proposed assignment.
9.05 (a) Within two (2) days after executing an assignment or sublease
(after having received Landlord's written consent pursuant to this Article),
Tenant shall deliver to Landlord an original assignment or sublease, as the case
may be.
(b) All subleases shall provide that the sublessee shall comply with
all applicable terms, covenants, provisions and conditions of this Lease to be
performed by Tenant hereunder except for the obligation to pay basic annual rent
and additional rent and such other covenants that are, by their nature, not
relevant to the subletting. All assignments of this Lease shall contain an
assumption by the assignee of all of the terms, covenants, provisions and
conditions of this Lease to be performed by the Tenant hereunder.
9.06 Anything contained in Article 9 to the contrary notwithstanding:
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(a) Tenant may list with brokers its space for assignment or
subletting and may advertise such space provided no such advertisements include
the name of the Building;
(b) No assignment or subletting shall be made: (i) by the legal
representatives of the Tenant or by any person to whom Tenant's interest under
this lease passes by operation of law, except in compliance with the provisions
of this Article; (ii) to any person or entity for the conduct of a business
which is not in keeping with the standards and the general character of the
Building and in accordance with the Permitted Use; and (iii) to any person or
entity which shall at that time be a Tenant, subtenant or other occupant of any
part of the Building, or who dealt with Landlord or Landlord's agent (directly
or through a broker) with respect to space in the Building during the six (6)
months immediately preceding Tenant's request for Landlord's consent.
9.07 The joint and several liability of Tenant and any immediate or remote
successor in interest of Tenant and the due performance of the obligations of
this Lease on Tenant's part to be performed or observed shall not be discharged,
released or impaired in any respect by any agreement or stipulation made by
Landlord extending the time of or modifying any of the obligations of this Lease
or by any waiver or failure of Landlord to enforce any of the obligations of
this Lease.
9.08 Any assignment or transfer, shall not be effective unless and until
(a) the assignee shall execute, acknowledge and deliver to Landlord a recordable
agreement, in form and substance satisfactory to Landlord, whereby the assignee
shall assume the obligations and performance of this Lease and agree to be bound
by all of the covenants, agreements, terms, provisions and conditions hereof on
the part of Tenant to be performed or observed on and after the effective date
of any such assignment and (b) agree that the provisions of this Article 9
shall, notwithstanding such assignment or transfer, continue to be binding upon
it in the future. Tenant covenants that, notwithstanding any assignment or
transfer, whether or not in violation of the provisions of this Lease, and
notwithstanding the acceptance of basic annual rent by Landlord from an assignee
or transferee or any other party, Tenant shall remain fully and primarily and
jointly and severally liable for the payment of the basic annual rent and all
additional rent due and to become due under this Lease and for the performance
and observance of all of the covenants, agreements, terms, provisions and
conditions of this Lease on the part of Tenant to be performed or observed.
9.09 The liability of Tenant, and the due performance by Tenant of the
obligations on its part to be performed under this Lease, shall not be
discharged, released or impaired in any respect by an agreement or stipulation
made by Landlord or any grantee or assignee of Landlord in connection with a
mortgage or any other agreement with a third party extending the time of or
modifying any of the obligations contained in this Lease, or by any waiver or
failure of Landlord to enforce any of the obligations on Tenant's part to be
performed under this Lease, and Tenant shall continue to be liable hereunder. If
any
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such agreement or modification operates to increase the obligations of Tenant
under this Lease, the liability under this Section 9.09 of the tenant named in
the Lease or any of its successors in interest (unless such party shall have
expressly consented in writing to such agreement or modification) shall continue
to be no greater than if such agreement or modification had not been made.
9.10 If Landlord shall give its consent to any assignment of this Lease or
to any sublease, Tenant shall in consideration therefor, pay to Landlord, as
additional rent:
(i) in the case of an assignment, an amount equal to all sums and
other consideration paid to Tenant by the assignee for or by reason of such
assignment (including, but not limited to, sums paid for the sale or rental of
Tenant's fixtures, leasehold improvements, equipment, furniture, furnishings or
other personal property, less, in the case of a lease or sale thereof, the then
fair market rental or sale value, as the case may be), and less any expenses
reasonably incurred by Tenant in connection with such assignment, including
without limitation, costs of altering and preparing the demised premises for new
tenants, brokerage commissions and reasonable attorneys' fees and disbursements;
and
(ii) in the case of a sublease, any rents, additional charges and
other consideration payable under the sublease to Tenant by the sublessee which
is in excess of the Fixed Base Rent and Additional Rent accruing during the term
of the sublease in respect of the subleased space (at the rate per square foot
payable by Tenant hereunder) pursuant to the terms hereof (including, but not
limited to, sums paid for the sale or rental of Tenant's fixtures, leasehold
improvements, equipment, furniture, furnishings or other personal property,
less, in the case of the lease or sale thereof, the then fair market rental or
sale value, as the case may be), and less any expenses reasonably incurred by
Tenant in connection with such subletting, including without limitation, costs
of altering and preparing the demised premises for subtenants, brokerage
commissions and reasonable attorneys' fees and disbursements.
ARTICLE 10
COMPLIANCE WITH LAWS
10.01 Tenant shall, at Tenant's expense, comply with all legal
requirements which shall impose any violation, order or duty upon Landlord or
Tenant with respect to the Premises, or the use or occupation thereof, whether
or not such compliance involves structural repairs or changes to the demised
premises.
10.02 Notwithstanding the provision of Section 10.01 hereof, Tenant, at
its own cost and expense, in its name and/or (whenever necessary) Landlord's
name, may contest,
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in any manner permitted by law (including appeals to a court, or governmental
department or authority having jurisdiction in the matter), the validity or the
enforcement of any legal requirements with which Tenant is required to comply
pursuant to this Lease, and may defer compliance therewith provided that:
(a) such non-compliance shall not subject Landlord to criminal
prosecution or subject the Property to lien or sale;
(b) such non-compliance shall not be in violation of any mortgage,
or of any ground or underlying lease or any mortgage thereon;
and
(c) Tenant shall promptly, diligently and continuously prosecute
such contest.
Landlord, without expense or liability to it, shall cooperate with Tenant
and execute any documents or pleadings required for such purpose, provided that
Landlord shall reasonably be satisfied that the facts set forth in any such
documents or pleadings are accurate.
10.03 All work performed pursuant to this Article by Tenant shall be
performed in accordance with the provisions of Article 13 hereof relating to
Alterations.
ARTICLE 11
INSURANCE
11.01 Tenant shall obtain and keep in full force and effect during the
term of this Lease at its own cost and expense comprehensive general liability
insurance with a broad form liability insurance with a broad form liability
endorsement including coverage for contractual liability. Said insurance shall
provide coverage on an occurrence basis with a minimum limit of liability of (a)
$2,000,000 per occurrence for bodily injury (including death), whether involving
one or more persons and (b) $2,000,000 per occurrence in respect of property
damage; subsections (a) and (b) shall be subject to an annual aggregate of
$2,000,000. In the event Tenant occupies space in more than one location, the
said aggregate of $2,000,000 shall apply to each location. Said insurance is to
be written without the inclusion of any defense costs within the limit of
liability and shall name Landlord, as additional insured, and Tenant, as
insured, against any and all claims for bodily injury (including death),
personal injury, or property damage occurring in, upon, adjacent to, or
connected with the Demised Premises or any part thereof. Said insurance shall be
written in form reasonably satisfactory to Landlord by one or more good and
solvent insurance companies of recognized standing admitted to do business in
the State of New York, rated by A.M. Best Co., Inc., or any successor thereto
(or if there be none,
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an organization having a national reputation) as having a "Best's Rating" of at
least "A (Excellent)" and a financial size of at least "Class XIII." Tenant
shall pay all premiums and charges therefor and upon failure to do so Landlord
may, but shall not be obligated to, make such payments, in which event Tenant
agrees to pay the amount thereof to Landlord on demand, as Additional Rent. A
duplicate original insurance policy or appropriate certificate evidencing the
aforesaid insurance coverage shall be delivered to Landlord together with any
endorsements thereto, on the Commencement Date and thereafter renewals or
replacements thereof shall be delivered to Landlord at least 15 days prior to
the expiration of any expiring policy. Such insurance policy or certificate
shall contain a provision that no act or omission of Tenant will affect or limit
the obligation of the insurance company to pay the amount of any loss sustained
and that the insurance afforded thereunder shall not be canceled, nonrenewed, or
coverage thereunder reduced except upon thirty (30) days' prior written notice
to Landlord. Such insurance policy shall also specifically provide coverage for
Tenant's indemnification and hold harmless obligations set forth in subsections
21.02(b) and (c) which coverage shall include the entire text of the indemnity
clause contained in subsections 21.02(b) and (c). Any certificate delivered to
Landlord shall also specifically reflect coverage of Tenant's aforementioned
indemnification obligation. In the event Tenant shall fail to obtain such
insurance, Landlord may, but shall not be obligated to, obtain the same, in
which event the amount of the premium paid shall be paid by Tenant to Landlord
within ten (10) days following demand as Additional Rent. Landlord shall have
the right, at any time and from time to time during the term of this Lease on
not less than fifteen (15) days' notice to Tenant, to require that Tenant
increase the amounts and/or kinds of coverage required to be maintained under
this Article 11 to the amounts and/or kinds of coverages then required by
Landlord of tenants entering into new leases in the Building. Landlord shall
throughout the term of this Lease keep the Building insured at its replacement
cost value with coverages against "all risk of physical damage" to the Building,
provided that Landlord may at its option self-insure for any or all of such
coverages.
11.02 Each party agrees to use its best efforts to include in each of its
policies insuring against loss, damage or destruction by fire or other casualty,
a waiver of the insurer's right of subrogation against the other party in
connection with any loss or damage covered by any such policy or permission to
release third parties from liability resulting from such casualties. If such
waiver or permission shall not be, or shall cease to be, obtainable without
additional charge or at all, the insured party shall promptly so notify the
other party. In any case in which such waiver or permission shall cease to be
obtainable without additional charge, if the other party shall so elect and
shall pay the insurer's additional charge therefor, such waiver or permission
shall be included in the policy. In the event that Landlord elects to
self-insure as provided in Section 11.01, Landlord shall provide the waiver of
subrogation described in the first sentence of this Section 11.02 to the extent
to which Tenant's insurer has waived its right of subrogation against Landlord.
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11.03 Each party hereby releases the other party, its officers, directors,
partners, agents and employees with respect to any claim (including a claim for
negligence) which it might otherwise have against the other party, its officers,
directors, partners, agents or employees, for loss, damage or destruction with
respect to its property (including rental value or business interruption)
occurring during the term of this Lease but only if and to the extent to which
(assuming no deductibles) in the case of a release by Landlord, Tenant is
covered under a policy of collectible insurance containing a waiver of
subrogation provision or permission or, in the case of a release by Tenant,
Landlord is covered by a policy of collectible insurance containing a waiver of
subrogation provision or permission or is self-insured and has waived its rights
of subrogation, as provided in this Article 11. If notwithstanding the recovery
of insurance proceeds by either party for loss, damage or destruction of its
property (or rental value or business interruption) the other party is liable to
the first party with respect thereto or is obligated under this Lease to make
replacement, repair or restoration, then provided the first party's right to
full recovery under its insurance policies is not thereby prejudiced or
otherwise adversely affected, the amount of the net proceeds of the first
party's insurance against such loss, damage or destruction shall be offset
against the second party's liability to the first party therefor, or shall be
made available to the second party to pay for replacement, repair or
restoration, as the case may be.
11.04 The waiver of subrogation or permission referred to in Sections
11.02 and 11.03 of this Article shall extend to the officers, directors,
partners, agents and employees of each party and, in the case of Tenant, shall
also extend to all other permitted occupants of the Premises, but only if and to
the extent that such waiver or permission can be obtained without additional
charge (unless such party shall pay such charge). Nothing contained in this
Article shall be deemed to relieve either party from any duty imposed elsewhere
in this Lease to repair, restore or rebuild or to nullify any abatement of Fixed
Base Rent provided for elsewhere in this Lease.
11.05 Any employee of the Building to whom property shall be entrusted by
or on behalf of Tenant shall be deemed to be acting as Tenant's agent with
respect to such property and neither Landlord nor its agents shall be liable for
any damage to such property nor for the loss of or damage to any property of
Tenant by theft or otherwise.
ARTICLE 12
RULES AND REGULATIONS
12.01 Tenant and its employees and agents shall faithfully observe and
comply with the rules and regulations annexed hereto as Exhibit C, and such
changes thereof (whether by modification, elimination or addition) as Landlord
may from time to time make and communicate to Tenant (such rules and regulations
as changed from time to time
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being herein called "Rules and Regulations"); provided, however, that in case of
any conflict or inconsistency between the provisions of this Lease and any of
the Rules and Regulations, the provisions of this Lease shall control.
ARTICLE 13
ALTERATIONS
13.01 Tenant shall make no alteration, addition or improvement in the
Premises (herein called "Alterations"), without the prior written consent of
Landlord (which shall not be unreasonably withheld or delayed and, if approved,
only by contractors or mechanics, in such manner, at such times and with such
materials as may be approved by Landlord), and alterations performed by Tenant
to prepare, equip, decorate and furnish the Premises for Tenant's occupancy. All
Alterations shall be done at Tenant's sole cost and expense. If required by
Landlord, all Alterations shall be removed by Tenant upon the expiration or
sooner termination of the term of this Lease and Tenant, at its expense, shall
repair any damage to the Premises caused by such removal. Alterations shall not
include decorations such as painting, wallcoverings and carpeting.
13.02 (a) Tenant, at its expense, shall obtain all necessary governmental
permits and certificates for the commencement and prosecution of Alterations and
for final approval thereof upon completion, and shall cause Alterations to be
performed in compliance therewith and with all applicable law and requirements
of public authorities including, without limitation, all laws, regulations and
requirements relating to asbestos, and with all applicable requirements of
insurance bodies (as defined in Section 38.06). Notwithstanding the foregoing,
no plans or specifications required to be filed by Tenant pursuant to any
Alterations contemplated to be performed by it hereunder shall be filed or
submitted to any governmental or quasi-governmental authority having
jurisdiction thereover without Tenant first having obtained Landlord's approval
of such plans and specifications.
(b) Alterations shall be diligently performed in a good and
workmanlike manner, and in accordance with plans and specifications first
approved in writing by Landlord. Tenant shall reimburse Landlord promptly upon
demand for any costs and expenses incurred by Landlord in connection with
Landlord's review of such plans and specifications except for Landlord's review
of such plans and specifications relating to the initial installation.
Alterations shall be performed by contractors first approved by Landlord, which
approval shall not be unreasonably withheld; provided, however, that contractors
performing any Alterations in or to the Building's mechanical, electrical,
sanitary, heating, ventilating, air-conditioning or other systems shall be
subject to Landlord's approval to be granted or denied in Landlord's sole
discretion. Alterations shall be performed in such manner as not to interfere
with or delay and as not to impose
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any additional expense upon Landlord in the construction, maintenance. repair or
operation of the Building; and if any such additional expense shall be incurred
by Landlord thereby, Tenant shall pay such additional expense upon demand.
Tenant shall coordinate its construction of Alterations with Landlord so that it
will not interfere with or delay the completion of any other construction work
in the Building, and, to that end, Tenant and its contractors and subcontractors
shall use only the Premises for the performance of Tenant's Alterations.
(c) No Alterations estimated to cost more than $10,000.00 (as
estimated by Landlord's architect or licensed professional engineer or general
contractor) shall be undertaken (i) except under the supervision of a licensed
architect or licensed professional engineer reasonably satisfactory to Landlord,
and (ii) prior to Tenant delivering to Landlord either (y) a performance bond
and a labor and materials payment bond (issued by a surety company satisfactory
to Landlord and licensed to do business in New York State) each in an amount
equal to one hundred percent (100%) of such estimated cost and otherwise in form
satisfactory to Landlord or (z) a letter of credit, unconditional and
irrevocable, issued by a commercial bank which is acceptable to Landlord in its
sole discretion, payable to Landlord upon presentation solely of a sight draft
and expiring no earlier than thirty (30) days after completion of such
Alterations in an amount equal to one hundred percent (100%) of such estimated
cost of such Alterations and otherwise in form satisfactory to Landlord.
(d) Throughout the performance of Alterations, Tenant, at its
expense, shall carry, or cause to be carried, worker's compensation insurance in
statutory limits and comprehensive general liability insurance, with completed
products endorsement, for any occurrence in or about the Building, under which
Landlord and its agent and any Superior Lessor and Superior Mortgagee whose name
and address shall previously have been furnished to Tenant shall be named as
parties insured, with a minimum liability of (i) $2,000,000 per occurrence for
bodily injury (including death), whether involving one or more persons, and (ii)
$2,000,000 per occurrence in respect of property damage, with one or more good
and solvent insurance companies of recognized standing admitted to do business
in the State of New York, rated by A.M. Best Co., Inc., or any successor thereto
(or if there be none, an organization having a national reputation) as having a
"Best's Rating" of at least "A (Excellent)" and a financial size of at least
"Class XIII". Tenant shall furnish Landlord with satisfactory evidence that such
insurance is in effect prior to commencement of Alterations and, on request, at
reasonable intervals thereafter during the continuance of Alterations.
13.03 Tenant shall procure the cancellation or discharge of all notices of
violation arising from or otherwise connected with Alterations, or any other
work, labor, services or materials done for or supplied to Tenant, or any person
claiming through or under Tenant, which shall be issued by the Department of
Buildings of The City of New York or any other public authority having or
asserting jurisdiction. Tenant shall defend,
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indemnify and save harmless Landlord from and against any and all mechanics' and
other liens and encumbrances filed in connection with Alterations, or any other
work, labor, services or materials done for or supplied to Tenant, or any person
claiming through or under Tenant, including, without limitation, security
interests in any materials, fixtures or articles so installed in and
constituting part of the Premises and against all costs, expenses and
liabilities incurred in connection with any such lien or encumbrance or any
action or proceeding brought thereon. Tenant, at its expense, shall procure the
satisfaction or discharge of record of all such liens and encumbrances within
fifteen (15) days after the filing thereof.
13.04 Any such approved Alterations shall be performed in accordance with
the foregoing provisions of this Article 13, the following provisions of this
Section 13.04 and the provisions of Sections 13.05, 13.06 and 38.12:
(a) Tenant will inform Landlord in writing of the names of any
contractor or subcontractors Tenant proposes to use in the Premises at least ten
(10) days prior to the beginning of work by such contractor or subcontractors.
(b) Tenant covenants and agrees to pay to the contractor, as the
work progresses, the entire cost of supplying the materials and performing the
work shown on the plans and specifications submitted to and approved by Landlord
in accordance with Section 13.02.
(c) During the progress of the work to be done by Tenant, said work
shall be subject to inspection by representatives of Landlord who shall be
permitted access and the opportunity to inspect, at all reasonable times, but
this provision shall not in any way whatsoever create any obligation on Landlord
to conduct such an inspection.
(d) Tenant shall pay to Landlord as Additional Rent, promptly upon
being billed therefor, a sum equal to Landlord's reasonable actual out-of-pocket
costs (including, but not limited to, Landlord's indirect costs, field
inspection costs and coordination costs) in connection with such Alterations.
(e) Tenant agrees that it will not at any time prior to or during
the term of this Lease either directly or indirectly, employ or permit the
employment of any contractor, mechanic or laborer, or permit any materials in
the Premises, if the use of such contractor, mechanic or laborer or such
materials would, in Landlord's reasonable judgment, create any difficulty,
strike or jurisdictional dispute with other contractors, mechanics or laborers
engaged by Tenant or Landlord or others, or would violate the provisions of
Section 38.12 hereof. In the event of any interference or conflict, Tenant, upon
demand of Landlord, shall cause all contractors, mechanics or laborers, or all
materials causing such interference, difficulty or conflict, to leave or be
removed from the Building immediately.
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13.05 No approval of plans or specifications by Landlord or consent by
Landlord allowing Tenant to make Alterations in the Premises shall in any way be
deemed to be an agreement by Landlord that the contemplated Alterations comply
with any legal requirements or insurance requirements or the certificate of
occupancy for the Building nor shall it be deemed to be a waiver by Landlord of
the compliance by Tenant with any of the terms of this Lease. Nothing in this
Lease shall be deemed or construed in any way as constituting the consent or
request of Landlord, express or implied, by inference or otherwise, to any
contractor, subcontractor, laborer or materialman for the performance of any
labor or the furnishing of any materials for any specific improvement or
Alteration to, or repair of, the Premises, the Building or any part thereof, nor
as giving Tenant any right, power or authority to contract for or permit the
rendering of any services or the furnishing of any materials that would give
rise to the filing of any mechanics' liens against Landlord's interest in the
Premises or the Building. Notice is hereby given that neither Landlord nor
Landlord's agents, nor any superior lessor nor superior mortgagee shall be
liable for any labor or materials furnished or to be furnished to Tenant upon
credit, and that no mechanic's or other lien for such labor or materials shall
attach to or affect any estate or interest of Landlord or any superior lessor or
superior mortgagee in and to the Premises or the Real Property.
ARTICLE 14
LANDLORD'S AND TENANT'S PROPERTY
14.01 All fixtures, equipment, improvements and appurtenances attached to
or built into the Premises at the commencement of or during the term of this
Lease and which cannot be removed without damage to the Premises or the
Building, whether or not installed by or at the expense of Tenant, shall be and
remain a part of the Premises, shall be deemed the property of Landlord and
shall not be removed by Tenant, except as provided in Section 14.02. Further,
any carpeting or other personal property in the Premises on the Commencement
Date, unless installed and paid for by Tenant, shall be and shall remain
Landlord's property and shall not be removed by Tenant.
14.02 All movable partitions, business and trade fixtures, machinery and
equipment, communications equipment and office equipment, whether or not
attached to or built into the Premises, which are installed in the Premises by
or for the account of Tenant and can be removed without structural damage to the
Building, and all furniture, furnishings and other articles of movable personal
property owned by Tenant and located in the Premises (herein collectively called
"Tenant's Property") shall be removed by Tenant, at its sole cost and expense,
prior to the expiration of the term of this Lease. Tenant shall repair any
damage to the Premises or the Building resulting from any installation and/or
removal of Tenant's Property.
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14.03 Any items of Tenant's Property which shall remain in the Premises
after the Expiration Date, or after a period of ten (10) days following an
earlier termination date, may, at the option of Landlord, be deemed to have been
abandoned, and in such case such items may be retained by Landlord as its
property or disposed of by Landlord, without accountability and in such manner
as Landlord shall determine, at Tenant's expense including all costs of selling,
disposing, removing and storing such property.
ARTICLE 15
REPAIRS AND MAINTENANCE
15.01 Tenant shall, at its expense, throughout the term of this Lease,
take good care of the Premises, the fixtures and appurtenances therein and
Tenant's Property. Tenant, at its expense, shall promptly replace all scratched,
damaged or broken doors and glass in the Premises and shall be responsible for
all repairs, maintenance of wall and floor coverings in the Premises and for the
repair and maintenance of all sanitary and electrical fixtures and equipment
therein. Tenant shall be responsible for all repairs, interior and exterior,
structural and non-structural, ordinary and extraordinary, in and to the
Premises, the Building and the facilities and systems thereof the need for which
arises out of (a) the performance or existence of or Alterations performed by
the Tenant in the Premises, (b) the installation, use or operation of Tenant's
Property in the Premises, (c) the moving of Tenant's Property in or out of the
Building, or (d) the act, omission, misuse or neglect of Tenant or any of its
sublessees or its or their employees, agents, contractors or invitees. Tenant
shall promptly make, at Tenant's expense, all repairs in or to the Premises for
which Tenant is responsible, and any repairs required to be made by Tenant to
the mechanical, electrical, sanitary, heating, ventilating, air-conditioning or
other systems of the Building shall be performed only by contractors approved by
Landlord. Any other repairs in or to the Building and the facilities and systems
thereof for which Tenant is responsible shall be performed by Landlord at
Tenant's expense; but Landlord may, at its option, before commencing any such
work or at any time thereafter, require Tenant to furnish to Landlord such
security (including, without limitation, a bond issued by a corporate surety
licensed to do business in New York) as Landlord shall deem necessary to assure
the payment for such work by Tenant.
15.02 Except as otherwise expressly provided in this Lease, Landlord shall
have no liability to Tenant, nor shall Tenant's covenants and obligations under
this Lease be reduced or abated in any manner whatsoever, by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required to make or
otherwise permitted by this Lease, or required by law, to make in or to any
portion of the Building or the Premises, or in or to the fixtures, equipment,
systems or appurtenances of the Building or the Premises.
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15.03 (a) Landlord shall keep and maintain the Building, and its fixtures,
appurtenances, systems and facilities, in good working order, condition and
repair and shall make all repairs, structural and otherwise, interior and
exterior, ordinary or extraordinary, as and when needed in or about the
Premises, except those repairs for which Tenant is expressly responsible
pursuant to any other provisions of this Lease and those repairs that other
tenants are responsible for with respect to their premises under the provisions
of said tenants' leases.
(b) Landlord shall keep the lobbies and public areas of the Building
clean and presentable.
ARTICLE 16
ELECTRIC ENERGY
16.01 Landlord agrees that prior to the Commencement Date, conduit will
have been installed in the Building and the Premises by Landlord at Landlord's
expense in order that Tenant may obtain electrical service to the Premises.
Tenant shall arrange for utility service to the Premises with the appropriate
public utility company or public authority supplying the same in the area in
which the Property is located and shall pay all charges therefor or arising in
connection therewith.
16.02 Tenant's use of electric energy in the Premises shall not at any
time, in the reasonable judgment of Landlord as determined by demand meter(s)
measuring electrical usage by the Premises, (i) exceed the capacity of any of
the electrical conductors and equipment in or otherwise serving the Premises or
(ii) cause or result in any impairment or interference with Building systems or
the overloading of the risers or feeders servicing the Building.
16.03 Landlord shall not be liable in any way to Tenant for any failure or
defect in the supply or character of electric energy or other utility furnished
to the Premises by reason of any requirement, act or omission of the public
utility providing the Building with electricity or such other utility or for any
other reason whatsoever. Without limiting the foregoing, in no event shall
Landlord be liable to Tenant for any incidental, consequential or special
damages arising from any such failure or defect, unless such failure or defect
results from gross negligence or willful misconduct of Landlord, its agents,
employees or contractors.
ARTICLE 17
HEAT, VENTILATION AND AIR-CONDITIONING
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17.01 (a) Tenant, at its sole cost and expense, shall arrange for a
reputable air-conditioning firm to make all repairs required to maintain the
heating, ventilating and air conditioning ("HVAC") facilities installed by
Tenant, if any, in the Premises in good working order, and, at all times
throughout the term of this Lease, will provide Landlord with a copy of a
current service contract with such firm. Tenant agrees to operate the HVAC
equipment in accordance with all applicable orders, rules or regulations with
respect to the days or hours of operation of such system, or the volume or
capacity or such system, as may be imposed from time to time by all governmental
agencies and instrumentalities having jurisdiction over the same. Tenant shall
cooperate fully with Landlord at all times and abide by all regulations which
Landlord may reasonably prescribe for the proper functioning and protection of
the HVAC systems.
(b) Landlord, at its expense, shall maintain and repair the heating,
ventilation and air-conditioning systems serving the Building as a whole.
(c) Tenant agrees to keep all windows and doors in the Premises
closed whenever the heating, ventilation and air-conditioning system for the
Building is operating to provide heating or cooling, and Tenant agrees to abide
by the reasonable and customary regulations which Landlord may prescribe for the
proper functioning of said system. In the event of failure of part or all of the
heating, ventilation and air-conditioning system, Tenant shall have the right to
open any or all windows in the Premises so long as such failure is continuing.
Landlord shall have free and unrestricted access to any and all heating,
ventilation and air conditioning system facilities located within the Premises.
17.02 Use of the Premises, or any part thereof, in a manner exceeding the
heating, ventilating and/or air-conditioning capacity as approved by Landlord in
conjunction with Landlord's approval of any Alterations (including occupancy and
connected electrical load, or rearrangement of partitioning which interferes
with normal operation of the heating, ventilating and/or air-conditioning in the
Premises), may require changes in the heating, ventilating and/or
air-conditioning system servicing the Premises. Such changes, so occasioned,
shall be made by Tenant, at its expense, as Alterations in accordance with the
provisions of Article 13, but only to the extent permitted and upon the
conditions set forth in that Article.
ARTICLE 18
OTHER SERVICES; SERVICE INTERRUPTION
18.01 Landlord, at its expense, shall provide elevator service to the
Premises during Business Hours on Business Days, and Landlord shall have at
least one elevator subject to call at all other times. The use of the elevators
shall be subject to the Rules and Regulations. Landlord reserves the right to
(i) alter the configuration of the elevator banks
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and the floors served by each such elevator bank, and (ii) reduce the number of
elevators serving the floors occupied by Tenant; provided, however, no such
alteration or reduction shall in Landlord's reasonable judgment materially
adversely affect the elevator service to the Premises.
18.02 Landlord, at its expense, shall furnish adequate water to the floor
on which the Premises are located for ordinary lavatory purposes. If Tenant uses
water for any other purpose, Landlord may install and maintain, at Tenant's
expense, meters to measure Tenant's consumption of cold water and/or hot water
for such other purposes. Tenant shall reimburse Landlord for the quantities of
water shown on such meters on demand.
18.03 If Landlord shall furnish steam to the Premises, Landlord may
install and maintain, at Tenant's expense, meters to measure Tenant's
consumption of steam. Tenant shall reimburse Landlord for the quantities of
steam shown on such meters on demand.
18.04 Landlord reserves the right, without any liability to Tenant and
without affecting Tenant's covenants and obligations hereunder, to stop or
interrupt or reduce service of any of the heating, ventilating,
air-conditioning, electric, sanitary, elevator or other Building systems serving
the Premises, or to stop or interrupt or reduce any other services required to
be provided by Landlord under this Lease (whether or not specified in Article 17
or 18) whenever and or so long as may be necessary by reasons of (i) accidents,
emergencies, strikes or the occurrence of any of the other events described in
Section 38.05, (ii) the making of repairs or changes which Landlord is required
or is permitted by this Lease or by law to make or in good faith deems necessary
or desirous, (iii) difficulty in securing proper supplies of fuel, steam, water,
electricity, labor or supplies, or (iv) any other cause beyond Landlord's
reasonable control, whether similar or dissimilar.
18.05 Landlord, at its expense, shall provide cleaning services to the
Premises as more specifically set forth in Exhibit D hereto.
18.06 Landlord shall not be required to furnish any services to Tenant or
the Premises, except as otherwise specifically provided in this Lease and Tenant
shall pay direct to any third party providing services not expressly provided in
this Lease.
ARTICLE 19
ACCESS
19.01 Except for the space within the inside surfaces of all walls, hung
ceilings, floors, windows and doors bounding the Premises, all of the Building,
including, without limitation, exterior Building walls, window sills, core
corridor walls and doors and any
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core corridor entrance, any roofs adjacent to the Premises, and any space in or
adjacent to the Premises used for elevators, shafts, stacks, pipes, conduits,
fan rooms, ducts, electric or other utilities, sinks or other Building
facilities, utility closets and the use thereof, as well as access thereto
through the Premises for the purposes of operation, maintenance, decoration and
repair, are reserved to Landlord. Landlord reserves the right, and Tenant shall
permit Landlord, to install, erect, use and maintain pipes, ducts and conduits
in and through the Premises.
19.02 Landlord and its agents shall have the right to enter and/or pass
through the Premises during Business Hours on Business Days (a) to examine the
Premises and to show them to actual and prospective Superior Lessors, Superior
Mortgagees, insurers or prospective purchasers, mortgagees or lessees of the
Building and (b) to make such repairs, alterations, additions and improvements
in or to the Premises and/or in or to the Building or its facilities and
equipment as Landlord is required or desires to make. Landlord shall be allowed
to take all materials into and upon the Premises that may be required in
connection therewith, without any liability to Tenant and without any reduction
of Tenants covenants and obligations hereunder.
19.03 If at any time any windows of the Premises are temporarily darkened
or obstructed by reason of any repairs, improvements, maintenance and/or
cleaning in or about the Building or if any part of the Building other than the
Premises, is temporarily or permanently closed or inoperable, the same shall be
without liability to Landlord and without any reduction or diminution of
Tenant's obligations under this Lease. This Lease shall not be affected by nor
shall Landlord in any way be liable for the closing, darkening or bricking up of
windows in the Premises for any reason, including as the result of construction
on any property of which the Land is not a part or by Landlord's own acts.
19.04 During the period of three (3) months prior to the Expiration Date,
Landlord and its agents may exhibit the Premises to prospective tenants.
19.05 If, during the last month of the term of this Lease, Tenant has
removed all or substantially all of Tenant's property from the Premises,
Landlord may, without notice to Tenant, immediately enter the Premises and
alter, renovate and decorate the same, without liability to Tenant and without
reducing or otherwise affecting Tenant's covenants and obligations hereunder.
19.06 Landlord reserves the right at any time as and when Landlord deems
necessary or desirable without (i) constituting an eviction thereby, (ii)
incurring any liability to Tenant therefor, and (iii) affecting or reducing any
of Tenant's covenants and obligations hereunder, to (a) make changes,
alterations, additions and improvements in or to the Building and the fixtures
and equipment thereof, (b) make alterations and to change the arrangement and
location in or to the public street entrances, doors, halls, passageways,
elevators, escalators, stairways, lavatories and other public parts of the
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Building, (c) change the name, number or designation by which the Building may
be known, and (d) impose controls in access to the Building by Tenant and its
invitees as Landlord may deem necessary for the security of the Building and its
occupants.
19.07 If Tenant shall not be personally present to open and permit an
entry into the Premises at any time when for any reason an entry therein shall
be urgently necessary by reason of fire or emergency, Landlord or Landlord's
agents may forcibly enter the same without rendering Landlord or such agents
liable therefor (if during such entry Landlord or Landlord's agents shall accord
reasonable care to Tenant's property) and without in any manner affecting the
obligations and covenants of Tenant under this Lease.
ARTICLE 20
NOTICE OF OCCURRENCES
20.01 Tenant shall give prompt notice to Landlord of (a) any occurrence in
or about the Premises for which Landlord might be liable, (b) any fire or other
casualty in the Premises, (c) any damage to or defect in the Premises, including
the fixtures, equipment and appurtenances thereof, for the repair of which
Landlord might be responsible, and (d) any damage to or defect in any part or
appurtenance of the Building's sanitary, electrical, heating, ventilating,
air-conditioning, elevator or other systems located in or passing through the
Premises or any part thereof.
ARTICLE 21
NON-LIABILITY AND INDEMNIFICATION
21.01 Neither Landlord nor any partner, director, stockholder, officer,
agent, servant or employee of Landlord shall be liable to Tenant for any loss,
injury or damage to Tenant or to any other person, or to its or their property,
irrespective of the cause of such injury, damage or loss; provided, however, the
foregoing shall not be deemed to exculpate any of the following persons for
liability for their own gross negligence or willful misconduct: Landlord, its
agents, servants or employees with respect to the operation or maintenance of
the Premises or the Building, other than to the extent that such injury, damage
or loss was due to the negligence of Tenant or any of its sublessees or
licensees or its or their employees, agents or contractors. Further, neither
Landlord nor any partner, director, stockholder, officer, agent, servant or
employee of Landlord shall be liable (a) for any such damage caused by other
tenants or persons in, upon or about the Building or caused by operations in
construction of any private, public or quasi-public work; or (b) no party, even
if negligent, shall be liable for consequential damages arising
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out of any loss of use of the Premises or any equipment or facilities therein by
Tenant or any person claiming through or under Tenant.
21.02 Tenant shall indemnify and hold harmless Landlord and all Superior
Lessors and its and their respective partners, directors, stockholders,
officers, agents and employees from and against any and all claims arising from
or in connection with (a) the conduct or management of the Premises or of any
business therein, or any work or thing whatsoever done, or any condition created
(other than by Landlord) in or about the Premises during the term of this Lease
or during the period of time, if any, prior to the Commencement Date that Tenant
may have been given access to the Premises; (b) any act, omission or negligence
of Tenant or any of its sublessees or licensees or its or their partners,
directors, officers, agents, employees or contractors; (c) any accident, injury
or damage whatsoever (unless caused solely by Landlord's gross negligence or
willful misconduct) occurring in, at or upon the Premises; (d) any breach or
default by Tenant in the full and prompt payment and performance of Tenant's
obligations under this Lease; together with all costs, expenses and liabilities
incurred in or in connection with each such claim or action or proceeding
brought thereon, including, without limitation, all reasonable attorneys' fees
and expenses; (e) the use, manufacture, storage, or disposal of Hazardous
Materials by Tenant, its agents or contractors on, under or about the Premises
including, without limitation, the cost of any required or necessary repair,
cleanup or detoxification and the preparation of any closure or other required
plans in connection herewith; and (f) any cost, liability or responsibility for
the payment of any sales tax with respect to any installations, furniture,
furnishings, fixtures or other improvements located, installed, or constructed
in the Premises or the filing of any tax return in connection therewith
(although Landlord agrees to execute any such return if required by law)
regardless of whether such tax is imposed upon Landlord or Tenant. In case any
action or proceeding is brought against Landlord and/or any Superior Lessor
and/or its or their partners, directors, stockholders, officers, agents and/or
employees by reason of any such claim, Tenant, upon notice from Landlord or such
Superior Lessor, shall resist and defend such action or proceeding (by counsel
reasonably satisfactory to Landlord). The indemnity obligations of Tenant under
this Section 21.02 shall survive any expiration or prior termination of this
Lease.
ARTICLE 22
DAMAGE OR DESTRUCTION
22.01 If the Building or the Premises (other than Tenant's Property) shall
be partially or totally damaged or destroyed by fire or other casualty (and if
this Lease shall not be terminated as provided in this Article), Landlord shall
repair the damage at Landlord's expense with reasonable diligence after notice
to Landlord of such damage or destruction.
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22.02 Subject to the provisions of Section 22.05, if all or part of the
Premises shall be damaged or destroyed or rendered completely or partially
untenantable on account of fire or other casualty, the Fixed Base Rent shall be
abated or reduced, as the case may be, in the proportion that the untenantable
area of the Premises bears to the total area of the Premises, for the period
from the date of the damage or destruction to (i) the date the damage to the
Premises shall be substantially repaired, or (ii) if the Building and not the
Premises is so damaged or destroyed, the date on which the Premises shall be
made tenantable; provided, however, should Tenant reoccupy a portion of the
Premises during the period the repair work is taking place and prior to the date
that the Premises are substantially repaired or made tenantable, the Fixed Base
Rent allocable to such reoccupied portion, based upon the proportion which the
area of the reoccupied portion of the Premises bears to the total area of the
Premises, shall be payable by Tenant from the date of such occupancy.
22.03 If the Building or the Premises shall be totally damaged or
destroyed by fire or other casualty, or if the Building shall be so damaged or
destroyed by fire or other casualty (whether or not the Premises are damaged or
destroyed) that its repair or restoration requires the expenditure (as estimated
by a reputable contractor or architect designated by Landlord) of more than 20
percent of the full insurable value of the Building immediately prior to the
casualty, or if at least 50 percent of the floor area of the Premises is damaged
or destroyed by fire or other casualty during the last eighteen (18) months of
the then current term of this Lease, then, in any of such cases, Landlord may
terminate this Lease by giving Tenant notice to such effect within 90 days after
the date of the casualty and upon the date specified in such notice (which shall
not be less than 10 days after such notice is given) this Lease and the estate
hereby granted shall terminate as if that date were the Expiration Date. In the
case of any damage or destruction described in this Article 22 which Landlord is
required to repair and restore, Tenant may terminate this Lease by notice to
Landlord if Landlord has not completed the making of the required repairs and
restorations within 18 months after the date of such damage or destruction, or
within such period after such date (not exceeding 6 months) as shall equal the
aggregate period Landlord may have been delayed in doing so by adjustment of
insurance, labor trouble, governmental controls, act of God, or any other cause
beyond Landlord's reasonable control, and upon the date specified in such notice
(which shall not be less than 10 days after such notice is given) this Lease and
the estate created hereby shall terminate as if that date were the Expiration
Date.
22.04 Tenant shall not be entitled to terminate this Lease, and no
damages, compensation or claim shall be payable by Landlord, for inconvenience,
loss of business or annoyance arising from any repair or restoration of any
portion of the Premises or of the Building pursuant to this Article.
22.05 Landlord shall not be obligated to carry insurance of any kind on
Tenant's Property or Alterations, and, except as provided by law or by reason of
Landlord's fault
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or its breach of any of its obligations hereunder, shall not be obligated to
repair any damage to or replace Tenant's Property or Alterations.
22.06 The provisions of this Article shall be deemed an express agreement
governing any case of damage or destruction of the Premises by fire or other
casualty, and Section 227 of the Real Property Law of the State of New York,
providing for such a contingency in the absence of an express agreement, and any
other law of like import, now or hereafter in force, shall have no application
in such case.
ARTICLE 23
EMINENT DOMAIN
23.01 If the whole or any substantial part of the Building or the Premises
shall be taken by condemnation or in any other manner for any public or
quasi-public use or purpose, this Lease and the term, and estate hereby granted
shall terminate as of the date of vesting of title on such taking (herein called
"Date of the Taking"), and the Fixed Base Rent and Additional Rent shall be
pro-rated and adjusted as of such date.
23.02 If any part of the Building or the Land shall be so taken and this
Lease is not terminated pursuant to Section 23.01, this Lease shall be
unaffected by such taking except that (a) if (i) any part of the Building is
taken or (ii) a part of the Land is taken (but no portion of the Building),
which, in Landlord's judgment, materially affects ingress or egress to and from
the Building or other essential operations of the Building, Landlord may, at its
option, terminate this Lease by giving Tenant notice to that effect within 90
days after the Date of the Taking and (b) if 20 percent or more of the Premises
shall be so taken and the remaining area of the Premises shall not be reasonably
sufficient for Tenant to feasibly continue operation of its business, Tenant may
terminate this Lease by giving Landlord notice to that effect within 90 days
after the Date of the Taking. In the event that either Landlord or Tenant elects
to terminate this Lease pursuant to this Section 23.02, this Lease and the term
and estate hereby granted shall terminate on the date specified in such notice
(which shall not be less than 10 days after such notice is given) as if such
date were the Expiration Date. Fixed Base Rent and Additional Rent shall be
pro-rated and adjusted as of such termination date. If after any partial taking
this Lease is not terminated, the Fixed Base Rent and Additional Rent shall be
adjusted according to the rentable area remaining.
23.03 Landlord shall be entitled to receive the entire award or payment in
connection with any taking without deduction therefrom for any estate vested in
Tenant by this Lease and Tenant shall receive no part of such award except as
hereinafter expressly provided in this Article. Except as provided in Section
23.04, and notwithstanding any provision hereof to the contrary other than
Section 23.04, Tenant
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hereby expressly assigns to Landlord all of its right, title and interest in and
to every such award or payment, including, without limitation, awards or
payments on account of fee interests or leasehold interests; provided, however,
that Tenant shall have the right to make separate claims with the condemning
authority for Tenant's moving expenses, Tenant's trade fixtures and the
unamortized value of Tenant's leasehold improvements if Tenant's making of such
claims shall not adversely affect Landlord's award or payment in connection with
such taking.
23.04 If the temporary use or occupancy of all or any part of the Premises
shall be taken by condemnation or in any other manner for any public or
quasi-public use or purpose during the term of this Lease, Tenant shall be
entitled, except as hereinafter set forth, to receive that portion of the award
or payment for such taking which represents compensation for the use and
occupancy of the Premises, for the taking of Tenant's Property (to the extent
Tenant's Property is taken), and for moving expenses and for the cost of
restoration of the Premises; provided, however, that Landlord reserves the right
to make additional claims for the cost of the restoration of the Premises. This
Lease shall be and remain unaffected by such taking and Tenant shall continue to
be responsible for all of its obligations hereunder insofar as such obligations
are not affected by such taking and shall continue to pay in full the Fixed Base
Rent and Additional Rent when due. If the period of temporary use or occupancy
shall extend beyond the Expiration Date, that part of the award which represents
compensation for the use and occupancy of the Premises (or a part thereof) shall
be divided between Landlord and Tenant so that Tenant shall receive so much
thereof as represents the period up to and including the Expiration Date. All
monies paid as, or as part of, an award for temporary use and occupancy for a
period beyond the date to which the Fixed Base Rent and Additional Rent have
been paid shall be received, held and applied by Landlord as a trust fund for
payment of the Fixed Base Rent and Additional Rent becoming due hereunder.
ARTICLE 24
SURRENDER
24.01 On the last day of the term of this Lease, or upon any earlier
termination of this Lease, or upon any re-entry by Landlord upon the Premises,
Tenant shall quit and surrender the Premises to Landlord "broom clean" and in
good order, condition and repair, except for ordinary wear and tear and such
damage or destruction as Landlord is required to repair or restore under this
Lease, and Tenant shall remove all of the Tenant's Property therefrom except as
otherwise expressly provided in this Lease.
24.02 No act or thing done by Landlord or its agents shall be deemed an
acceptance of a surrender of the Premises, and no agreement to accept such
surrender shall be valid unless in writing and signed by Landlord.
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ARTICLE 25
CONDITIONS OF LIMITATION - INSOLVENCY; DEFAULT
25.01 This Lease and the term and estate hereby granted are subject to the
limitation that whenever Tenant, or any guarantor of Tenant's obligations under
this Lease, shall make an assignment for the benefit of creditors, or shall file
a voluntary petition under any bankruptcy or insolvency law, or an involuntary
petition alleging an act of bankruptcy or insolvency shall be filed against
Tenant or such guarantor under any bankruptcy or insolvency law, or whenever a
petition shall be filed by or against Tenant or such guarantor, under the
reorganization provisions of the United States Bankruptcy Act or under the
provisions of any law of like import, or whenever a petition shall be filed by
Tenant, or such guarantor, under the arrangement provisions of the United States
Bankruptcy Act or under the provisions of any law of like import, or whenever a
permanent receiver of Tenant, or such guarantor, of or for the property of
Tenant, of such guarantor, shall be appointed, then Landlord (a) if such event
occurs without the acquiescence of Tenant, or such guarantor, as the case may
be, at any time after the event continues for 30 days, or (b) in any other case
at any time after the occurrence of any such event, may give Tenant a notice of
intention to end the term of this Lease at the expiration of five (5) days from
the date of service of such notice of intention, and upon the expiration of said
five-day period this Lease and the term and estate hereby granted, whether or
not the term shall theretofore have commenced, shall terminate with the same
effect as if that day were the Expiration Date of this Lease, but Tenant shall
remain liable for damages as provided in Article 27.
25.02 This Lease and the term and estate hereby granted are subject to the
further limitations that:
(a) If Tenant shall default in the payment of any Fixed Base Rent or
Additional Rent, and such default shall continue for 3 days after notice from
Landlord, or
(b) If Tenant shall be in default of any of its obligations under
this Lease (except as provided in clauses (a), (c), (d), (e), (f) or (g) of this
Section 25.02) and such default shall continue and not be remedied within ten
(10) days after notice specifying the same, or, in the case of a default which
cannot with due diligence be cured within a period of ten (10) days and the
continuance of which for the period required for cure will not subject Landlord
or any Superior Lessor to the risk of criminal liability or subject Landlord to
the risk of termination of any Superior Lease or foreclosure of any Superior
Mortgage, if Tenant shall not within said ten-day period (i) notify Landlord of
Tenant's intention to duly institute all steps necessary to remedy such default
and (ii) duly institute within such ten-day period, and thereafter diligently
and continuously prosecute to completion all steps necessary to remedy such
default, or
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(c) If any event shall occur or any contingency shall arise whereby
this Lease or the estate hereby granted or the unexpired balance of the term
hereof would, by operation of law or otherwise, devolve upon or pass to any
person, firm or corporation other than Tenant, except as expressly permitted by
Article 9, or
(d) If Tenant shall vacate, abandon or discontinue normal business
operations in the Premises for more than ten (10) days, or
(e) If Tenant shall fail to deliver an instrument of confirmation
pursuant to Section 7.01 or 7.03 within ten (10) days after a request therefor
by Landlord, or
(f) If any default shall occur under any guarantee of Tenant's
obligations under this Lease or if, for any reason, the guarantee shall cease to
be in full force and effect, or
(g) If there shall be any default by Tenant (or any person which,
directly or indirectly, controls, is controlled by, or is under common control
with Tenant) under any other lease with Landlord (or any person which, directly
or indirectly, controls, is controlled by, or is under common control with
Landlord) which shall not be remedied within the applicable grace period, if
any, provided therefor under such other lease,
then, in any of said cases, Landlord may give to Tenant a notice of intention to
end the term of this Lease at the expiration of three (3) days from the date of
the service of such notice of intention. and. upon the expiration of said three
(3) days, this Lease and the term and estate hereby granted, whether or not the
term shall theretofore have commenced, shall terminate with the same effect as
if that day were the Expiration Date, but Tenant shall remain liable for damages
as provided in Article 27. Landlord's claim that Tenant has vacated, abandoned
or discontinued normal business operations in the Premises shall not be defeated
solely because Tenant may have left all or any part of its trade fixtures or
other personal property in the Premises.
ARTICLE 26
RE-ENTRY BY LANDLORD
26.01 If Tenant shall default in the payment of any Fixed Base Rent or
Additional Rent, and such default shall continue for three (3) days after
Landlord has given Tenant notice or if this Lease shall terminate as provided in
Article 25, Landlord or Landlord's agents and employees may immediately or at
any time thereafter re-enter the Premises, or any part thereof, either by
summary dispossess proceedings or by any suitable action or proceeding at law,
or by force or otherwise, without being liable to indictment, prosecution or
damages therefor, and may repossess the same, and may remove any person
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therefrom, to the end that Landlord may have, hold and enjoy the Premises. The
word "re-enter", as used herein, is not restricted to its technical legal
meaning. If this Lease is terminated under the provisions of Article 25, or if
Landlord shall re-enter the Premises under the provisions of this Article, or in
the event of the termination of this Lease, or of re-entry, by or under any
summary dispossess or other proceeding or action or any provision of law by
reason of default hereunder on the part of Tenant, Tenant shall thereupon pay to
Landlord the Fixed Base Rent and Additional Rent payable up to the time of such
termination of this Lease, or of such recovery of possession of the Premises by
Landlord, as the case may be, and shall also pay to Landlord damages as provided
in Article 27.
26.02 In the event of a breach or threatened breach by Tenant of any of
itsobligations under this Lease, Landlord shall have, without limitation, the
right to petition for injunctive relief. The special remedies to which Landlord
may resort hereunder are cumulative and are not intended to be exclusive of any
other remedies to which Landlord may lawfully be entitled at any time, and it
may invoke any remedy allowed at law or in equity as if specific remedies were
not provided for herein.
26.03 If this Lease shall terminate under the provisions of Article 25, or
if Landlord shall re-enter the Premises under the provisions of this Article, or
in the event of the termination of this Lease, or of re-entry, by or under any
summary dispossess or other proceeding or action or any provision of law by
reason of default hereunder on the part of Tenant, Landlord shall be entitled to
retain all monies, if any, paid by Tenant to Landlord, whether as advance rent,
security or otherwise, but such monies shall be credited by Landlord against any
Fixed Base Rent or Additional Rent due from Tenant at the time of such
termination or re-entry or, at Landlord's option, against any damages payable by
Tenant under Article 27 or pursuant to law.
ARTICLE 27
DAMAGES
27.01 If this Lease is terminated under the provisions of Article 25, or
if Landlord shall re-enter the Premises under the provisions of Article 26, or
in the event of the termination of this Lease, or of re-entry by or under any
summary dispossess or other proceeding or action or any provision of law by
reason of default hereunder on the part of Tenant, Tenant shall pay to Landlord
as damages, at the election of Landlord, either:
(a) a sum which, at the time of such termination of this Lease or at
the time of any such re-entry by Landlord, as the case may be, represents the
then value (discounted at the Prime Rate of The Chase Manhattan Bank, New York,
New York per annum) of the excess, if any, of (i) the aggregate amount of the
Fixed Base Rent and the
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Additional Rent under Articles 4, 5 and 16 which would have been payable by
Tenant (conclusively presuming the average monthly Additional Rent under
Articles 4, 5 and 16 to be the same as were payable for the year, or if less
than 365 days have then elapsed since the Commencement Date, the partial year,
immediately preceding such termination or re-entry, except that Additional Rent
thereunder shall be presumed to increase at the average of the rates of increase
thereof previously experienced by Landlord during the period (not to exceed 3
years) prior to such termination or re-entry) for the period commencing with
such earlier termination of this Lease or the date of any such re-entry, as the
case may be, and ending with the date contemplated as the Expiration Date hereof
if this Lease had not so terminated or if Landlord had not so re-entered the
Premises, over (ii) the aggregate rental value of the Premises for the same
period, or
(b) sums equal to the Fixed Base Rent and the Additional Rent under
Articles 4, 5 and 16 which would have been payable by Tenant had this Lease not
so terminated, or had Landlord not so re-entered the Premises, payable upon the
due dates therefor specified herein following such termination or such re-entry
and until the date contemplated as the Expiration Date hereof if this Lease had
not so terminated or if Landlord had not so re-entered the Premises, provided,
however, that if Landlord shall relet the Premises Landlord shall credit Tenant
with the net rents received by Landlord from such reletting, such net rents to
be determined by first deducting from the gross rents as and when received by
Landlord all expenses incurred by Landlord in terminating this Lease,
re-entering and securing possession of the Premises, selling and otherwise
disposing of Tenant's Property, removing and/or storing Tenant's Property, as
well as expenses of reletting including, without limitation, altering and
preparing the Premises for new Tenants, brokers' commissions, legal fees and
expenses and all other expenses properly chargeable against the Premises and the
rental therefrom, it being understood that any such reletting may be for a
period shorter or longer than the remaining term of this Lease; but in no event
shall Tenant be entitled to receive any excess of such net rents over the sums
payable by Tenant to Landlord hereunder, nor shall Tenant be entitled in any
suit for the collection of damages pursuant to this subdivision to a credit in
respect of any net rents from reletting, except to the extent that such net
rents are actually received by Landlord. If the Premises or any part thereof
should be relet in combination with other space, then proper apportionment on a
square foot basis shall be made of the rent received from such reletting and of
the expenses of reletting.
If the Premises or any part thereof be relet by Landlord for the
unexpired portion of the term of this Lease, or any part thereof, before
presentation of proof of such damages to any court, commission or tribunal, the
amount of rent reserved upon such reletting shall, prima facie, be the fair and
reasonable rental value for the Premises, or part thereof, so relet during the
term of the reletting. Landlord shall not be liable in any way whatsoever for
its failure or refusal to relet the Premises or any part thereof, or if the
Premises or any part thereof are relet, for its failure to collect the rent
under such reletting, and no such refusal or failure to relet or failure to
collect rent shall release or
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affect Tenant's liability for damages or otherwise under this Lease, provided
that Landlord shall use reasonable efforts to mitigate its damages to the extent
required by law.
27.02 Suit or suits for the recovery of such damages, or any installments
thereof, may be brought by Landlord from time to time at its election, and
nothing contained herein shall be deemed to require Landlord to postpone suit
until the date when the term of this Lease would have expired if it had not been
so terminated under the provisions of Article 25, or under any provision of law,
or had Landlord not re-entered the Premises. Nothing herein contained shall be
construed to limit or preclude recovery by Landlord against Tenant of any sums
or damages to which, in addition to the damages particularly provided above,
Landlord may lawfully be entitled by reason of any default by Tenant. Nothing
herein contained shall be construed to limit or prejudice the right of Landlord
to prove and obtain as damages by reason of the termination of this Lease or
reentry on the Premises for the default of Tenant under this Lease an amount
equal to the maximum allowed by any statute or rule of law in effect at the time
when, and governing the proceedings in which, such damages are to be proved
whether or not such amount be greater, equal to, or less than any of the sums
referred to in Section 27.01.
27.03 In addition to any other remedies Landlord may have under this
Lease, and without reducing or adversely affecting any of Landlord's rights and
remedies under Article 25, if any Fixed Base Rent, Additional Rent or damages
payable hereunder by Tenant to Landlord are not paid within three (3) days after
the day such sums are due hereunder, or demand therefor for sums due only upon
demand or notice by Landlord, as the case may be, the same shall bear interest
at an annual rate equal to the rate then designated by The Chase Manhattan Bank
as its prime rate in effect in its head office in New York City (the "Prime
Rate") plus two percent (2%) or the maximum rate permitted by law, whichever is
less, from the due date thereof until paid, and the amount of such interest
shall be due Landlord as Additional Rent hereunder.
ARTICLE 28
AFFIRMATIVE WAIVERS
28.01 Tenant, on behalf of itself and any and all persons claiming through
or under Tenant, does hereby waive and surrender all right and privilege which
it, they or any of them might have under or by reason of any present or future
law, to redeem the Premises or to have a continuance of this Lease after being
dispossessed or ejected therefrom by process of law or under the terms of this
Lease or after the termination of this Lease as provided in this Lease.
28.02 If Tenant is in arrears in payment of Fixed Base Rent or Additional
Rent, Tenant waives Tenant's right, if any, to designate the items which any
payments made by Tenant are to be credited, and Tenant agrees that Landlord may
apply any payments made by
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Tenant to such items as Landlord sees fit, irrespective of and notwithstanding
any designation or request by Tenant as to the items which any such payments
shall be credited.
28.03 Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either against the other on any matter
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises,
including, without limitation, any claim of injury or damage, and any emergency
and other statutory remedy with respect thereto.
28.04 Tenant shall not interpose any counterclaim of any kind in any
action or proceeding commenced by Landlord to recover possession of the
Premises.
ARTICLE 29
NO WAIVERS
29.01 The failure of either party to insist in any one or more instances
upon the strict performance of any one or more of the obligations of this Lease,
or to exercise any election herein contained, shall not be construed as a waiver
or relinquishment for the future of the performance of such one or more
obligations of this Lease or of the right to exercise such election, but the
same shall continue and remain in full force and effect with respect to any
subsequent breach, act or omission. The receipt by Landlord of Fixed Base Rent
or Additional Rent with knowledge of breach by Tenant of any obligation of this
Lease shall not be deemed a waiver of such breach.
ARTICLE 30
CURING TENANT'S DEFAULTS
30.01 If Tenant shall default in the performance of any of Tenant's
obligations under this Lease, Landlord, without thereby waiving such default,
may (but shall not be obligated to) perform the same for the account and at the
expense of Tenant, without notice in a case of emergency, and in any other case
only if such default continues after the expiration of the period provided in
Section 25.02(b) for the cure of such defaults.
30.02 Bills for any expenses incurred by Landlord in connection with any
such performance by it for the account of Tenant, and bills for all costs,
expenses and disbursements of every kind and nature whatsoever, including
reasonable counsel fees, involved in collecting or endeavoring to collect the
Fixed Base Rent or Additional Rent
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or any part thereof or enforcing or endeavoring to enforce any rights against
Tenant or Tenant's obligations hereunder, under or in connection with this Lease
or pursuant to law, including, without limitation, any such costs, expenses and
disbursements involved in instituting and prosecuting summary proceedings or in
recovering possession of the Premises after default by Tenant or upon the
expiration or sooner termination of this Lease, and interest in all sums
announced by Landlord under this Section and/or Section 30.01 at the Prime Rate
plus two percent (2%) or the maximum rate permitted by law, whichever is less,
may be sent by Landlord to Tenant monthly, or immediately, at Landlord's option,
and such amounts shall be due and payable upon demand as Additional Rent.
30.03 (a) If Tenant shall fail to pay when due any installment of Fixed
Base Rent or any payment of Additional Rent and any such failure shall continue
for 5 business days, then Tenant shall pay Landlord, as Additional Rent, a late
charge equal to three (3%) percent of such installment or payment as
compensation for Landlord's additional administrative expenses relating to such
late payment.
(b) The provisions of this Article are in addition to all other
remedies available to Landlord for nonpayment of Fixed Base Rent or Additional
Rent.
ARTICLE 31
BROKER
31.01 Landlord shall be responsible to pay for all brokerage commissions
due pursuant to the execution and delivery of this Lease by separate agreement
with such brokers. Tenant covenants, warrants and represents that no broker or
agent was instrumental in bringing about or consummating this Lease and that
Tenant had no conversations or negotiations with any broker or agent concerning
the leasing of the Premises other than Colliers ABR, Inc. Tenant agrees to
indemnify and hold harmless Landlord against and from any claims for any
brokerage commissions and all costs, expenses and liabilities in connection
therewith, including, without limitation, reasonable attorneys' fees and
expenses, arising out of any conversations or negotiations had by Tenant with
any broker or agent other than Colliers ABR, Inc.
ARTICLE 32
NOTICES
32.01 Any notice or demand, consent, approval or disapproval, or statement
(collectively called "Notices") required or permitted to be given by the terms
and
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provisions of this Lease, or by any law or governmental regulation, either by
Landlord to Tenant or by Tenant to Landlord, shall be in writing and unless
otherwise required by such law or regulation, shall be personally delivered or
sent by United States mail postage prepaid as registered or certified mail,
return receipt requested or by reputable overnight courier or by facsimile
transmission with electronic confirmation. Any Notice shall be addressed to
Landlord or Tenant, as applicable, at its address set forth on the Reference
Page of this Lease as said address may be changed from time to time as
hereinafter provided. After Tenant shall occupy the Premises, the address of
Tenant for Notices shall be the Building. By giving the other party at least ten
(10) days' prior written notice, either party may, by Notice given as above
provided, designate a different address or addresses for Notices.
32.02 Any Notice shall be deemed given as of the date of delivery if
delivered by hand, or one business day after deposit with a reputable overnight
courier or facsimile transmission with electronic confirmation, or three
business days after deposit with the United States Postal Service; and in the
event of failure to deliver by reason of changed address of which no Notice was
given or refusal to accept delivery, as of the date of such failure as indicated
by affidavit or on the return receipt or by notice of the postal service, as the
case may be.
32.03 In addition to the foregoing, either Landlord or Tenant may, from
time to time, request in writing that the other party serve a copy of any Notice
on one other person or entity designated in such request, such service to be
effected as provided in Section 32.01 hereof.
ARTICLE 33
ESTOPPEL CERTIFICATES
33.01 Tenant shall, at any time and from time to time, as requested by
Landlord, upon not less than five (5) days' prior notice, execute and deliver to
Landlord or any prospective landlord, mortgagee or prospective mortgagee, ground
lessor or prospective ground lessor, purchaser or prospective purchaser of a
direct or indirect interest in Landlord, and any other persons designated by
Landlord a sworn statement certifying (a) the Commencement Date, (b) that this
Lease is unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications), (c) the dates to which the Fixed Base Rent and Additional
Rent have been paid, (d) the fact that there are no defaults in performance by
Landlord or Tenant of any of its obligations under this Lease, and, if so,
specifying each such default and (e) such other matters requested by Landlord,
it being intended that any such statement delivered pursuant hereto shall be
deemed a representation and warranty to be relied upon by the party requesting
the certificate and by others with whom such party may be dealing,
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regardless of independent investigation and Tenant shall be liable for all loss,
cost or expense resulting from the failure of any sale or funding of any loan
caused by a material misstatement contained in such estoppel certificate. Tenant
hereby irrevocably appoints Landlord as attorney-in-fact for the Tenant with
full power and authority to execute and deliver in the name of Tenant such
estoppel certificate if Tenant fails to deliver the same within such five-day
period and such certificate as signed by Landlord shall be fully binding on
Tenant.
ARTICLE 34
MEMORANDUM OF LEASE
34.01 Tenant shall not record this Lease. However, at the request of
Landlord, Tenant shall promptly execute, acknowledge and deliver to Landlord a
memorandum of lease in respect of this Lease sufficient for recording. Such
memorandum shall not be deemed to change or otherwise affect any of the
obligations or provisions of this Lease.
ARTICLE 35
SUBMISSION NOT AN OFFER
35.01 Submission of this Lease to Tenant shall not be deemed to be a
reservation of the Premises or an offer to lease the Premises and Landlord shall
not be bound hereby until (i) Landlord shall have approved this Lease and (ii)
Landlord shall have delivered to Tenant a copy of this Lease signed by Landlord,
which has been previously signed by Tenant. Until such approval and delivery
Landlord reserves the right to exhibit and lease the Premises to other
prospective Tenants. Notwithstanding anything contained herein to the contrary,
Landlord may withhold delivery of possession of the Premises from Tenant until
such time as Tenant has paid to Landlord the security deposit required by
Article 6 and the first month's Fixed Base Rent as set forth in Article 1 and
Tenant has delivered the evidence of insurance required under Article 11 hereof.
ARTICLE 36
SIGNAGE
36.01 Landlord shall provide, at Tenant's expense, Building standard
signage for the exterior side of Tenant's entry door. With respect to all other
signage Tenant proposes to display, Landlord shall have the right to approve
Tenant's signage in Landlord's sole discretion (each such approved sign,
hereinafter an "Approved Sign"). Other than an
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approved sign, Tenant shall not, without the prior consent of Landlord, exhibit,
inscribe, paint or affix any other sign, insignia, advertisement, lettering
notice or other object on any part of the outside or inside of the Premises, the
Building, the corridor walls or any area which would be visible from the
surrounding streets and sidewalks or from portions of the Building not included
within the Premises.
36.02 In the event Tenant violates any of the provisions of this Article
36, Landlord, with or without notice to Tenant, may remove the offending sign
and make such repairs to the immediately surrounding area as Landlord deems
appropriate without any liability to itself. Tenant shall reimburse Landlord for
any and all expenses incurred in connection with such removal and repair on
demand.
36.03 Tenant shall be entitled to four (4) listings in the Building
directory.
ARTICLE 37
HOLDING OVER
37.01 Tenant shall pay Landlord for each day Tenant retains possession of
the Premises or part thereof after termination hereof by lapse of time or
otherwise 200% of the amount of the Fixed Base Rent for the last period prior to
the date of such termination plus all rent adjustments to Fixed Base rent under
Articles 4, 5 and 16 hereof prorated on a daily basis, and also pay all damages
sustained by Landlord by reason of such retention, and shall indemnify and hold
Landlord harmless from any loss or liability resulting from such holding over
and delay in surrender. If Landlord gives notice to Tenant of Landlord's
election thereof, such holding over shall constitute renewal of this Lease for a
period from month to month or for one year, whichever shall be specified in such
notice, in either case at 200% of the annual Fixed Base Rent being paid to
Landlord under this Lease immediately prior thereof plus all adjustments to
Fixed Base Rent under Articles 4, 5 and 16 hereof, but if the Landlord does not
so elect, acceptance by Landlord of rent after such termination shall not
constitute a renewal. This provision shall not be deemed to waive Landlord's
right of re-entry or any other right hereunder or at law.
ARTICLE 38
MISCELLANEOUS
38.01 Tenant expressly acknowledges and agrees that Landlord has not made
and is not making, and Tenant, in executing and delivering this Lease, is not
relying upon, any warranties, representations, promises or statements, except to
the extent that the same are expressly set forth in this Lease or in any other
written agreement which may be made
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between the parties concurrently with the execution and delivery of this Lease
and shall expressly refer to this Lease. All understandings and agreements
heretofore had between the parties are merged in this Lease and any other
written agreement(s) made concurrently herewith, which alone fully and
completely express the agreement of the parties and which are entered into after
full investigation, neither party relying upon any statement or representation
not embodied in this Lease or any other written agreement(s) made concurrently
herewith.
38.02 No agreement shall be effective to change, modify, waive, release,
discharge, terminate or effect an abandonment of this Lease, in whole or in
part, unless such agreement is in writing, refers expressly to this Lease and is
signed by the party against whom enforcement of the change, modification,
waiver, release, discharge, termination or effectuation of the abandonment is
sought. If Tenant shall at any time request Landlord to sublet the Premises for
Tenant's account, Landlord or its agent is authorized to receive keys for such
purposes without releasing Tenant from any of its obligations under this Lease,
and Tenant hereby releases Landlord of any liability for loss or damage to any
of the Tenant's Property in connection with such subletting.
38.03 Except as otherwise expressly provided in this Lease, the
obligations of this Lease shall bind and benefit the successors and assigns of
the parties hereto with the same effect as if mentioned in each instance where a
party is named or referred to; provided, however, that (a) no act in violation
of the provisions of Article 9 shall operate to vest any rights in any successor
or assignee of Tenant, and (b) the provisions of this Article shall not be
construed as modifying the conditions of limitation contained in Article 25.
38.04 Tenant shall look only to Landlord's estate and property in the Land
and the Building for the satisfaction of Tenant's remedies for the collection of
a judgment (or other judicial process) requiring the payment of money by
Landlord in the event of any default by Landlord hereunder, and no other
property or assets of Landlord or its stockholders or board of directors and
officers, its partners or principals, disclosed or undisclosed, as the case may
be, or any employees or agents of Landlord shall be subject to levy, execution
or other enforcement procedure for the satisfaction of Tenant's remedies under
or with respect to this Lease, the relationship of Landlord and Tenant hereunder
or Tenant's use or occupancy of the Premises.
38.05 The obligations of Tenant hereunder shall be in no way affected,
impaired or excused, nor shall Landlord have any liability whatsoever to Tenant,
because (a) Landlord is unable to fulfill, or is delayed in fulfilling, any of
its obligations under this Lease by reason of strike, other labor trouble,
governmental preemption of priorities or other controls in connection with a
national or other public emergency or shortages of fuel, supplies or labor
resulting therefrom, or any other cause, whether similar or dissimilar, beyond
Landlord's reasonable control; or (b) of any failure or defect in the supply,
quantity or character of electricity or water furnished to the Premises, by
reason of any
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requirement, act or omission of the public utility or others serving the
Building with electric energy, steam, oil, gas or water, or for any other reason
whether similar or dissimilar, beyond Landlord's reasonable control.
38.06 For the purposes of this Lease, the following terms have the
meanings indicated:
(a) The term "mortgage" shall include a mortgage and/or a deed of
trust, and the term "holder of a mortgage" or "mortgagee" or words of similar
import shall include a mortgagee of a mortgage or a beneficiary of a deed of
trust.
(b) The term "laws and requirements of any public or governmental
authorities" and words of similar import shall mean laws and ordinances of any
or all of the Federal, state, city, town, county, borough and village
governments and rules, regulations, orders and directives of any and all
departments, subdivisions, bureaus, agencies or offices thereof, and of any
other governmental, public or quasi-public authorities having jurisdiction over
the Building and/or the Premises, and the direction of any public officer
pursuant to law, whether now or hereafter in force.
(c) The term "requirements of insurance bodies" and words of similar
import shall mean rules, regulations, orders and other requirements of the New
York Board of Underwriters and/or the New York Fire Insurance Rating
Organization and/or any other similar body performing the same or similar
functions and having jurisdiction or cognizance over the Building and/or the
Premises, whether now or hereafter in force.
(d) The term "Tenant" shall mean the Tenant herein named or any
permitted assignee or other successor in interest (immediate or remote) of the
Tenant herein named, which at the time in question is the owner of the Tenant's
estate and interest granted by this Lease; but the foregoing provisions of this
subsection shall not be construed to permit any assignment of this Lease or to
relieve the Tenant herein named or any assignee or other successor in interest
(whether immediate or remote) of the Tenant herein named from the full and
prompt payment, performance and observance of the covenants, obligations and
conditions to be paid, performed and observed by Tenant under this Lease.
(e) The term "Landlord" shall mean only the owner at the time in
question of the Building or of a lease of the Building, so that in the event of
any transfer or transfers of title to the Building or of Landlord's interest in
a lease of the Building, the transferor shall be and hereby is relieved and
freed of all obligations of Landlord under this Lease accruing after such
transfer, and it shall be deemed, without further agreement, that such
transferee has assumed and agreed to perform and observe all obligations of
Landlord herein during the period it is the holder of Landlord's interest under
this Lease.
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(f) The terms "herein," "hereof' and "hereunder," and words of
similar import, shall be construed to refer to this Lease as a whole, and not to
any particular Article or Section, unless expressly so stated.
(g) The term "and/or" when applied to two or more matters or things
shall be construed to apply to any one or more or all thereof as the
circumstances warrant at the time in question.
(h) The term "person" shall mean any natural person or persons, a
partnership, a corporation, and any other form of business or legal association
or entity.
(i) The term "Business Days" means Monday through Friday, except
days observed by the Federal or state government as legal holidays, and such
other days as shall be designated as holidays by the applicable building service
union employees service contract or by the applicable operating engineers
contract. The term "Business Hours" means 9:00 a.m. to 6:00 p.m. on Business
Days, except as otherwise provided in the immediately preceding sentence.
38.07 Upon the expiration or other termination of this Lease neither party
shall have any further obligation or liability to the other except as otherwise
expressly provided in this Lease and except for such obligations as by their
nature or under the circumstances can only be, or by the provisions of this
Lease, may be, performed after such expiration or other termination; and, in any
event, unless otherwise expressly provided in this Lease, any liability for a
payment (including, without limitation, Additional Rent under Articles 4, 5 and
16) which shall have accrued to or with respect to any period ending at the time
of expiration or other termination of this Lease shall survive the expiration or
other termination of this Lease.
38.08 (a) If Tenant shall request Landlord's consent or approval and
Landlord shall fail or refuse to give such consent or approval, Tenant shall not
be entitled to any damages for any withholding by Landlord of its consent or
approval, it being intended that Tenant's sole remedy shall be an action for
specific performance or injunction, and that such remedy shall be available only
in those cases where Landlord has expressly agreed in writing not to
unreasonably withhold its consent or approval or where as a matter of law
Landlord may not unreasonably withhold its consent or approval.
(b) Wherever Landlord's consent or approval is required in this
Lease and neither this Lease nor applicable law requires that such approval or
consent shall not be unreasonably withheld, Landlord may determine in its sole
discretion whether to grant or refuse to grant such consent or approval,
regardless of whether such refusal to consent or approve may be deemed
arbitrary.
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38.09 If any Superior Mortgagee shall require any modification(s) of this
Lease, Tenant shall, at Landlord's request, promptly execute and deliver to
Landlord such instruments effecting such modification(s) as Landlord shall
require, provided that such modification(s) do not adversely affect in any
material respect any of Tenant's rights under this Lease.
38.10 If an excavation shall be made upon land adjacent to or under the
Building, or shall be authorized to be made, Tenant shall afford to the person
causing or authorized to cause such excavation license to enter the Premises for
the purpose of performing such work as said person shall deem necessary or
desirable to preserve and protect the Building from injury or damage and to
support the same by proper foundations, without any claim for damages or
liability against Landlord and without reducing or otherwise affecting Tenant's
obligations under this Lease.
38.11 In the event the Fixed Base Rent or Additional Rent or any part
thereof provided to be paid by Tenant under the provisions of this Lease during
the demised term shall become uncollectible or shall be reduced or required to
be reduced or refunded by virtue of any Federal, state, county or city law,
order or regulation, or by any direction of a public officer or body pursuant to
law, or the orders, rules, codes or regulations of any organization or entity
formed pursuant to law, whether such organization or entity be public or
private, then Landlord, at its option, may at any time thereafter terminate this
Lease by not less than thirty (30) days' written notice to Tenant on a date set
forth in said notice, in which event this Lease and the term hereof shall
terminate and come to an end on the date fixed in said notice as if the said
date were the expiration date set forth herein. Landlord shall not have the
right so to terminate this Lease if within such thirty-day period Tenant shall
agree in writing that the rentals herein reserved are a reasonable rental and
agree to continue to pay said rentals including the amount representing that
portion of the Fixed Base Rent and Additional Rent payable hereunder allocable
to the cost of electrical energy, provided such agreement by Tenant shall be
legally enforceable by Landlord.
38.12 Tenant agrees that the exercise of its rights pursuant to the
provisions of Article 13 or of any other provisions of this Lease or the
Exhibits hereto shall not be done in a manner which would violate Landlord's
union contracts affecting the Land and/or Building, nor create any work
stoppage, picketing, labor disruption or dispute or any interference with the
business of Landlord or any Tenant or occupant of the Building.
38.13 Any apportionments or prorations of Fixed Base Rent or Additional
Rent to be made under this Lease shall be computed on the basis of a 360-day
year.
38.14 In addition to any remedies which Landlord may have under this
Lease, and without reducing or adversely affecting any of Landlord's rights and
remedies under Article 25, if there shall be a default hereunder by Tenant which
shall not have been remedied within the applicable grace period, Landlord shall
not be obligated to furnish to
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Tenant or the Premises any heat, ventilation or air-conditioning services
outside of Business Hours on Business Days, or any other services; and the
discontinuance of any one or more such services shall be without liability by
Landlord to Tenant and shall not reduce, diminish or otherwise affect any of
Tenant's covenants and obligations under this Lease.
38.15 Irrespective of the place of execution or performance, this Lease
shall be governed by and construed in accordance with the laws of the State of
New York, without reference to the conflicts of law principles thereof. If any
provision of this Lease or the application thereof to any person or circumstance
shall, for any reason and to any extent, be invalid or unenforceable, the
remainder of this Lease and the application of that provision to other persons
or circumstances shall not be affected but rather shall be enforced to the
extent permitted by law. The table of contents, captions, headings and titles in
this Lease are solely for convenience of reference and shall not affect its
interpretation. This Lease shall be construed without regard to any presumption
or other rule requiring construction against the party causing this Lease to be
drafted. Each covenant, agreement, obligation or other provision of this Lease
on Tenant's part to be performed, shall be deemed and construed as a separate
and independent covenant of Tenant, not dependent on any other provision of this
Lease. All terms and words used in this Lease, regardless of the number or
gender in which they are used, shall be deemed to include any other number and
any other gender as the context may require.
The parties hereto have executed this Lease as of the date first written
above.
LANDLORD:
110 East 42nd Street Associates,
Limited Partnership
By: 110 Management Corporation,
its general partner
By:__________________________________
Silvia Kessel
Senior Vice President
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TENANT:
National Fiber Network, Inc.
By:__________________________________
Name:___________________________
Title:____________________________
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STATE OF NEW JERSEY )
SS.:
COUNTY OF BERGEN )
On this 19th day of March, 1997, before me personally came Silvia Kessel
to me known, who, being duly sworn by me, did depose and say that she is a Vice
President of 110 Management Corporation, which is the general partner of 110
East 42nd Street Associates, Limited Partnership, the entity described in and
which executed the above instrument and that she signed her name thereto by
order of the board of directors of said corporation.
------------------------------------
Notary Public
STATE OF NEW YORK )
SS.:
COUNTY OF NEW YORK )
On this 15th day of March, 1997, before me personally came Stephen
Garofalo to me known, who, being duly sworn by me, did depose and say that he is
the President of National Fiber Network, Inc., the entity described in and which
executed the above instrument and that he signed his name thereto by order of
the board of directors of said corporation.
------------------------------------
Notary Public
43
<PAGE>
EXHIBIT A
PLAN OF PREMISES
44
<PAGE>
EXHIBIT B
Landlord's Work
Landlord shall paint the entire Premises and clean the existing carpeting
therein.
45
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. The rights of tenants in the entrances, corridors, elevators, and
escalators of the Building are limited to ingress and egress from the tenants'
premises for the tenants and their employees, licensees and invitees, and no
tenant shall use, or permit the use of, the entrances, corridors, escalators or
elevators for any other purpose. No tenant shall invite to the tenant's
premises, or permit the visit of, persons in such numbers or under such
conditions as to interfere with the use and enjoyment of any of the plazas,
entrances, corridors, escalators, elevators and other facilities of the Building
by other tenants. Tenant shall not use or permit its employees to use the
elevators before 10:00 A.M. in a "Down" direction for purposes of taking a
coffee break or similar activities. Fire exits and stairways are for emergency
use only, and they shall not be used for any other purposes by the tenants,
their employees, licensees or invitees. No tenant shall encumber or obstruct, or
permit the encumbrance or obstruction of or store or place any materials on any
of the sidewalks, plazas, entrances, corridors, escalators, fire exits or
stairways of the Building. The Landlord reserves the right to control and
operate the public portions or the Building and the Public facilities, as well
as facilities, furnished for the common use of the tenants, in such manner as it
deems best for the benefit of the tenants generally.
2. The cost of repairing any damage to the public portions of the Building
or the public facilities or to any facilities used in common with other tenants,
caused by a tenant or the employees, licensees or invitees of the tenant, shall
be paid by such tenant.
3. The Landlord may refuse admission to the Building outside of ordinary
business hours to any person not known to the watchman in charge or not having a
pass issued by the Landlord or not properly identified, and may require all
persons admitted to or leaving the Building outside of ordinary business hours
to register. Tenant's employees, agents and visitors shall be permitted to enter
and leave the Building whenever appropriate arrangements have been previously
made between the Landlord and Tenant with respect thereto. Each tenant shall be
responsible for all persons for whom he requests such permission and shall be
liable to the Landlord for all acts of such persons. Any person whose presence
in the Building at any time shall, in the judgment of the Landlord, be
prejudicial to the safety, character, reputation and interests of the Building
or its tenants may be denied access to the Building during the continuance of
the same, by closing the doors or otherwise, for the safety of the tenants and
protection of property in the Building. The Landlord may require any person
leaving the Building with any package or other object to exhibit a pass from the
tenant from whose premises the package or object is being removed, but the
establishment and enforcement of such requirement shall not impose any
responsibility on the Landlord for the protection of any tenant against the
removal of property from the premises of the tenant. The Landlord shall in no
way, be liable to any
46
<PAGE>
tenant for damages or loss arising from the admission, exclusion or ejection of
any person to or from the tenant's premises or the Building under the provisions
of this rule.
4. No tenant shall obtain or accept for use in its premises, ice, drinking
water, food, beverage, towel, barbering, boot blacking, floor polishing,
lighting maintenance, cleaning or other similar services from any persons not
authorized by the Landlord in writing to furnish such services, provided always
that the charges for such services by persons authorized by the Landlord are not
excessive. Such services shall be furnished only at such hours, in such places
within the tenant's premises and under such regulations as may be fixed by the
Landlord.
5. No awnings or other projections over or around the windows shall be
installed by any tenant, and only such window blinds as are supplied or
permitted by the Landlord shall be used in a tenant's premises.
6. There shall not be used in any space, or in the public halls of the
Building, either by the Tenant or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards.
7. All entrance doors in each tenant's premises shall be kept locked when
the tenant's premises are not in use. Entrance doors shall not be left open at
any time, all windows in each tenant's premises shall be kept closed at all
times and all blinds therein above the ground floor shall be lowered when and as
reasonably required because of the position of the sun, during the operation of
the Building air conditioning system to cool or ventilate the tenant's premises.
8. No noise, including the playing of any musical instruments, radio or
television, which, in the judgment of the Landlord, might disturb other tenants
in the Building shall be made or permitted by any tenant, and no cooking shall
be done in the Tenant's premises, as expressly approved by the Landlord. Nothing
shall be done or permitted in the Tenant's premises, which would impair or
interfere with any of the Building services or the proper and economic heating,
cleaning or other servicing of the Building or premises, or the use or enjoyment
by any other tenant of any other premises, nor shall there be installed by any
tenant any ventilating, air-conditioning, electrical or other equipment of any
kind which, in the judgment of the Landlord, might cause any such impairment or
interference. No dangerous, inflammable, combustible or explosive object or
material shall be brought into the Building by any tenant or with the permission
of any tenant.
9. Tenant shall not permit any cooking or food odors emanating within the
Premises to seep into other portions of the Building.
47
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10. No acids, toxic wastes, vapors or other such materials shall be stored
in the Premises or discharged or permitted to be discharged into the waste
lines, vents or flues of the Building which may damage them. The water and wash
closets and other plumbing fixtures in or serving any tenant's premises shall
not be used for purposes other than the purpose for which they were designed or
constructed, and no sweepings, rubbish, rags, acids or other foreign substances
shall be deposited therein. All damages resulting from any misuse of the
fixtures shall be borne by the tenant who, or whose servants, employees, agents,
visitors, or licensees, shall have caused the same.
11. No signs, advertisements, notice or other lettering shall be
exhibited, inscribed, painted or affixed by any tenant on any part of the
outside or inside the premises or the Building without the prior written consent
of Landlord. In the event of the violation of the foregoing by any tenant,
Landlord may remove the same without any liability, and may charge the expense
incurred by such removal to the tenant or tenants violating this rule. Interior
signs and lettering on doors and elevators shall be inscribed, painted, or
affixed for each tenant by Landlord at the expense of such tenant, and shall be
of a size, color and style acceptable to Landlord. Landlord shall have the right
to prohibit any advertising by any tenant which impairs the reputation of the
Building or its desirability as a building for offices, and upon written notice
from Landlord, Tenant shall refrain from or discontinue such advertising.
12. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows in any tenant's premises and no lock on any door therein
shall be changed or altered in any respect. Duplicate keys for a tenant's
premises and toilet rooms shall be procured only from the Landlord, which may
make a reasonable charge therefor. Upon the termination of a tenant's lease, all
keys of the tenant's premises and toilet rooms shall be delivered to the
Landlord.
13. No tenant shall mark, paint, drill into, or in any way deface any part
of the Building or the premises demised to such tenant. No boring, cutting or
stringing of wires shall be permitted, except with the prior written consent of
Landlord, and as Landlord may direct. No tenant shall install any resilient tile
or similar floor covering in the premises demised to such tenant except in a
manner approved by Landlord.
14. No tenant shall lease desk space or permit the licensing of desk space
in the premises demised to such tenant.
15. No premises shall be used, or permitted to be used, at any time, as a
store for the sale, or display of goods, wares or merchandise of any kind, or as
a restaurant, shop, booth, bootblack or other stand, or for the conduct of any
business or occupation which predominantly involves direct patronage of the
general public in the premises demised to such tenant, or for manufacturing or
for other similar purposes.
48
<PAGE>
16. The requirements of tenants will be attended to only upon application
at the office of the building. Employees of Landlord shall not perform any work
or do anything outside of the regular duties, unless under special instruction
from the office of the Landlord.
17. Each tenant shall, at its expense, provide artificial light in the
premises demised to such tenant for Landlord's agents, contractors and employees
while performing janitorial or other cleaning services and making repairs or
alterations in said premises.
18. Tenants' employees shall not loiter around the hallways, stairways,
elevators, front roof or any other part of the Building used in common by the
occupants thereof.
19. If the premises demised to any tenant become infested with vermin,
such tenant, at its sole cost and expense, shall cause its premises to be
exterminated, from time to time, to the satisfaction of Landlord and shall
employ such exterminators therefor as shall be approved by Landlord.
20. Any cuspidors or similar containers or receptacles used in any
tenant's premises and shall be cared for and cleaned by and at the expense of
the Tenant.
21. All movers used by any Tenant or occupant of the Building shall be
appropriately licensed and shall maintain adequate insurance coverage (proof of
such coverage shall be delivered to Landlord prior to movers providing service
in and throughout the Building). No Tenant shall move, or permit to be moved,
into or out of the Building of the premises demised to such Tenant, or move any
heavy or bulky matter without specific approval of the Landlord, and if such
matter requires special handling, only a person holding a master rigger's
license shall be employed to perform such special services. Tenant shall protect
the Premises, including all Finishing Work from damage or soiling by Tenant's
movers and contractors and shall pay for extra cleaning or replacement or
repairs by reason of Tenant's failure to do so.
22. If the Premises shall be situated on the ground floor of the Building,
the Tenant shall cause all exterior windows facing on any street or avenue to be
thoroughly cleaned inside and out at least once per calendar month. In addition,
if the Premises shall be on the ground floor, Tenant shall likewise cause the
exterior of any storefront or sign to be kept clean, properly maintained and in
good order and repair throughout the term of this Lease.
23. No bicycles, vehicles or animals of any kind shall be brought into or
kept in or about the Premises.
49
<PAGE>
24. The Premises shall not be used for lodging or sleeping or for any
immoral or illegal purposes.
25. Canvassing, soliciting, and peddling in the Building are prohibited
and each tenant shall cooperate to prevent the same.
26. No space in the Building shall be used for manufacturing,
distribution, or for the storage of merchandise or for the sale of merchandise,
goods or property of any kind at auction.
27. No tenant shall occupy or permit any portion of the Premises leased to
it to be occupied as an office for a public stenographer or typist, or for the
possession, storage, manufacture, or sale of liquor, narcotics, dope, tobacco,
in any form, or as a barber or manicure shop or as an employment bureau or
agency, or for a public finance (personal loan) business. No tenant or occupant
shall engage or pay any employees on the Premises, except those actually working
for such occupancy on the Premises, nor advertise for laborers giving an address
at the Premises.
28. Whenever Tenant shall submit to Landlord any plan, agreement or other
document for Landlord's consent or approval, Tenant agrees to pay Landlord as
additional rent, on demand, a processing fee in a sum equal to the reasonable
fee of any architect, engineer or attorney employed by Landlord to review said
plan, agreement or document.
29. Freight, furniture, business equipment, merchandise and bulky matter
of any description shall be delivered to and removed from the Premises only on
the freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Landlord. Landlord reserves the right
to inspect all freight to be brought into the Building and to exclude from the
Building all freight which violates any of these Rules and Regulations or the
lease of which these Rules and Regulations are a part.
30. Tenant, in order to obtain maximum effectiveness of the cooling system
shall lower and/or close venetian or vertical blinds or drapes when the sun's
rays fall directly on windows of the Premises.
31. In order that the Building can and will maintain a uniform appearance
to those outside of same, each Tenant in building perimeter areas shall (a) use
only building standard lighting in areas where lighting is visible from the
outside of the Building and (b) use only building standard venetian or vertical
blinds in window areas which are visible from the outside of the Building.
32. All paneling, carpets, upholstery, drapery, furniture, and decorating
materials shall be composed of fire and smoke retardant materials recommended by
the
50
<PAGE>
New York City Fire Department. Before installation of any such materials,
certification of the material's fire retardant characteristics shall be
submitted to Landlord, or its agents, in a manner satisfactory to the Landlord.
33. When alterations to or above hung ceilings are performed, sprinkler
systems will be installed at Tenant's cost and expense.
EXHIBIT D
CLEANING SPECIFICATIONS FOR 110 EAST 42ND STREET
A. Nightly:
a. Sweep all uncarpeted flooring using chemically treated dust mop to
prevent dust dispersion.
b. All carpeting and rugs to be spot vacuumed four (4) nights per week
and thoroughly vacuumed once (1) each week.
c. Empty and clean all ashtrays and screen all sand urns.
d. Empty wastebaskets and other trash receptacles, remove rubbish to
designated area within the building.
e. Hand dust and wipe clean with chemically treated cloth all
furniture, file cabinets, desk lamps, window sills and convector
enclosed tops within arm's reach.
f. Move and dust under all desk equipment and phones, replacing and
dusting said equipment.
g. Remove all gum and foreign matter on sight.
h. Scour and wash clean all water coolers and fountains.
i. During cleaning operations, a minimum number of lights are to be
left on. Upon completion of said operation, all lights should be
turned off.
B. Periodic
Perform all high dusting as outlined below once every three (3) months.
51
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a. Hand dust all pictures, frames, charts, graphs and similar wall
hangings not reached in nightly cleaning.
b. Dust vertical surfaces such as partitions, fixtures, ventilating
louvers, high moldings, etc. not reached in nightly cleaning.
52
<PAGE>
Exhibit 10.10
- --------------------------------------------------------------------------------
LEASE AGREEMENT
110 EAST 42ND STREET ASSOCIATES,
LIMITED PARTNERSHIP,
Landlord
and
NATIONAL FIBER NETWORK, INC.,
Tenant
110 East 42nd Street
New York, New York 10017
Dated as of June __, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Article Page
1 Premises and Rent.....................................................1
2 Use...................................................................2
3 Preparation of Premises...............................................3
4 Taxes.................................................................3
5 Intentionally Omitted.................................................4
6 Intentionally Omitted.................................................4
7 Subordination, Notice to Superior Lessors and Mortgages...............4
8 Quiet Enjoyment.......................................................6
9 Assignment, Subletting and Mortgaging.................................6
10 Compliance with Laws..................................................9
11 Insurance............................................................10
12 Rules and Regulations................................................12
13 Tenant's Work; Alterations...........................................12
14 Landlord's and Tenant's Property.....................................16
15 Repairs and Maintenance..............................................16
16 Electric Energy......................................................17
17 Heat, Ventilation and Air-Conditioning...............................18
18 Other Services; Service Interruption.................................19
19 Access...............................................................20
20 Notice of Occurrences................................................21
21 Non-Liability and Indemnification....................................22
22 Damage or Destruction................................................23
23 Eminent Domain.......................................................24
24 Surrender............................................................26
25 Conditions of Limitation-Insolvency; Default.........................26
26 Re-Entry by Landlord.................................................28
27 Damages..............................................................29
28 Affirmative Waivers..................................................31
29 No Waivers...........................................................31
30 Curing Tenant's Defaults.............................................32
31 Broker...............................................................32
32 Notices..............................................................33
33 Estoppel Certificates................................................33
34 Memorandum of Lease..................................................34
35 Submission Not an Offer..............................................34
36 Signage..............................................................35
37 Holding Over.........................................................35
38 Miscellaneous........................................................36
EXHIBIT A - Plan of Premises...........................................43
EXHIBIT B - Landlord's Work............................................44
EXHIBIT C - Rules and Regulations......................................45
i
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EXHIBIT D - Cleaning Specifications....................................50
ii
<PAGE>
LEASE, made as of the ____ day of June, 1997, by and between 110 East 42nd
Street Associates, Limited Partnership, a Maryland limited partnership with
offices at 110 East 42nd Street, New York 10017 (herein called "Landlord"), and
National Fiber Network, Inc., a Delaware corporation having an address at 60
Hudson Street, New York, New York 10013 (herein called "Tenant").
REFERENCE PAGE
PREMISES: A portion of the 14th floor of the building located at 110 East 42nd
Street, New York, New York 10017, which premises are deemed to be 1,146 square
feet and are approximately as shown on the floor plans annexed hereto as Exhibit
A.
COMMENCEMENT DATE: June 20, 1997.
RENT COMMENCEMENT DATE: The Commencement Date
EXPIRATION DATE: The day immediately preceding the first anniversary of the
Commencement Date.
TERM OF LEASE: One (1) year.
ANNUAL FIXED BASE RENT: $27,504.00
MONTHLY INSTALLMENT OF FIXED BASE RENT: $2,292.00
ELECTRICITY: Direct Meter.
TENANT'S PROPORTIONATE SHARE: .004964 (0.4964%)
REAL ESTATE BROKERS: Colliers ABR, Inc.
The Reference Page information is incorporated into and made a part of the
within Lease. In the event of any conflict between any Reference Page
information and the Lease, the Lease shall control. This Lease includes Exhibits
A through D all of which are made a part hereof.
<PAGE>
W I T N E S S E T H:
The parties hereto covenant and agree as follows:
ARTICLE 1
PREMISES AND RENT
1.01 Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, upon and subject to the terms, covenants, provisions and conditions of
this Lease, the premises located in the building known as 110 East 42nd Street
in the City, County and State of New York (herein called "Building"), which
premises are deemed to be 1,146 square feet and approximately as shown on the
floor plan attached hereto as Exhibit A and made a part hereof (herein called
"Premises").
1.02 (a) The term of this Lease shall commence on the date specified in
Section 1.02(b) (the "Commencement Date"), and shall expire at 11:59 P.M. on the
Expiration Date set forth on the Reference Page, both dates inclusive, or upon
the earlier expiration of the term of this Lease pursuant to the terms of this
Lease or pursuant to law.
(b) The "Commencement Date" of the term of this Lease shall be June
1, 1997.
(c) The "Rent Commencement Date" shall be the Commencement Date.
(d) Subject to the completion of Landlord's Work, as defined in
Exhibit B, Tenant hereby agrees that the Premises are being leased in its
current, "As-Is" condition. Tenant hereby accepts the existing facilities,
materials and work as furnished, installed and performed in the Premises by
Landlord as satisfactory. All other installations, materials and work which may
be undertaken by or for the account of Tenant to prepare, equip, decorate and
furnish the Premises for Tenant's occupancy shall be at Tenant's expense and are
hereinafter referred to as "Alterations."
(e) This Section 1.02 shall be deemed to be an express provision to
the contrary for purposes of Section 223-a of the Real Property Law of the State
of New York and any other law of like import now or hereafter in force.
1.03 (a) From and after the Rent Commencement Date, Tenant shall pay to
Landlord fixed annual base rent, subject to adjustment, at the annual fixed base
rental rate set forth in the Reference Page (herein called "Fixed Base Rent")
which shall be payable in equal monthly installments in advance on the first day
of each and every calendar month during the term of this Lease, except that the
first monthly installment of Fixed Base Rent shall be payable by Tenant upon
execution hereof. In the event that the Rent
<PAGE>
Commencement Date falls on any day other than the first day of a month, the
Fixed Base Rent for such partial month shall be pro-rated on a per diem basis
and Tenant shall pay the amount thereof for such partial month on the Rent
Commencement Date. In such event the amount paid by Tenant upon execution of
this Lease shall be applied to the Fixed Base Rent payable on the first day of
the first month following the Rent Commencement Date.
(b) Any sum other than Fixed Base Rent payable hereunder
(hereinafter called "Additional Rent") shall, unless otherwise stated, be due on
demand therefor and shall be payable whether or not the Rent Commencement Date
has occurred. Fixed Base Rent and Additional Rent shall be paid in lawful money
of the United States by check drawn to Landlord's order. Said checks shall be
sent to Landlord at its address as hereinabove set forth, or to such other party
or parties and/or at such other address(es) as Landlord shall designate by
notice to Tenant.
(c) Tenant shall pay the Fixed Based Rent and Additional Rent
promptly when due without notice or demand therefor and without abatement,
deduction or setoff for any reason whatsoever.
1.04 No payment by Tenant or receipt or acceptance by Landlord of a lesser
amount than the correct Fixed Base Rent or Additional Rent shall be deemed to be
other than a payment on account, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance or pursue any other remedy provided in
this Lease or at law.
1.05 Landlord shall have the same right and remedies (including, without
limitation, the right to commence a summary proceeding) for a default in the
payment of Additional Rent as for a default in the payment of Fixed Base Rent
notwithstanding the fact that Tenant may not then also be in default in the
payment of Fixed Base Rent.
ARTICLE 2
USE
2.01 Tenant shall use and occupy the Premises only for general and
executive offices and for no other purpose.
2.02 If any governmental license or permit (other than a Certificate of
Occupancy for the Building or any other license or permit required of all
tenants occupying space for executive and general office use in the Borough of
Manhattan) shall be required for the proper and lawful conduct of Tenant's
business in the Premises or any part thereof, Tenant
2
<PAGE>
at its expense shall procure and maintain and comply with the terms and
conditions of such license or permit and submit the same to Landlord for
inspection.
2.03 Tenant shall not at any time use or occupy or suffer or permit anyone
to use or occupy the Premises, or do or permit anything to be done in the
Premises, in any manner which, in Landlord's judgment, would (a) violate the
Certificate of Occupancy for the Premises or the Building; (b) cause injury to
the Building or any equipment, facilities or systems therein or any persons in
or about the Building; (c) constitute a violation of the laws or requirements of
any public authority or the requirements of the New York Board of Fire
Underwriters or any other similar body or cause an increase in the rate of fire
insurance on the Building or any other tenant; (d) impair the character,
reputation or appearance of the Building as a first-class office building; or
(e) annoy or inconvenience other tenants or occupants of the Building.
ARTICLE 3
PREPARATION OF PREMISES
3.01 Tenant is leasing the Premises "as is" as of the date hereof, except
for any work which Landlord has expressly agreed to perform in accordance with
Exhibit B annexed hereto.
ARTICLE 4
TAXES
4.01 (a) Tenant shall pay to Landlord upon demand, unless Tenant is
required to pay the applicable taxing authority directly, as Additional Rent,
any occupancy tax or rent tax now in effect or hereafter enacted, which Landlord
now or hereafter is required to pay (i) with respect to the Premises or this
Lease or (ii) upon this transaction or any document to which Tenant is a party
creating or transferring an interest or an estate in the Premises. Nothing
herein shall be construed to require Tenant to pay any portion of the real
estate taxes assessed on the Building or the land.
(b) Tenant agrees to pay, before delinquency, any and all taxes
levied or assessed against Tenant which become payable during the term hereof
upon Tenant's equipment, furniture, fixtures, and other personal property of
Tenant located in the Premises.
3
<PAGE>
ARTICLE 5
INTENTIONALLY DELETED
ARTICLE 6
INTENTIONALLY DELETED
ARTICLE 7
SUBORDINATION, NOTICE TO SUPERIOR
LESSORS AND MORTGAGEES
7.01 This Lease, and all rights of Tenant hereunder, are and shall be
subject and subordinate to all ground leases, overriding leases and underlying
leases of the Land and/or the Building hereafter existing and to all mortgages
which may hereafter affect the Land and/or the Building and/or any of such
leases, whether or not such mortgages shall also cover other lands and/or
buildings and/or leases, to each and every advance made or hereafter to be made
under such mortgages, and to all renewals, modifications, replacements and
extensions of such leases and such mortgages and spreaders and consolidations of
such mortgages. This Section shall be self-operative and no further instrument
of subordination shall be required. In confirmation of such subordination,
Tenant shall promptly execute, acknowledge and deliver any instrument that
Landlord, the lessor under any such lease or the holder of any such mortgage or
any of their respective successors in interest may reasonably request to
evidence such subordination and, if Tenant fails to execute, acknowledge or
deliver any such instruments within 10 days after request therefor, Tenant
hereby irrevocably constitutes and appoints Landlord as Tenant's
attorney-in-fact coupled with an interest to execute and deliver any such
instruments for and on behalf of Tenant. Nothing contained in the preceding
sentence shall limit Landlord's remedies under Section 25.02(e). Any lease to
which this Lease is, at the time referred to, subject and subordinate is herein
called a "Superior Lease" and the lessor of a Superior Lease or its successor in
interest, at the time referred to, is herein called a "Superior Lessor"; any
mortgage to which this Lease is, at the time referred to, subject and
subordinate is herein called a "Superior Mortgage" and the holder of a Superior
Mortgage is herein called a "Superior Mortgagee."
7.02 Tenant agrees that, except for the first month's rent hereunder, it
will pay no rent under this Lease more than 30 days in advance of its due date,
if so restricted by a Superior Lease or Superior Mortgage or by an assignment of
this Lease to the holder of a Superior Mortgage or a Superior Lease. If any act
or omission of Landlord would give Tenant the right, immediately or after lapse
of a period of time, to cancel or terminate this
4
<PAGE>
Lease, or to claim a partial or total eviction, Tenant shall not exercise such
right (a) until it has given written notice of such act or omission to Landlord
and each Superior Mortgagee and each Superior Lessor whose name and address
shall previously have been furnished to Tenant, and (b) until a reasonable
period for remedying such act or omission shall have elapsed following the
giving of such notice and following the time when such Superior Mortgagee or
Superior Lessor shall have become entitled under such Superior Mortgage or
Superior Lease, as the case may be, to remedy the same (which reasonable period
shall in no event be less than the period to which Landlord would be entitled
under this Lease or otherwise, after similar notice, to effect such remedy),
provided such Superior Mortgagee or Superior Lessor shall with due diligence
commence and continue to remedy such act or omission.
7.03 If any Superior Lessor or Superior Mortgagee or purchaser at a
foreclosure sale shall succeed to the rights of Landlord under this Lease,
whether through possession or foreclosure action or delivery of a new lease or
deed, then at the request of such party so succeeding to Landlord's rights
(herein called a "Successor Landlord") and upon such Successor Landlord's
written agreement to accept Tenant's attornment, Tenant shall attorn to and
recognize such Successor Landlord as Tenant's landlord under this Lease. This
attornment shall be self-operative and no further instrument of attornment shall
be required. In confirmation of such attornment, Tenant shall promptly execute,
acknowledge and deliver any instrument that Landlord or any Successor Landlord
may reasonably request to evidence such subordination (which, if so requested,
shall include the substance of the last sentence of this Section 7.03) and, if
Tenant fails to execute, acknowledge and deliver any such instruments within 10
days after request therefor, Tenant hereby irrevocably appoints Landlord and the
Successor Landlord as Tenant's attorneys-in-fact coupled with an interest to
execute and deliver any such instruments for and on behalf of Tenant. Nothing in
the preceding sentence shall be construed to limit Landlord's rights under
Section 25.02(e) hereof. Upon such attornment, this Lease shall continue in full
force and effect as a direct lease between the Successor Landlord and Tenant
upon all of the terms, conditions and covenants as are set forth in this Lease
except that the Successor Landlord shall not (a) be liable for any previous act,
omission or default of Landlord under this Lease; (b) be subject to any offsets,
claims or defenses which theretofore shall have accrued to Tenant against
Landlord; (c) be bound by any covenant to undertake or complete any improvements
to the Premises or the Building or to pay to Tenant any sum, or grant to Tenant
any credit, in the nature of a contribution towards the cost of preparing,
furnishing or moving into the Premises or any portion, thereof; or (d) be bound
by any previous modification, amendment, surrender or cancellation of this Lease
or by any previous prepayment of more than one month's Fixed Base Rent or
Additional Rent, unless such modification, amendment, surrender, cancellation or
prepayment shall have been expressly approved in writing by the Superior Lessor
or the Superior Mortgagor through or by reason of which the Successor Landlord
shall have succeeded to the rights of Landlord under this Lease.
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ARTICLE 8
QUIET ENJOYMENT
8.01 So long as Tenant pays all of the Fixed Base Rent and Additional Rent
and performs all of Tenant's other obligations hereunder, Tenant shall peaceably
and quietly have, hold and enjoy the Premises without hindrance, ejection or
molestation by Landlord or any person lawfully claiming through or under
Landlord, subject, nevertheless, to the provisions of this Lease and to Superior
Leases and Superior Mortgages. This covenant shall be construed as a covenant
running with the land, and is not, nor shall it be construed as, a personal
covenant of Landlord, except to the extent of Landlord's interest in the Land
and the Building and only so long as such interest shall continue, and
thereafter this covenant shall be binding only upon subsequent successors in
interest of Landlord's interest in the Land and the Building, to the extent of
their respective interest, as and when they shall acquire the same, and so long
as they shall retain such interest.
ARTICLE 9
ASSIGNMENT, SUBLETTING AND MORTGAGING
9.01 Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns, expressly
covenants that it shall not whether voluntarily, involuntarily, or by operation
of law or otherwise, assign, mortgage or encumber this Lease, nor underlet, or
suffer or permit the Premises or any part thereof to be used or occupied by
others without Landlord's prior written consent, such consent not to be
unreasonably withheld or delayed.
If this Lease be assigned, or if the Premises or any part thereof be
underlet or occupied by anybody other than Tenant, Landlord may, after default
by Tenant, collect rent from the assignee, undertenant or occupant, and apply
the net amount collected to the Fixed Base Rent or Additional Rent herein
reserved, but no assignment, underletting, occupancy or collection shall be
deemed a waiver of the provisions hereof, the acceptance of the assignee,
undertenant or occupant as Tenant, or a release of Tenant from the further
performance by Tenant of covenants on the part of Tenant herein contained. The
transfer of a majority of the partnership interests of Tenant, the voting power
of Tenant or the power to control Tenant shall be deemed an assignment
prohibited by this Article.
9.02 The listing of any name other than that of Tenant, whether on the
doors of the Premises or the Building directory, or otherwise, shall not operate
to vest any right or interest in this Lease or in the Premises on the person or
firm therein named, nor shall it be deemed to be the consent of Landlord to any
assignment or transfer of this Lease or to any sublease of the Premises or to
the use or occupancy thereof by others.
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9.03 If Tenant requests Landlord's consent to a specific assignment or
subletting, Tenant shall submit in writing (i) the name and address of the
proposed assignee or subtenant, (ii) a term sheet setting forth the material
business terms of the proposed transaction, including, without limitation, the
purchase price for all or substantially all of Tenant's assets or stock, as the
case may be, (iii) at least two years of financial statements for the proposed
assignee or subtenant, (iv) information as to the nature and character of the
business and proposed use for the space and (v) all other information reasonably
requested by Landlord.
9.04 (a) The proposed assignment or sublease must specifically provide
that (1) the assignee or sublessee, as the case may be, will not have the right
to further assign or sublet all or part of the demised premises or to allow same
to be used by others, without the consent of Landlord in each instance in
accordance with this Article 9; (2) a consent by Landlord thereto shall not be
deemed or construed to modify, amend or affect the terms and provisions of the
Lease, or Tenant's obligations hereunder; and (3) the receipt by Landlord of any
amounts from sublessee, or other occupant of any part of the demised premises
shall not be deemed or construed as releasing Tenant from Tenant's obligations
under the lease or the acceptance of that party as a direct tenant;
(b) Any such consent of Landlord shall be subject to the terms of
this Article and conditioned upon there being no default by Tenant beyond any
grace and notice period under any of the terms, covenants and conditions of this
Lease at the time that Landlord's consent to any such assignment or subletting
is requested and all basic annual rent and additional rent due to date shall
have been paid on the date of the commencement of the term of any such proposed
sublease or the effective date of any such proposed assignment.
9.05 (a) Within two (2) days after executing an assignment or sublease
(after having received Landlord's written consent pursuant to this Article),
Tenant shall deliver to Landlord an original assignment or sublease, as the case
may be.
(b) All subleases shall provide that the sublessee shall comply with
all applicable terms, covenants, provisions and conditions of this Lease to be
performed by Tenant hereunder except for the obligation to pay basic annual rent
and additional rent and such other covenants that are, by their nature, not
relevant to the subletting. All assignments of this Lease shall contain an
assumption by the assignee of all of the terms, covenants, provisions and
conditions of this Lease to be performed by the Tenant hereunder.
9.06 Anything contained in Article 9 to the contrary notwithstanding:
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(a) Tenant may list with brokers its space for assignment or
subletting and may advertise such space provided no such advertisements include
the name of the Building;
(b) No assignment or subletting shall be made: (i) by the legal
representatives of the Tenant or by any person to whom Tenant's interest under
this lease passes by operation of law, except in compliance with the provisions
of this Article; (ii) to any person or entity for the conduct of a business
which is not in keeping with the standards and the general character of the
Building and in accordance with the Permitted Use; and (iii) to any person or
entity which shall at that time be a Tenant, subtenant or other occupant of any
part of the Building, or who dealt with Landlord or Landlord's agent (directly
or through a broker) with respect to space in the Building during the six (6)
months immediately preceding Tenant's request for Landlord's consent.
9.07 The joint and several liability of Tenant and any immediate or remote
successor in interest of Tenant and the due performance of the obligations of
this Lease on Tenant's part to be performed or observed shall not be discharged,
released or impaired in any respect by any agreement or stipulation made by
Landlord extending the time of or modifying any of the obligations of this Lease
or by any waiver or failure of Landlord to enforce any of the obligations of
this Lease.
9.08 Any assignment or transfer, shall not be effective unless and until
(a) the assignee shall execute, acknowledge and deliver to Landlord a recordable
agreement, in form and substance satisfactory to Landlord, whereby the assignee
shall assume the obligations and performance of this Lease and agree to be bound
by all of the covenants, agreements, terms, provisions and conditions hereof on
the part of Tenant to be performed or observed on and after the effective date
of any such assignment and (b) agree that the provisions of this Article 9
shall, notwithstanding such assignment or transfer, continue to be binding upon
it in the future. Tenant covenants that, notwithstanding any assignment or
transfer, whether or not in violation of the provisions of this Lease, and
notwithstanding the acceptance of basic annual rent by Landlord from an assignee
or transferee or any other party, Tenant shall remain fully and primarily and
jointly and severally liable for the payment of the basic annual rent and all
additional rent due and to become due under this Lease and for the performance
and observance of all of the covenants, agreements, terms, provisions and
conditions of this Lease on the part of Tenant to be performed or observed.
9.09 The liability of Tenant, and the due performance by Tenant of the
obligations on its part to be performed under this Lease, shall not be
discharged, released or impaired in any respect by an agreement or stipulation
made by Landlord or any grantee or assignee of Landlord in connection with a
mortgage or any other agreement with a third party extending the time of or
modifying any of the obligations contained in this Lease, or by any waiver or
failure of Landlord to enforce any of the obligations on Tenant's part to be
performed under this Lease, and Tenant shall continue to be liable hereunder. If
any
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such agreement or modification operates to increase the obligations of Tenant
under this Lease, the liability under this Section 9.09 of the tenant named in
the Lease or any of its successors in interest (unless such party shall have
expressly consented in writing to such agreement or modification) shall continue
to be no greater than if such agreement or modification had not been made.
9.10 If Landlord shall give its consent to any assignment of this Lease or
to any sublease, Tenant shall in consideration therefor, pay to Landlord, as
additional rent:
(i) in the case of an assignment, an amount equal to all sums and
other consideration paid to Tenant by the assignee for or by reason of such
assignment (including, but not limited to, sums paid for the sale or rental of
Tenant's fixtures, leasehold improvements, equipment, furniture, furnishings or
other personal property, less, in the case of a lease or sale thereof, the then
fair market rental or sale value, as the case may be), and less any expenses
reasonably incurred by Tenant in connection with such assignment, including
without limitation, costs of altering and preparing the demised premises for new
tenants, brokerage commissions and reasonable attorneys' fees and disbursements;
and
(ii) in the case of a sublease, any rents, additional charges and
other consideration payable under the sublease to Tenant by the sublessee which
is in excess of the Fixed Base Rent and Additional Rent accruing during the term
of the sublease in respect of the subleased space (at the rate per square foot
payable by Tenant hereunder) pursuant to the terms hereof (including, but not
limited to, sums paid for the sale or rental of Tenant's fixtures, leasehold
improvements, equipment, furniture, furnishings or other personal property,
less, in the case of the lease or sale thereof, the then fair market rental or
sale value, as the case may be), and less any expenses reasonably incurred by
Tenant in connection with such subletting, including without limitation, costs
of altering and preparing the demised premises for subtenants, brokerage
commissions and reasonable attorneys' fees and disbursements.
ARTICLE 10
COMPLIANCE WITH LAWS
10.01 Tenant shall, at Tenant's expense, comply with all legal
requirements which shall impose any violation, order or duty upon Landlord or
Tenant with respect to the Premises, or the use or occupation thereof, whether
or not such compliance involves structural repairs or changes to the demised
premises.
10.02 Notwithstanding the provision of Section 10.01 hereof, Tenant, at
its own cost and expense, in its name and/or (whenever necessary) Landlord's
name, may contest,
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in any manner permitted by law (including appeals to a court, or governmental
department or authority having jurisdiction in the matter), the validity or the
enforcement of any legal requirements with which Tenant is required to comply
pursuant to this Lease, and may defer compliance therewith provided that:
(a) such non-compliance shall not subject Landlord to criminal
prosecution or subject the Property to lien or sale;
(b) such non-compliance shall not be in violation of any mortgage,
or of any ground or underlying lease or any mortgage thereon;
and
(c) Tenant shall promptly, diligently and continuously prosecute
such contest.
Landlord, without expense or liability to it, shall cooperate with Tenant
and execute any documents or pleadings required for such purpose, provided that
Landlord shall reasonably be satisfied that the facts set forth in any such
documents or pleadings are accurate.
10.03 All work performed pursuant to this Article by Tenant shall be
performed in accordance with the provisions of Article 13 hereof relating to
Alterations.
ARTICLE 11
INSURANCE
11.01 Tenant shall obtain and keep in full force and effect during the
term of this Lease at its own cost and expense comprehensive general liability
insurance with a broad form liability insurance with a broad form liability
endorsement including coverage for contractual liability. Said insurance shall
provide coverage on an occurrence basis with a minimum limit of liability of (a)
$2,000,000 per occurrence for bodily injury (including death), whether involving
one or more persons and (b) $2,000,000 per occurrence in respect of property
damage; subsections (a) and (b) shall be subject to an annual aggregate of
$2,000,000. In the event Tenant occupies space in more than one location, the
said aggregate of $2,000,000 shall apply to each location. Said insurance is to
be written without the inclusion of any defense costs within the limit of
liability and shall name Landlord, as additional insured, and Tenant, as
insured, against any and all claims for bodily injury (including death),
personal injury, or property damage occurring in, upon, adjacent to, or
connected with the Demised Premises or any part thereof. Said insurance shall be
written in form reasonably satisfactory to Landlord by one or more good and
solvent insurance companies of recognized standing admitted to do business in
the State of New York, rated by A.M. Best Co., Inc., or any successor thereto
(or if there be none,
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an organization having a national reputation) as having a "Best's Rating" of at
least "A (Excellent)" and a financial size of at least "Class XIII." Tenant
shall pay all premiums and charges therefor and upon failure to do so Landlord
may, but shall not be obligated to, make such payments, in which event Tenant
agrees to pay the amount thereof to Landlord on demand, as Additional Rent. A
duplicate original insurance policy or appropriate certificate evidencing the
aforesaid insurance coverage shall be delivered to Landlord together with any
endorsements thereto, on the Commencement Date and thereafter renewals or
replacements thereof shall be delivered to Landlord at least 15 days prior to
the expiration of any expiring policy. Such insurance policy or certificate
shall contain a provision that no act or omission of Tenant will affect or limit
the obligation of the insurance company to pay the amount of any loss sustained
and that the insurance afforded thereunder shall not be canceled, nonrenewed, or
coverage thereunder reduced except upon thirty (30) days' prior written notice
to Landlord. Such insurance policy shall also specifically provide coverage for
Tenant's indemnification and hold harmless obligations set forth in subsections
21.02(b) and (c) which coverage shall include the entire text of the indemnity
clause contained in subsections 21.02(b) and (c). Any certificate delivered to
Landlord shall also specifically reflect coverage of Tenant's aforementioned
indemnification obligation. In the event Tenant shall fail to obtain such
insurance, Landlord may, but shall not be obligated to, obtain the same, in
which event the amount of the premium paid shall be paid by Tenant to Landlord
within ten (10) days following demand as Additional Rent. Landlord shall have
the right, at any time and from time to time during the term of this Lease on
not less than fifteen (15) days' notice to Tenant, to require that Tenant
increase the amounts and/or kinds of coverage required to be maintained under
this Article 11 to the amounts and/or kinds of coverages then required by
Landlord of tenants entering into new leases in the Building. Landlord shall
throughout the term of this Lease keep the Building insured at its replacement
cost value with coverages against "all risk of physical damage" to the Building,
provided that Landlord may at its option self-insure for any or all of such
coverages.
11.02 Each party agrees to use its best efforts to include in each of its
policies insuring against loss, damage or destruction by fire or other casualty,
a waiver of the insurer's right of subrogation against the other party in
connection with any loss or damage covered by any such policy or permission to
release third parties from liability resulting from such casualties. If such
waiver or permission shall not be, or shall cease to be, obtainable without
additional charge or at all, the insured party shall promptly so notify the
other party. In any case in which such waiver or permission shall cease to be
obtainable without additional charge, if the other party shall so elect and
shall pay the insurer's additional charge therefor, such waiver or permission
shall be included in the policy. In the event that Landlord elects to
self-insure as provided in Section 11.01, Landlord shall provide the waiver of
subrogation described in the first sentence of this Section 11.02 to the extent
to which Tenant's insurer has waived its right of subrogation against Landlord.
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11.03 Each party hereby releases the other party, its officers, directors,
partners, agents and employees with respect to any claim (including a claim for
negligence) which it might otherwise have against the other party, its officers,
directors, partners, agents or employees, for loss, damage or destruction with
respect to its property (including rental value or business interruption)
occurring during the term of this Lease but only if and to the extent to which
(assuming no deductibles) in the case of a release by Landlord, Tenant is
covered under a policy of collectible insurance containing a waiver of
subrogation provision or permission or, in the case of a release by Tenant,
Landlord is covered by a policy of collectible insurance containing a waiver of
subrogation provision or permission or is self-insured and has waived its rights
of subrogation, as provided in this Article 11. If notwithstanding the recovery
of insurance proceeds by either party for loss, damage or destruction of its
property (or rental value or business interruption) the other party is liable to
the first party with respect thereto or is obligated under this Lease to make
replacement, repair or restoration, then provided the first party's right to
full recovery under its insurance policies is not thereby prejudiced or
otherwise adversely affected, the amount of the net proceeds of the first
party's insurance against such loss, damage or destruction shall be offset
against the second party's liability to the first party therefor, or shall be
made available to the second party to pay for replacement, repair or
restoration, as the case may be.
11.04 The waiver of subrogation or permission referred to in Sections
11.02 and 11.03 of this Article shall extend to the officers, directors,
partners, agents and employees of each party and, in the case of Tenant, shall
also extend to all other permitted occupants of the Premises, but only if and to
the extent that such waiver or permission can be obtained without additional
charge (unless such party shall pay such charge). Nothing contained in this
Article shall be deemed to relieve either party from any duty imposed elsewhere
in this Lease to repair, restore or rebuild or to nullify any abatement of Fixed
Base Rent provided for elsewhere in this Lease.
11.05 Any employee of the Building to whom property shall be entrusted by
or on behalf of Tenant shall be deemed to be acting as Tenant's agent with
respect to such property and neither Landlord nor its agents shall be liable for
any damage to such property nor for the loss of or damage to any property of
Tenant by theft or otherwise.
ARTICLE 12
RULES AND REGULATIONS
12.01 Tenant and its employees and agents shall faithfully observe and
comply with the rules and regulations annexed hereto as Exhibit C, and such
changes thereof (whether by modification, elimination or addition) as Landlord
may from time to time make and communicate to Tenant (such rules and regulations
as changed from time to time
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being herein called "Rules and Regulations"); provided, however, that in case of
any conflict or inconsistency between the provisions of this Lease and any of
the Rules and Regulations, the provisions of this Lease shall control.
ARTICLE 13
ALTERATIONS
13.01 Tenant shall make no alteration, addition or improvement in the
Premises (herein called "Alterations"), without the prior written consent of
Landlord (which shall not be unreasonably withheld or delayed and, if approved,
only by contractors or mechanics, in such manner, at such times and with such
materials as may be approved by Landlord), and alterations performed by Tenant
to prepare, equip, decorate and furnish the Premises for Tenant's occupancy. All
Alterations shall be done at Tenant's sole cost and expense. If required by
Landlord, all Alterations shall be removed by Tenant upon the expiration or
sooner termination of the term of this Lease and Tenant, at its expense, shall
repair any damage to the Premises caused by such removal. Alterations shall not
include decorations such as painting, wallcoverings and carpeting.
13.02 (a) Tenant, at its expense, shall obtain all necessary governmental
permits and certificates for the commencement and prosecution of Alterations and
for final approval thereof upon completion, and shall cause Alterations to be
performed in compliance therewith and with all applicable law and requirements
of public authorities including, without limitation, all laws, regulations and
requirements relating to asbestos, and with all applicable requirements of
insurance bodies (as defined in Section 38.06). Notwithstanding the foregoing,
no plans or specifications required to be filed by Tenant pursuant to any
Alterations contemplated to be performed by it hereunder shall be filed or
submitted to any governmental or quasi-governmental authority having
jurisdiction thereover without Tenant first having obtained Landlord's approval
of such plans and specifications.
(b) Alterations shall be diligently performed in a good and
workmanlike manner, and in accordance with plans and specifications first
approved in writing by Landlord. Tenant shall reimburse Landlord promptly upon
demand for any costs and expenses incurred by Landlord in connection with
Landlord's review of such plans and specifications except for Landlord's review
of such plans and specifications relating to the initial installation.
Alterations shall be performed by contractors first approved by Landlord, which
approval shall not be unreasonably withheld; provided, however, that contractors
performing any Alterations in or to the Building's mechanical, electrical,
sanitary, heating, ventilating, air-conditioning or other systems shall be
subject to Landlord's approval to be granted or denied in Landlord's sole
discretion. Alterations shall be performed in such manner as not to interfere
with or delay and as not to impose
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any additional expense upon Landlord in the construction, maintenance. repair or
operation of the Building; and if any such additional expense shall be incurred
by Landlord thereby, Tenant shall pay such additional expense upon demand.
Tenant shall coordinate its construction of Alterations with Landlord so that it
will not interfere with or delay the completion of any other construction work
in the Building, and, to that end, Tenant and its contractors and subcontractors
shall use only the Premises for the performance of Tenant's Alterations.
(c) No Alterations estimated to cost more than $10,000.00 (as
estimated by Landlord's architect or licensed professional engineer or general
contractor) shall be undertaken (i) except under the supervision of a licensed
architect or licensed professional engineer reasonably satisfactory to Landlord,
and (ii) prior to Tenant delivering to Landlord either (y) a performance bond
and a labor and materials payment bond (issued by a surety company satisfactory
to Landlord and licensed to do business in New York State) each in an amount
equal to one hundred percent (100%) of such estimated cost and otherwise in form
satisfactory to Landlord or (z) a letter of credit, unconditional and
irrevocable, issued by a commercial bank which is acceptable to Landlord in its
sole discretion, payable to Landlord upon presentation solely of a sight draft
and expiring no earlier than thirty (30) days after completion of such
Alterations in an amount equal to one hundred percent (100%) of such estimated
cost of such Alterations and otherwise in form satisfactory to Landlord.
(d) Throughout the performance of Alterations, Tenant, at its
expense, shall carry, or cause to be carried, worker's compensation insurance in
statutory limits and comprehensive general liability insurance, with completed
products endorsement, for any occurrence in or about the Building, under which
Landlord and its agent and any Superior Lessor and Superior Mortgagee whose name
and address shall previously have been furnished to Tenant shall be named as
parties insured, with a minimum liability of (i) $2,000,000 per occurrence for
bodily injury (including death), whether involving one or more persons, and (ii)
$2,000,000 per occurrence in respect of property damage, with one or more good
and solvent insurance companies of recognized standing admitted to do business
in the State of New York, rated by A.M. Best Co., Inc., or any successor thereto
(or if there be none, an organization having a national reputation) as having a
"Best's Rating" of at least "A (Excellent)" and a financial size of at least
"Class XIII." Tenant shall furnish Landlord with satisfactory evidence that such
insurance is in effect prior to commencement of Alterations and, on request, at
reasonable intervals thereafter during the continuance of Alterations.
13.03 Tenant shall procure the cancellation or discharge of all notices of
violation arising from or otherwise connected with Alterations, or any other
work, labor, services or materials done for or supplied to Tenant, or any person
claiming through or under Tenant, which shall be issued by the Department of
Buildings of The City of New York or any other public authority having or
asserting jurisdiction. Tenant shall defend,
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indemnify and save harmless Landlord from and against any and all mechanics' and
other liens and encumbrances filed in connection with Alterations, or any other
work, labor, services or materials done for or supplied to Tenant, or any person
claiming through or under Tenant, including, without limitation, security
interests in any materials, fixtures or articles so installed in and
constituting part of the Premises and against all costs, expenses and
liabilities incurred in connection with any such lien or encumbrance or any
action or proceeding brought thereon. Tenant, at its expense, shall procure the
satisfaction or discharge of record of all such liens and encumbrances within
fifteen (15) days after the filing thereof.
13.04 Any such approved Alterations shall be performed in accordance with
the foregoing provisions of this Article 13, the following provisions of this
Section 13.04 and the provisions of Sections 13.05, 13.06 and 38.12:
(a) Tenant will inform Landlord in writing of the names of any
contractor or subcontractors Tenant proposes to use in the Premises at least ten
(10) days prior to the beginning of work by such contractor or subcontractors.
(b) Tenant covenants and agrees to pay to the contractor, as the
work progresses, the entire cost of supplying the materials and performing the
work shown on the plans and specifications submitted to and approved by Landlord
in accordance with Section 13.02.
(c) During the progress of the work to be done by Tenant, said work
shall be subject to inspection by representatives of Landlord who shall be
permitted access and the opportunity to inspect, at all reasonable times, but
this provision shall not in any way whatsoever create any obligation on Landlord
to conduct such an inspection.
(d) Tenant shall pay to Landlord as Additional Rent, promptly upon
being billed therefor, a sum equal to Landlord's reasonable actual out-of-pocket
costs (including, but not limited to, Landlord's indirect costs, field
inspection costs and coordination costs) in connection with such Alterations.
(e) Tenant agrees that it will not at any time prior to or during
the term of this Lease either directly or indirectly, employ or permit the
employment of any contractor, mechanic or laborer, or permit any materials in
the Premises, if the use of such contractor, mechanic or laborer or such
materials would, in Landlord's reasonable judgment, create any difficulty,
strike or jurisdictional dispute with other contractors, mechanics or laborers
engaged by Tenant or Landlord or others, or would violate the provisions of
Section 38.12 hereof. In the event of any interference or conflict, Tenant, upon
demand of Landlord, shall cause all contractors, mechanics or laborers, or all
materials causing such interference, difficulty or conflict, to leave or be
removed from the Building immediately.
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13.05 No approval of plans or specifications by Landlord or consent by
Landlord allowing Tenant to make Alterations in the Premises shall in any way be
deemed to be an agreement by Landlord that the contemplated Alterations comply
with any legal requirements or insurance requirements or the certificate of
occupancy for the Building nor shall it be deemed to be a waiver by Landlord of
the compliance by Tenant with any of the terms of this Lease. Nothing in this
Lease shall be deemed or construed in any way as constituting the consent or
request of Landlord, express or implied, by inference or otherwise, to any
contractor, subcontractor, laborer or materialman for the performance of any
labor or the furnishing of any materials for any specific improvement or
Alteration to, or repair of, the Premises, the Building or any part thereof, nor
as giving Tenant any right, power or authority to contract for or permit the
rendering of any services or the furnishing of any materials that would give
rise to the filing of any mechanics' liens against Landlord's interest in the
Premises or the Building. Notice is hereby given that neither Landlord nor
Landlord's agents, nor any superior lessor nor superior mortgagee shall be
liable for any labor or materials furnished or to be furnished to Tenant upon
credit, and that no mechanic's or other lien for such labor or materials shall
attach to or affect any estate or interest of Landlord or any superior lessor or
superior mortgagee in and to the Premises or the Real Property.
ARTICLE 14
LANDLORD'S AND TENANT'S PROPERTY
14.01 All fixtures, equipment, improvements and appurtenances attached to
or built into the Premises at the commencement of or during the term of this
Lease and which cannot be removed without damage to the Premises or the
Building, whether or not installed by or at the expense of Tenant, shall be and
remain a part of the Premises, shall be deemed the property of Landlord and
shall not be removed by Tenant, except as provided in Section 14.02. Further,
any carpeting or other personal property in the Premises on the Commencement
Date, unless installed and paid for by Tenant, shall be and shall remain
Landlord's property and shall not be removed by Tenant.
14.02 All movable partitions, business and trade fixtures, machinery and
equipment, communications equipment and office equipment, whether or not
attached to or built into the Premises, which are installed in the Premises by
or for the account of Tenant and can be removed without structural damage to the
Building, and all furniture, furnishings and other articles of movable personal
property owned by Tenant and located in the Premises (herein collectively called
"Tenant's Property") shall be removed by Tenant, at its sole cost and expense,
prior to the expiration of the term of this Lease. Tenant shall repair any
damage to the Premises or the Building resulting from any installation and/or
removal of Tenant's Property.
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14.03 Any items of Tenant's Property which shall remain in the Premises
after the Expiration Date, or after a period of ten (10) days following an
earlier termination date, may, at the option of Landlord, be deemed to have been
abandoned, and in such case such items may be retained by Landlord as its
property or disposed of by Landlord, without accountability and in such manner
as Landlord shall determine, at Tenant's expense including all costs of selling,
disposing, removing and storing such property.
ARTICLE 15
REPAIRS AND MAINTENANCE
15.01 Tenant shall, at its expense, throughout the term of this Lease,
take good care of the Premises, the fixtures and appurtenances therein and
Tenant's Property. Tenant, at its expense, shall promptly replace all scratched,
damaged or broken doors and glass in the Premises and shall be responsible for
all repairs, maintenance of wall and floor coverings in the Premises and for the
repair and maintenance of all sanitary and electrical fixtures and equipment
therein. Tenant shall be responsible for all repairs, interior and exterior,
structural and non-structural, ordinary and extraordinary, in and to the
Premises, the Building and the facilities and systems thereof the need for which
arises out of (a) the performance or existence of or Alterations performed by
the Tenant in the Premises, (b) the installation, use or operation of Tenant's
Property in the Premises, (c) the moving of Tenant's Property in or out of the
Building, or (d) the act, omission, misuse or neglect of Tenant or any of its
sublessees or its or their employees, agents, contractors or invitees. Tenant
shall promptly make, at Tenant's expense, all repairs in or to the Premises for
which Tenant is responsible, and any repairs required to be made by Tenant to
the mechanical, electrical, sanitary, heating, ventilating, air-conditioning or
other systems of the Building shall be performed only by contractors approved by
Landlord. Any other repairs in or to the Building and the facilities and systems
thereof for which Tenant is responsible shall be performed by Landlord at
Tenant's expense; but Landlord may, at its option, before commencing any such
work or at any time thereafter, require Tenant to furnish to Landlord such
security (including, without limitation, a bond issued by a corporate surety
licensed to do business in New York) as Landlord shall deem necessary to assure
the payment for such work by Tenant.
15.02 Except as otherwise expressly provided in this Lease, Landlord shall
have no liability to Tenant, nor shall Tenant's covenants and obligations under
this Lease be reduced or abated in any manner whatsoever, by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required to make or
otherwise permitted by this Lease, or required by law, to make in or to any
portion of the Building or the Premises, or in or to the fixtures, equipment,
systems or appurtenances of the Building or the Premises.
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15.03 (a) Landlord shall keep and maintain the Building, and its fixtures,
appurtenances, systems and facilities, in good working order, condition and
repair and shall make all repairs, structural and otherwise, interior and
exterior, ordinary or extraordinary, as and when needed in or about the
Premises, except those repairs for which Tenant is expressly responsible
pursuant to any other provisions of this Lease and those repairs that other
tenants are responsible for with respect to their premises under the provisions
of said tenants' leases.
(b) Landlord shall keep the lobbies and public areas of the Building
clean and presentable.
ARTICLE 16
ELECTRIC ENERGY
16.01 Landlord agrees that prior to the Commencement Date, conduit will
have been installed in the Building and the Premises by Landlord at Landlord's
expense in order that Tenant may obtain electrical service to the Premises.
Tenant shall arrange for utility service to the Premises with the appropriate
public utility company or public authority supplying the same in the area in
which the Property is located and shall pay all charges therefor or arising in
connection therewith.
16.02 Tenant's use of electric energy in the Premises shall not at any
time, in the reasonable judgment of Landlord as determined by demand meter(s)
measuring electrical usage by the Premises, (i) exceed the capacity of any of
the electrical conductors and equipment in or otherwise serving the Premises or
(ii) cause or result in any impairment or interference with Building systems or
the overloading of the risers or feeders servicing the Building.
16.03 Landlord shall not be liable in any way to Tenant for any failure or
defect in the supply or character of electric energy or other utility furnished
to the Premises by reason of any requirement, act or omission of the public
utility providing the Building with electricity or such other utility or for any
other reason whatsoever. Without limiting the foregoing, in no event shall
Landlord be liable to Tenant for any incidental, consequential or special
damages arising from any such failure or defect, unless such failure or defect
results from gross negligence or willful misconduct of Landlord, its agents,
employees or contractors.
ARTICLE 17
HEAT, VENTILATION AND AIR-CONDITIONING
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17.01 (a) Tenant, at its sole cost and expense, shall arrange for a
reputable air-conditioning firm to make all repairs required to maintain the
heating, ventilating and air conditioning ("HVAC") facilities installed by
Tenant, if any, in the Premises in good working order, and, at all times
throughout the term of this Lease, will provide Landlord with a copy of a
current service contract with such firm. Tenant agrees to operate the HVAC
equipment in accordance with all applicable orders, rules or regulations with
respect to the days or hours of operation of such system, or the volume or
capacity or such system, as may be imposed from time to time by all governmental
agencies and instrumentalities having jurisdiction over the same. Tenant shall
cooperate fully with Landlord at all times and abide by all regulations which
Landlord may reasonably prescribe for the proper functioning and protection of
the HVAC systems.
(b) Landlord, at its expense, shall maintain and repair the heating,
ventilation and air-conditioning systems serving the Building as a whole.
(c) Tenant agrees to keep all windows and doors in the Premises
closed whenever the heating, ventilation and air-conditioning system for the
Building is operating to provide heating or cooling, and Tenant agrees to abide
by the reasonable and customary regulations which Landlord may prescribe for the
proper functioning of said system. In the event of failure of part or all of the
heating, ventilation and air-conditioning system, Tenant shall have the right to
open any or all windows in the Premises so long as such failure is continuing.
Landlord shall have free and unrestricted access to any and all heating,
ventilation and air conditioning system facilities located within the Premises.
17.02 Use of the Premises, or any part thereof, in a manner exceeding the
heating, ventilating and/or air-conditioning capacity as approved by Landlord in
conjunction with Landlord's approval of any Alterations (including occupancy and
connected electrical load, or rearrangement of partitioning which interferes
with normal operation of the heating, ventilating and/or air-conditioning in the
Premises), may require changes in the heating, ventilating and/or
air-conditioning system servicing the Premises. Such changes, so occasioned,
shall be made by Tenant, at its expense, as Alterations in accordance with the
provisions of Article 13, but only to the extent permitted and upon the
conditions set forth in that Article.
ARTICLE 18
OTHER SERVICES; SERVICE INTERRUPTION
18.01 Landlord, at its expense, shall provide elevator service to the
Premises during Business Hours on Business Days, and Landlord shall have at
least one elevator subject to call at all other times. The use of the elevators
shall be subject to the Rules and Regulations. Landlord reserves the right to
(i) alter the configuration of the elevator banks
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and the floors served by each such elevator bank, and (ii) reduce the number of
elevators serving the floors occupied by Tenant; provided, however, no such
alteration or reduction shall in Landlord's reasonable judgment materially
adversely affect the elevator service to the Premises.
18.02 Landlord, at its expense, shall furnish adequate water to the floor
on which the Premises are located for ordinary lavatory purposes. If Tenant uses
water for any other purpose, Landlord may install and maintain, at Tenant's
expense, meters to measure Tenant's consumption of cold water and/or hot water
for such other purposes. Tenant shall reimburse Landlord for the quantities of
water shown on such meters on demand.
18.03 If Landlord shall furnish steam to the Premises, Landlord may
install and maintain, at Tenant's expense, meters to measure Tenant's
consumption of steam. Tenant shall reimburse Landlord for the quantities of
steam shown on such meters on demand.
18.04 Landlord reserves the right, without any liability to Tenant and
without affecting Tenant's covenants and obligations hereunder, to stop or
interrupt or reduce service of any of the heating, ventilating,
air-conditioning, electric, sanitary, elevator or other Building systems serving
the Premises, or to stop or interrupt or reduce any other services required to
be provided by Landlord under this Lease (whether or not specified in Article 17
or 18) whenever and or so long as may be necessary by reasons of (i) accidents,
emergencies, strikes or the occurrence of any of the other events described in
Section 38.05, (ii) the making of repairs or changes which Landlord is required
or is permitted by this Lease or by law to make or in good faith deems necessary
or desirous, (iii) difficulty in securing proper supplies of fuel, steam, water,
electricity, labor or supplies, or (iv) any other cause beyond Landlord's
reasonable control, whether similar or dissimilar.
18.05 Landlord, at its expense, shall provide cleaning services to the
Premises as more specifically set forth in Exhibit D hereto.
18.06 Landlord shall not be required to furnish any services to Tenant or
the Premises, except as otherwise specifically provided in this Lease and Tenant
shall pay direct to any third party providing services not expressly provided in
this Lease.
ARTICLE 19
ACCESS
19.01 Except for the space within the inside surfaces of all walls, hung
ceilings, floors, windows and doors bounding the Premises, all of the Building,
including, without limitation, exterior Building walls, window sills, core
corridor walls and doors and any
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core corridor entrance, any roofs adjacent to the Premises, and any space in or
adjacent to the Premises used for elevators, shafts, stacks, pipes, conduits,
fan rooms, ducts, electric or other utilities, sinks or other Building
facilities, utility closets and the use thereof, as well as access thereto
through the Premises for the purposes of operation, maintenance, decoration and
repair, are reserved to Landlord. Landlord reserves the right, and Tenant shall
permit Landlord, to install, erect, use and maintain pipes, ducts and conduits
in and through the Premises.
19.02 Landlord and its agents shall have the right to enter and/or pass
through the Premises during Business Hours on Business Days (a) to examine the
Premises and to show them to actual and prospective Superior Lessors, Superior
Mortgagees, insurers or prospective purchasers, mortgagees or lessees of the
Building and (b) to make such repairs, alterations, additions and improvements
in or to the Premises and/or in or to the Building or its facilities and
equipment as Landlord is required or desires to make. Landlord shall be allowed
to take all materials into and upon the Premises that may be required in
connection therewith, without any liability to Tenant and without any reduction
of Tenants covenants and obligations hereunder.
19.03 If at any time any windows of the Premises are temporarily darkened
or obstructed by reason of any repairs, improvements, maintenance and/or
cleaning in or about the Building or if any part of the Building other than the
Premises, is temporarily or permanently closed or inoperable, the same shall be
without liability to Landlord and without any reduction or diminution of
Tenant's obligations under this Lease. This Lease shall not be affected by nor
shall Landlord in any way be liable for the closing, darkening or bricking up of
windows in the Premises for any reason, including as the result of construction
on any property of which the Land is not a part or by Landlord's own acts.
19.04 During the period of three (3) months prior to the Expiration Date,
Landlord and its agents may exhibit the Premises to prospective tenants.
19.05 If, during the last month of the term of this Lease, Tenant has
removed all or substantially all of Tenant's property from the Premises,
Landlord may, without notice to Tenant, immediately enter the Premises and
alter, renovate and decorate the same, without liability to Tenant and without
reducing or otherwise affecting Tenant's covenants and obligations hereunder.
19.06 Landlord reserves the right at any time as and when Landlord deems
necessary or desirable without (i) constituting an eviction thereby, (ii)
incurring any liability to Tenant therefor, and (iii) affecting or reducing any
of Tenant's covenants and obligations hereunder, to (a) make changes,
alterations, additions and improvements in or to the Building and the fixtures
and equipment thereof, (b) make alterations and to change the arrangement and
location in or to the public street entrances, doors, halls, passageways,
elevators, escalators, stairways, lavatories and other public parts of the
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Building, (c) change the name, number or designation by which the Building may
be known, and (d) impose controls in access to the Building by Tenant and its
invitees as Landlord may deem necessary for the security of the Building and its
occupants.
19.07 If Tenant shall not be personally present to open and permit an
entry into the Premises at any time when for any reason an entry therein shall
be urgently necessary by reason of fire or emergency, Landlord or Landlord's
agents may forcibly enter the same without rendering Landlord or such agents
liable therefor (if during such entry Landlord or Landlord's agents shall accord
reasonable care to Tenant's property) and without in any manner affecting the
obligations and covenants of Tenant under this Lease.
ARTICLE 20
NOTICE OF OCCURRENCES
20.01 Tenant shall give prompt notice to Landlord of (a) any occurrence in
or about the Premises for which Landlord might be liable, (b) any fire or other
casualty in the Premises, (c) any damage to or defect in the Premises, including
the fixtures, equipment and appurtenances thereof, for the repair of which
Landlord might be responsible, and (d) any damage to or defect in any part or
appurtenance of the Building's sanitary, electrical, heating, ventilating,
air-conditioning, elevator or other systems located in or passing through the
Premises or any part thereof.
ARTICLE 21
NON-LIABILITY AND INDEMNIFICATION
21.01 Neither Landlord nor any partner, director, stockholder, officer,
agent, servant or employee of Landlord shall be liable to Tenant for any loss,
injury or damage to Tenant or to any other person, or to its or their property,
irrespective of the cause of such injury, damage or loss; provided, however, the
foregoing shall not be deemed to exculpate any of the following persons for
liability for their own gross negligence or willful misconduct: Landlord, its
agents, servants or employees with respect to the operation or maintenance of
the Premises or the Building, other than to the extent that such injury, damage
or loss was due to the negligence of Tenant or any of its sublessees or
licensees or its or their employees, agents or contractors. Further, neither
Landlord nor any partner, director, stockholder, officer, agent, servant or
employee of Landlord shall be liable (a) for any such damage caused by other
tenants or persons in, upon or about the Building or caused by operations in
construction of any private, public or quasi-public work; or (b) no party, even
if negligent, shall be liable for consequential damages arising
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out of any loss of use of the Premises or any equipment or facilities therein by
Tenant or any person claiming through or under Tenant.
21.02 Tenant shall indemnify and hold harmless Landlord and all Superior
Lessors and its and their respective partners, directors, stockholders,
officers, agents and employees from and against any and all claims arising from
or in connection with (a) the conduct or management of the Premises or of any
business therein, or any work or thing whatsoever done, or any condition created
(other than by Landlord) in or about the Premises during the term of this Lease
or during the period of time, if any, prior to the Commencement Date that Tenant
may have been given access to the Premises; (b) any act, omission or negligence
of Tenant or any of its sublessees or licensees or its or their partners,
directors, officers, agents, employees or contractors; (c) any accident, injury
or damage whatsoever (unless caused solely by Landlord's gross negligence or
willful misconduct) occurring in, at or upon the Premises; (d) any breach or
default by Tenant in the full and prompt payment and performance of Tenant's
obligations under this Lease; together with all costs, expenses and liabilities
incurred in or in connection with each such claim or action or proceeding
brought thereon, including, without limitation, all reasonable attorneys' fees
and expenses; (e) the use, manufacture, storage, or disposal of Hazardous
Materials by Tenant, its agents or contractors on, under or about the Premises
including, without limitation, the cost of any required or necessary repair,
cleanup or detoxification and the preparation of any closure or other required
plans in connection herewith; and (f) any cost, liability or responsibility for
the payment of any sales tax with respect to any installations, furniture,
furnishings, fixtures or other improvements located, installed, or constructed
in the Premises or the filing of any tax return in connection therewith
(although Landlord agrees to execute any such return if required by law)
regardless of whether such tax is imposed upon Landlord or Tenant. In case any
action or proceeding is brought against Landlord and/or any Superior Lessor
and/or its or their partners, directors, stockholders, officers, agents and/or
employees by reason of any such claim, Tenant, upon notice from Landlord or such
Superior Lessor, shall resist and defend such action or proceeding (by counsel
reasonably satisfactory to Landlord). The indemnity obligations of Tenant under
this Section 21.02 shall survive any expiration or prior termination of this
Lease.
ARTICLE 22
DAMAGE OR DESTRUCTION
22.01 If the Building or the Premises (other than Tenant's Property) shall
be partially or totally damaged or destroyed by fire or other casualty (and if
this Lease shall not be terminated as provided in this Article), Landlord shall
repair the damage at Landlord's expense with reasonable diligence after notice
to Landlord of such damage or destruction.
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22.02 Subject to the provisions of Section 22.05, if all or part of the
Premises shall be damaged or destroyed or rendered completely or partially
untenantable on account of fire or other casualty, the Fixed Base Rent shall be
abated or reduced, as the case may be, in the proportion that the untenantable
area of the Premises bears to the total area of the Premises, for the period
from the date of the damage or destruction to (i) the date the damage to the
Premises shall be substantially repaired, or (ii) if the Building and not the
Premises is so damaged or destroyed, the date on which the Premises shall be
made tenantable; provided, however, should Tenant reoccupy a portion of the
Premises during the period the repair work is taking place and prior to the date
that the Premises are substantially repaired or made tenantable, the Fixed Base
Rent allocable to such reoccupied portion, based upon the proportion which the
area of the reoccupied portion of the Premises bears to the total area of the
Premises, shall be payable by Tenant from the date of such occupancy.
22.03 If the Building or the Premises shall be totally damaged or
destroyed by fire or other casualty, or if the Building shall be so damaged or
destroyed by fire or other casualty (whether or not the Premises are damaged or
destroyed) that its repair or restoration requires the expenditure (as estimated
by a reputable contractor or architect designated by Landlord) of more than 20
percent of the full insurable value of the Building immediately prior to the
casualty, or if at least 50 percent of the floor area of the Premises is damaged
or destroyed by fire or other casualty during the last eighteen (18) months of
the then current term of this Lease, then, in any of such cases, Landlord may
terminate this Lease by giving Tenant notice to such effect within 90 days after
the date of the casualty and upon the date specified in such notice (which shall
not be less than 10 days after such notice is given) this Lease and the estate
hereby granted shall terminate as if that date were the Expiration Date. In the
case of any damage or destruction described in this Article 22 which Landlord is
required to repair and restore, Tenant may terminate this Lease by notice to
Landlord if Landlord has not completed the making of the required repairs and
restorations within 18 months after the date of such damage or destruction, or
within such period after such date (not exceeding 6 months) as shall equal the
aggregate period Landlord may have been delayed in doing so by adjustment of
insurance, labor trouble, governmental controls, act of God, or any other cause
beyond Landlord's reasonable control, and upon the date specified in such notice
(which shall not be less than 10 days after such notice is given) this Lease and
the estate created hereby shall terminate as if that date were the Expiration
Date.
22.04 Tenant shall not be entitled to terminate this Lease, and no
damages, compensation or claim shall be payable by Landlord, for inconvenience,
loss of business or annoyance arising from any repair or restoration of any
portion of the Premises or of the Building pursuant to this Article.
22.05 Landlord shall not be obligated to carry insurance of any kind on
Tenant's Property or Alterations, and, except as provided by law or by reason of
Landlord's fault
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or its breach of any of its obligations hereunder, shall not be obligated to
repair any damage to or replace Tenant's Property or Alterations.
22.06 The provisions of this Article shall be deemed an express agreement
governing any case of damage or destruction of the Premises by fire or other
casualty, and Section 227 of the Real Property Law of the State of New York,
providing for such a contingency in the absence of an express agreement, and any
other law of like import, now or hereafter in force, shall have no application
in such case.
ARTICLE 23
EMINENT DOMAIN
23.01 If the whole or any substantial part of the Building or the Premises
shall be taken by condemnation or in any other manner for any public or
quasi-public use or purpose, this Lease and the term, and estate hereby granted
shall terminate as of the date of vesting of title on such taking (herein called
"Date of the Taking"), and the Fixed Base Rent and Additional Rent shall be
pro-rated and adjusted as of such date.
23.02 If any part of the Building or the Land shall be so taken and this
Lease is not terminated pursuant to Section 23.01, this Lease shall be
unaffected by such taking except that (a) if (i) any part of the Building is
taken or (ii) a part of the Land is taken (but no portion of the Building),
which, in Landlord's judgment, materially affects ingress or egress to and from
the Building or other essential operations of the Building, Landlord may, at its
option, terminate this Lease by giving Tenant notice to that effect within 90
days after the Date of the Taking and (b) if 20 percent or more of the Premises
shall be so taken and the remaining area of the Premises shall not be reasonably
sufficient for Tenant to feasibly continue operation of its business, Tenant may
terminate this Lease by giving Landlord notice to that effect within 90 days
after the Date of the Taking. In the event that either Landlord or Tenant elects
to terminate this Lease pursuant to this Section 23.02, this Lease and the term
and estate hereby granted shall terminate on the date specified in such notice
(which shall not be less than 10 days after such notice is given) as if such
date were the Expiration Date. Fixed Base Rent and Additional Rent shall be
pro-rated and adjusted as of such termination date. If after any partial taking
this Lease is not terminated, the Fixed Base Rent and Additional Rent shall be
adjusted according to the rentable area remaining.
23.03 Landlord shall be entitled to receive the entire award or payment in
connection with any taking without deduction therefrom for any estate vested in
Tenant by this Lease and Tenant shall receive no part of such award except as
hereinafter expressly provided in this Article. Except as provided in Section
23.04, and notwithstanding any provision hereof to the contrary other than
Section 23.04, Tenant
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hereby expressly assigns to Landlord all of its right, title and interest in and
to every such award or payment, including, without limitation, awards or
payments on account of fee interests or leasehold interests; provided, however,
that Tenant shall have the right to make separate claims with the condemning
authority for Tenant's moving expenses, Tenant's trade fixtures and the
unamortized value of Tenant's leasehold improvements if Tenant's making of such
claims shall not adversely affect Landlord's award or payment in connection with
such taking.
23.04 If the temporary use or occupancy of all or any part of the Premises
shall be taken by condemnation or in any other manner for any public or
quasi-public use or purpose during the term of this Lease, Tenant shall be
entitled, except as hereinafter set forth, to receive that portion of the award
or payment for such taking which represents compensation for the use and
occupancy of the Premises, for the taking of Tenant's Property (to the extent
Tenant's Property is taken), and for moving expenses and for the cost of
restoration of the Premises; provided, however, that Landlord reserves the right
to make additional claims for the cost of the restoration of the Premises. This
Lease shall be and remain unaffected by such taking and Tenant shall continue to
be responsible for all of its obligations hereunder insofar as such obligations
are not affected by such taking and shall continue to pay in full the Fixed Base
Rent and Additional Rent when due. If the period of temporary use or occupancy
shall extend beyond the Expiration Date, that part of the award which represents
compensation for the use and occupancy of the Premises (or a part thereof) shall
be divided between Landlord and Tenant so that Tenant shall receive so much
thereof as represents the period up to and including the Expiration Date. All
monies paid as, or as part of, an award for temporary use and occupancy for a
period beyond the date to which the Fixed Base Rent and Additional Rent have
been paid shall be received, held and applied by Landlord as a trust fund for
payment of the Fixed Base Rent and Additional Rent becoming due hereunder.
ARTICLE 24
SURRENDER
24.01 On the last day of the term of this Lease, or upon any earlier
termination of this Lease, or upon any re-entry by Landlord upon the Premises,
Tenant shall quit and surrender the Premises to Landlord "broom clean" and in
good order, condition and repair, except for ordinary wear and tear and such
damage or destruction as Landlord is required to repair or restore under this
Lease, and Tenant shall remove all of the Tenant's Property therefrom except as
otherwise expressly provided in this Lease.
24.02 No act or thing done by Landlord or its agents shall be deemed an
acceptance of a surrender of the Premises, and no agreement to accept such
surrender shall be valid unless in writing and signed by Landlord.
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ARTICLE 25
CONDITIONS OF LIMITATION - INSOLVENCY; DEFAULT
25.01 This Lease and the term and estate hereby granted are subject to the
limitation that whenever Tenant, or any guarantor of Tenant's obligations under
this Lease, shall make an assignment for the benefit of creditors, or shall file
a voluntary petition under any bankruptcy or insolvency law, or an involuntary
petition alleging an act of bankruptcy or insolvency shall be filed against
Tenant or such guarantor under any bankruptcy or insolvency law, or whenever a
petition shall be filed by or against Tenant or such guarantor, under the
reorganization provisions of the United States Bankruptcy Act or under the
provisions of any law of like import, or whenever a petition shall be filed by
Tenant, or such guarantor, under the arrangement provisions of the United States
Bankruptcy Act or under the provisions of any law of like import, or whenever a
permanent receiver of Tenant, or such guarantor, of or for the property of
Tenant, of such guarantor, shall be appointed, then Landlord (a) if such event
occurs without the acquiescence of Tenant, or such guarantor, as the case may
be, at any time after the event continues for 30 days, or (b) in any other case
at any time after the occurrence of any such event, may give Tenant a notice of
intention to end the term of this Lease at the expiration of five (5) days from
the date of service of such notice of intention, and upon the expiration of said
five-day period this Lease and the term and estate hereby granted, whether or
not the term shall theretofore have commenced, shall terminate with the same
effect as if that day were the Expiration Date of this Lease, but Tenant shall
remain liable for damages as provided in Article 27.
25.02 This Lease and the term and estate hereby granted are subject to the
further limitations that:
(a) If Tenant shall default in the payment of any Fixed Base Rent or
Additional Rent, and such default shall continue for 3 days after notice from
Landlord, or
(b) If Tenant shall be in default of any of its obligations under
this Lease (except as provided in clauses (a), (c), (d), (e), (f) or (g) of this
Section 25.02) and such default shall continue and not be remedied within ten
(10) days after notice specifying the same, or, in the case of a default which
cannot with due diligence be cured within a period of ten (10) days and the
continuance of which for the period required for cure will not subject Landlord
or any Superior Lessor to the risk of criminal liability or subject Landlord to
the risk of termination of any Superior Lease or foreclosure of any Superior
Mortgage, if Tenant shall not within said ten-day period (i) notify Landlord of
Tenant's intention to duly institute all steps necessary to remedy such default
and (ii) duly institute within such ten-day period, and thereafter diligently
and continuously prosecute to completion all steps necessary to remedy such
default, or
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(c) If any event shall occur or any contingency shall arise whereby
this Lease or the estate hereby granted or the unexpired balance of the term
hereof would, by operation of law or otherwise, devolve upon or pass to any
person, firm or corporation other than Tenant, except as expressly permitted by
Article 9, or
(d) If Tenant shall vacate, abandon or discontinue normal business
operations in the Premises for more than ten (10) days, or
(e) If Tenant shall fail to deliver an instrument of confirmation
pursuant to Section 7.01 or 7.03 within ten (10) days after a request therefor
by Landlord, or
(f) If any default shall occur under any guarantee of Tenant's
obligations under this Lease or if, for any reason, the guarantee shall cease to
be in full force and effect, or
(g) If there shall be any default by Tenant (or any person which,
directly or indirectly, controls, is controlled by, or is under common control
with Tenant) under any other lease with Landlord (or any person which, directly
or indirectly, controls, is controlled by, or is under common control with
Landlord) which shall not be remedied within the applicable grace period, if
any, provided therefor under such other lease,
then, in any of said cases, Landlord may give to Tenant a notice of intention to
end the term of this Lease at the expiration of three (3) days from the date of
the service of such notice of intention. and. upon the expiration of said three
(3) days, this Lease and the term and estate hereby granted, whether or not the
term shall theretofore have commenced, shall terminate with the same effect as
if that day were the Expiration Date, but Tenant shall remain liable for damages
as provided in Article 27. Landlord's claim that Tenant has vacated, abandoned
or discontinued normal business operations in the Premises shall not be defeated
solely because Tenant may have left all or any part of its trade fixtures or
other personal property in the Premises.
ARTICLE 26
RE-ENTRY BY LANDLORD
26.01 If Tenant shall default in the payment of any Fixed Base Rent or
Additional Rent, and such default shall continue for three (3) days after
Landlord has given Tenant notice or if this Lease shall terminate as provided in
Article 25, Landlord or Landlord's agents and employees may immediately or at
any time thereafter re-enter the Premises, or any part thereof, either by
summary dispossess proceedings or by any suitable action or proceeding at law,
or by force or otherwise, without being liable to indictment, prosecution or
damages therefor, and may repossess the same, and may remove any person
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therefrom, to the end that Landlord may have, hold and enjoy the Premises. The
word "re-enter", as used herein, is not restricted to its technical legal
meaning. If this Lease is terminated under the provisions of Article 25, or if
Landlord shall re-enter the Premises under the provisions of this Article, or in
the event of the termination of this Lease, or of re-entry, by or under any
summary dispossess or other proceeding or action or any provision of law by
reason of default hereunder on the part of Tenant, Tenant shall thereupon pay to
Landlord the Fixed Base Rent and Additional Rent payable up to the time of such
termination of this Lease, or of such recovery of possession of the Premises by
Landlord, as the case may be, and shall also pay to Landlord damages as provided
in Article 27.
26.02 In the event of a breach or threatened breach by Tenant of any of
itsobligations under this Lease, Landlord shall have, without limitation, the
right to petition for injunctive relief. The special remedies to which Landlord
may resort hereunder are cumulative and are not intended to be exclusive of any
other remedies to which Landlord may lawfully be entitled at any time, and it
may invoke any remedy allowed at law or in equity as if specific remedies were
not provided for herein.
26.03 If this Lease shall terminate under the provisions of Article 25, or
if Landlord shall re-enter the Premises under the provisions of this Article, or
in the event of the termination of this Lease, or of re-entry, by or under any
summary dispossess or other proceeding or action or any provision of law by
reason of default hereunder on the part of Tenant, Landlord shall be entitled to
retain all monies, if any, paid by Tenant to Landlord, whether as advance rent,
security or otherwise, but such monies shall be credited by Landlord against any
Fixed Base Rent or Additional Rent due from Tenant at the time of such
termination or re-entry or, at Landlord's option, against any damages payable by
Tenant under Article 27 or pursuant to law.
ARTICLE 27
DAMAGES
27.01 If this Lease is terminated under the provisions of Article 25, or
if Landlord shall re-enter the Premises under the provisions of Article 26, or
in the event of the termination of this Lease, or of re-entry by or under any
summary dispossess or other proceeding or action or any provision of law by
reason of default hereunder on the part of Tenant, Tenant shall pay to Landlord
as damages, at the election of Landlord, either:
(a) a sum which, at the time of such termination of this Lease or at
the time of any such re-entry by Landlord, as the case may be, represents the
then value (discounted at the Prime Rate of The Chase Manhattan Bank, New York,
New York per annum) of the excess, if any, of (i) the aggregate amount of the
Fixed Base Rent and the
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Additional Rent under Articles 4, 5 and 16 which would have been payable by
Tenant (conclusively presuming the average monthly Additional Rent under
Articles 4, 5 and 16 to be the same as were payable for the year, or if less
than 365 days have then elapsed since the Commencement Date, the partial year,
immediately preceding such termination or re-entry, except that Additional Rent
thereunder shall be presumed to increase at the average of the rates of increase
thereof previously experienced by Landlord during the period (not to exceed 3
years) prior to such termination or re-entry) for the period commencing with
such earlier termination of this Lease or the date of any such re-entry, as the
case may be, and ending with the date contemplated as the Expiration Date hereof
if this Lease had not so terminated or if Landlord had not so re-entered the
Premises, over (ii) the aggregate rental value of the Premises for the same
period, or
(b) sums equal to the Fixed Base Rent and the Additional Rent under
Articles 4, 5 and 16 which would have been payable by Tenant had this Lease not
so terminated, or had Landlord not so re-entered the Premises, payable upon the
due dates therefor specified herein following such termination or such re-entry
and until the date contemplated as the Expiration Date hereof if this Lease had
not so terminated or if Landlord had not so re-entered the Premises, provided,
however, that if Landlord shall relet the Premises Landlord shall credit Tenant
with the net rents received by Landlord from such reletting, such net rents to
be determined by first deducting from the gross rents as and when received by
Landlord all expenses incurred by Landlord in terminating this Lease,
re-entering and securing possession of the Premises, selling and otherwise
disposing of Tenant's Property, removing and/or storing Tenant's Property, as
well as expenses of reletting including, without limitation, altering and
preparing the Premises for new Tenants, brokers' commissions, legal fees and
expenses and all other expenses properly chargeable against the Premises and the
rental therefrom, it being understood that any such reletting may be for a
period shorter or longer than the remaining term of this Lease; but in no event
shall Tenant be entitled to receive any excess of such net rents over the sums
payable by Tenant to Landlord hereunder, nor shall Tenant be entitled in any
suit for the collection of damages pursuant to this subdivision to a credit in
respect of any net rents from reletting, except to the extent that such net
rents are actually received by Landlord. If the Premises or any part thereof
should be relet in combination with other space, then proper apportionment on a
square foot basis shall be made of the rent received from such reletting and of
the expenses of reletting.
If the Premises or any part thereof be relet by Landlord for the
unexpired portion of the term of this Lease, or any part thereof, before
presentation of proof of such damages to any court, commission or tribunal, the
amount of rent reserved upon such reletting shall, prima facie, be the fair and
reasonable rental value for the Premises, or part thereof, so relet during the
term of the reletting. Landlord shall not be liable in any way whatsoever for
its failure or refusal to relet the Premises or any part thereof, or if the
Premises or any part thereof are relet, for its failure to collect the rent
under such reletting, and no such refusal or failure to relet or failure to
collect rent shall release or
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affect Tenant's liability for damages or otherwise under this Lease, provided
that Landlord shall use reasonable efforts to mitigate its damages to the extent
required by law.
27.02 Suit or suits for the recovery of such damages, or any installments
thereof, may be brought by Landlord from time to time at its election, and
nothing contained herein shall be deemed to require Landlord to postpone suit
until the date when the term of this Lease would have expired if it had not been
so terminated under the provisions of Article 25, or under any provision of law,
or had Landlord not re-entered the Premises. Nothing herein contained shall be
construed to limit or preclude recovery by Landlord against Tenant of any sums
or damages to which, in addition to the damages particularly provided above,
Landlord may lawfully be entitled by reason of any default by Tenant. Nothing
herein contained shall be construed to limit or prejudice the right of Landlord
to prove and obtain as damages by reason of the termination of this Lease or
reentry on the Premises for the default of Tenant under this Lease an amount
equal to the maximum allowed by any statute or rule of law in effect at the time
when, and governing the proceedings in which, such damages are to be proved
whether or not such amount be greater, equal to, or less than any of the sums
referred to in Section 27.01.
27.03 In addition to any other remedies Landlord may have under this
Lease, and without reducing or adversely affecting any of Landlord's rights and
remedies under Article 25, if any Fixed Base Rent, Additional Rent or damages
payable hereunder by Tenant to Landlord are not paid within three (3) days after
the day such sums are due hereunder, or demand therefor for sums due only upon
demand or notice by Landlord, as the case may be, the same shall bear interest
at an annual rate equal to the rate then designated by The Chase Manhattan Bank
as its prime rate in effect in its head office in New York City (the "Prime
Rate") plus two percent (2%) or the maximum rate permitted by law, whichever is
less, from the due date thereof until paid, and the amount of such interest
shall be due Landlord as Additional Rent hereunder.
ARTICLE 28
AFFIRMATIVE WAIVERS
28.01 Tenant, on behalf of itself and any and all persons claiming through
or under Tenant, does hereby waive and surrender all right and privilege which
it, they or any of them might have under or by reason of any present or future
law, to redeem the Premises or to have a continuance of this Lease after being
dispossessed or ejected therefrom by process of law or under the terms of this
Lease or after the termination of this Lease as provided in this Lease.
28.02 If Tenant is in arrears in payment of Fixed Base Rent or Additional
Rent, Tenant waives Tenant's right, if any, to designate the items which any
payments made by
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Tenant are to be credited, and Tenant agrees that Landlord may apply any
payments made by Tenant to such items as Landlord sees fit, irrespective of and
notwithstanding any designation or request by Tenant as to the items which any
such payments shall be credited.
28.03 Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either against the other on any matter
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises,
including, without limitation, any claim of injury or damage, and any emergency
and other statutory remedy with respect thereto.
28.04 Tenant shall not interpose any counterclaim of any kind in any
action or proceeding commenced by Landlord to recover possession of the
Premises.
ARTICLE 29
NO WAIVERS
29.01 The failure of either party to insist in any one or more instances
upon the strict performance of any one or more of the obligations of this Lease,
or to exercise any election herein contained, shall not be construed as a waiver
or relinquishment for the future of the performance of such one or more
obligations of this Lease or of the right to exercise such election, but the
same shall continue and remain in full force and effect with respect to any
subsequent breach, act or omission. The receipt by Landlord of Fixed Base Rent
or Additional Rent with knowledge of breach by Tenant of any obligation of this
Lease shall not be deemed a waiver of such breach.
ARTICLE 30
CURING TENANT'S DEFAULTS
30.01 If Tenant shall default in the performance of any of Tenant's
obligations under this Lease, Landlord, without thereby waiving such default,
may (but shall not be obligated to) perform the same for the account and at the
expense of Tenant, without notice in a case of emergency, and in any other case
only if such default continues after the expiration of the period provided in
Section 25.02(b) for the cure of such defaults.
30.02 Bills for any expenses incurred by Landlord in connection with any
such performance by it for the account of Tenant, and bills for all costs,
expenses and disbursements of every kind and nature whatsoever, including
reasonable counsel fees, involved in collecting or endeavoring to collect the
Fixed Base Rent or Additional Rent
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or any part thereof or enforcing or endeavoring to enforce any rights against
Tenant or Tenant's obligations hereunder, under or in connection with this Lease
or pursuant to law, including, without limitation, any such costs, expenses and
disbursements involved in instituting and prosecuting summary proceedings or in
recovering possession of the Premises after default by Tenant or upon the
expiration or sooner termination of this Lease, and interest in all sums
announced by Landlord under this Section and/or Section 30.01 at the Prime Rate
plus two percent (2%) or the maximum rate permitted by law, whichever is less,
may be sent by Landlord to Tenant monthly, or immediately, at Landlord's option,
and such amounts shall be due and payable upon demand as Additional Rent.
30.03 (a) If Tenant shall fail to pay when due any installment of Fixed
Base Rent or any payment of Additional Rent and any such failure shall continue
for 5 business days, then Tenant shall pay Landlord, as Additional Rent, a late
charge equal to three (3%) percent of such installment or payment as
compensation for Landlord's additional administrative expenses relating to such
late payment.
(b) The provisions of this Article are in addition to all other
remedies available to Landlord for nonpayment of Fixed Base Rent or Additional
Rent.
ARTICLE 31
BROKER
31.01 Landlord shall be responsible to pay for all brokerage commissions
due pursuant to the execution and delivery of this Lease by separate agreement
with such brokers. Tenant covenants, warrants and represents that no broker or
agent was instrumental in bringing about or consummating this Lease and that
Tenant had no conversations or negotiations with any broker or agent concerning
the leasing of the Premises other than Colliers ABR, Inc. Tenant agrees to
indemnify and hold harmless Landlord against and from any claims for any
brokerage commissions and all costs, expenses and liabilities in connection
therewith, including, without limitation, reasonable attorneys' fees and
expenses, arising out of any conversations or negotiations had by Tenant with
any broker or agent other than Colliers ABR, Inc.
ARTICLE 32
NOTICES
32.01 Any notice or demand, consent, approval or disapproval, or statement
(collectively called "Notices") required or permitted to be given by the terms
and
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provisions of this Lease, or by any law or governmental regulation, either by
Landlord to Tenant or by Tenant to Landlord, shall be in writing and unless
otherwise required by such law or regulation, shall be personally delivered or
sent by United States mail postage prepaid as registered or certified mail,
return receipt requested or by reputable overnight courier or by facsimile
transmission with electronic confirmation. Any Notice shall be addressed to
Landlord or Tenant, as applicable, at its address set forth on the Reference
Page of this Lease as said address may be changed from time to time as
hereinafter provided. After Tenant shall occupy the Premises, the address of
Tenant for Notices shall be the Building. By giving the other party at least ten
(10) days' prior written notice, either party may, by Notice given as above
provided, designate a different address or addresses for Notices.
32.02 Any Notice shall be deemed given as of the date of delivery if
delivered by hand, or one business day after deposit with a reputable overnight
courier or facsimile transmission with electronic confirmation, or three
business days after deposit with the
United States Postal Service; and in the event of failure to deliver by reason
of changed address of which no Notice was given or refusal to accept delivery,
as of the date of such failure as indicated by affidavit or on the return
receipt or by notice of the postal service, as the case may be.
32.03 In addition to the foregoing, either Landlord or Tenant may, from
time to time, request in writing that the other party serve a copy of any Notice
on one other person or entity designated in such request, such service to be
effected as provided in Section 32.01 hereof.
ARTICLE 33
ESTOPPEL CERTIFICATES
33.01 Tenant shall, at any time and from time to time, as requested by
Landlord, upon not less than five (5) days' prior notice, execute and deliver to
Landlord or any prospective landlord, mortgagee or prospective mortgagee, ground
lessor or prospective ground lessor, purchaser or prospective purchaser of a
direct or indirect interest in Landlord, and any other persons designated by
Landlord a sworn statement certifying (a) the Commencement Date, (b) that this
Lease is unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications), (c) the dates to which the Fixed Base Rent and Additional
Rent have been paid, (d) the fact that there are no defaults in performance by
Landlord or Tenant of any of its obligations under this Lease, and, if so,
specifying each such default and (e) such other matters requested by Landlord,
it being intended that any such statement delivered pursuant hereto shall be
deemed a representation and warranty to be relied upon
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by the party requesting the certificate and by others with whom such party may
be dealing, regardless of independent investigation and Tenant shall be liable
for all loss, cost or expense resulting from the failure of any sale or funding
of any loan caused by a material misstatement contained in such estoppel
certificate. Tenant hereby irrevocably appoints Landlord as attorney-in-fact for
the Tenant with full power and authority to execute and deliver in the name of
Tenant such estoppel certificate if Tenant fails to deliver the same within such
five-day period and such certificate as signed by Landlord shall be fully
binding on Tenant.
ARTICLE 34
MEMORANDUM OF LEASE
34.01 Tenant shall not record this Lease. However, at the request of
Landlord, Tenant shall promptly execute, acknowledge and deliver to Landlord a
memorandum of lease in respect of this Lease sufficient for recording. Such
memorandum shall not be deemed to change or otherwise affect any of the
obligations or provisions of this Lease.
ARTICLE 35
SUBMISSION NOT AN OFFER
35.01 Submission of this Lease to Tenant shall not be deemed to be a
reservation of the Premises or an offer to lease the Premises and Landlord shall
not be bound hereby until (i) Landlord shall have approved this Lease and (ii)
Landlord shall have delivered to Tenant a copy of this Lease signed by Landlord,
which has been previously signed by Tenant. Until such approval and delivery
Landlord reserves the right to exhibit and lease the Premises to other
prospective Tenants. Notwithstanding anything contained herein to the contrary,
Landlord may withhold delivery of possession of the Premises from Tenant until
such time as Tenant has paid to Landlord the security deposit required by
Article 6 and the first month's Fixed Base Rent as set forth in Article 1 and
Tenant has delivered the evidence of insurance required under Article 11 hereof.
ARTICLE 36
SIGNAGE
36.01 Landlord shall provide, at Tenant's expense, Building standard
signage for the exterior side of Tenant's entry door. With respect to all other
signage Tenant proposes to display, Landlord shall have the right to approve
Tenant's signage in Landlord's sole
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discretion (each such approved sign, hereinafter an "Approved Sign"). Other than
an approved sign, Tenant shall not, without the prior consent of Landlord,
exhibit, inscribe, paint or affix any other sign, insignia, advertisement,
lettering notice or other object on any part of the outside or inside of the
Premises, the Building, the corridor walls or any area which would be visible
from the surrounding streets and sidewalks or from portions of the Building not
included within the Premises.
36.02 In the event Tenant violates any of the provisions of this Article
36, Landlord, with or without notice to Tenant, may remove the offending sign
and make such repairs to the immediately surrounding area as Landlord deems
appropriate without any liability to itself. Tenant shall reimburse Landlord for
any and all expenses incurred in connection with such removal and repair on
demand.
36.03 Tenant shall be entitled to four (4) listings in the Building
directory.
ARTICLE 37
HOLDING OVER
37.01 Tenant shall pay Landlord for each day Tenant retains possession of
the Premises or part thereof after termination hereof by lapse of time or
otherwise 200% of the amount of the Fixed Base Rent for the last period prior to
the date of such termination plus all rent adjustments to Fixed Base rent under
Articles 4, 5 and 16 hereof prorated on a daily basis, and also pay all damages
sustained by Landlord by reason of such retention, and shall indemnify and hold
Landlord harmless from any loss or liability resulting from such holding over
and delay in surrender. If Landlord gives notice to Tenant of Landlord's
election thereof, such holding over shall constitute renewal of this Lease for a
period from month to month or for one year, whichever shall be specified in such
notice, in either case at 200% of the annual Fixed Base Rent being paid to
Landlord under this Lease immediately prior thereof plus all adjustments to
Fixed Base Rent under Articles 4, 5 and 16 hereof, but if the Landlord does not
so elect, acceptance by Landlord of rent after such termination shall not
constitute a renewal. This provision shall not be deemed to waive Landlord's
right of re-entry or any other right hereunder or at law.
ARTICLE 38
MISCELLANEOUS
38.01 Tenant expressly acknowledges and agrees that Landlord has not made
and is not making, and Tenant, in executing and delivering this Lease, is not
relying upon, any warranties, representations, promises or statements, except to
the extent that the same are
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expressly set forth in this Lease or in any other written agreement which may be
made between the parties concurrently with the execution and delivery of this
Lease and shall expressly refer to this Lease. All understandings and agreements
heretofore had between the parties are merged in this Lease and any other
written agreement(s) made concurrently herewith, which alone fully and
completely express the agreement of the parties and which are entered into after
full investigation, neither party relying upon any statement or representation
not embodied in this Lease or any other written agreement(s) made concurrently
herewith.
38.02 No agreement shall be effective to change, modify, waive, release,
discharge, terminate or effect an abandonment of this Lease, in whole or in
part, unless such agreement is in writing, refers expressly to this Lease and is
signed by the party against whom enforcement of the change, modification,
waiver, release, discharge, termination or effectuation of the abandonment is
sought. If Tenant shall at any time request Landlord to sublet the Premises for
Tenant's account, Landlord or its agent is authorized to receive keys for such
purposes without releasing Tenant from any of its obligations under this Lease,
and Tenant hereby releases Landlord of any liability for loss or damage to any
of the Tenant's Property in connection with such subletting.
38.03 Except as otherwise expressly provided in this Lease, the
obligations of this Lease shall bind and benefit the successors and assigns of
the parties hereto with the same effect as if mentioned in each instance where a
party is named or referred to; provided, however, that (a) no act in violation
of the provisions of Article 9 shall operate to vest any rights in any successor
or assignee of Tenant, and (b) the provisions of this Article shall not be
construed as modifying the conditions of limitation contained in Article 25.
38.04 Tenant shall look only to Landlord's estate and property in the Land
and the Building for the satisfaction of Tenant's remedies for the collection of
a judgment (or other judicial process) requiring the payment of money by
Landlord in the event of any default by Landlord hereunder, and no other
property or assets of Landlord or its stockholders or board of directors and
officers, its partners or principals, disclosed or undisclosed, as the case may
be, or any employees or agents of Landlord shall be subject to levy, execution
or other enforcement procedure for the satisfaction of Tenant's remedies under
or with respect to this Lease, the relationship of Landlord and Tenant hereunder
or Tenant's use or occupancy of the Premises.
38.05 The obligations of Tenant hereunder shall be in no way affected,
impaired or excused, nor shall Landlord have any liability whatsoever to Tenant,
because (a) Landlord is unable to fulfill, or is delayed in fulfilling, any of
its obligations under this Lease by reason of strike, other labor trouble,
governmental preemption of priorities or other controls in connection with a
national or other public emergency or shortages of fuel, supplies or labor
resulting therefrom, or any other cause, whether similar or dissimilar, beyond
Landlord's reasonable control; or (b) of any failure or defect in the supply,
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quantity or character of electricity or water furnished to the Premises, by
reason of any requirement, act or omission of the public utility or others
serving the Building with electric energy, steam, oil, gas or water, or for any
other reason whether similar or dissimilar, beyond Landlord's reasonable
control.
38.06 For the purposes of this Lease, the following terms have the
meanings indicated:
(a) The term "mortgage" shall include a mortgage and/or a deed of
trust, and the term "holder of a mortgage" or "mortgagee" or words of similar
import shall include a mortgagee of a mortgage or a beneficiary of a deed of
trust.
(b) The term "laws and requirements of any public or governmental
authorities" and words of similar import shall mean laws and ordinances of any
or all of the Federal, state, city, town, county, borough and village
governments and rules, regulations, orders and directives of any and all
departments, subdivisions, bureaus, agencies or offices thereof, and of any
other governmental, public or quasi-public authorities having jurisdiction over
the Building and/or the Premises, and the direction of any public officer
pursuant to law, whether now or hereafter in force.
(c) The term "requirements of insurance bodies" and words of similar
import shall mean rules, regulations, orders and other requirements of the New
York Board of Underwriters and/or the New York Fire Insurance Rating
Organization and/or any other similar body performing the same or similar
functions and having jurisdiction or cognizance over the Building and/or the
Premises, whether now or hereafter in force.
(d) The term "Tenant" shall mean the Tenant herein named or any
permitted assignee or other successor in interest (immediate or remote) of the
Tenant herein named, which at the time in question is the owner of the Tenant's
estate and interest granted by this Lease; but the foregoing provisions of this
subsection shall not be construed to permit any assignment of this Lease or to
relieve the Tenant herein named or any assignee or other successor in interest
(whether immediate or remote) of the Tenant herein named from the full and
prompt payment, performance and observance of the covenants, obligations and
conditions to be paid, performed and observed by Tenant under this Lease.
(e) The term "Landlord" shall mean only the owner at the time in
question of the Building or of a lease of the Building, so that in the event of
any transfer or transfers of title to the Building or of Landlord's interest in
a lease of the Building, the transferor shall be and hereby is relieved and
freed of all obligations of Landlord under this Lease accruing after such
transfer, and it shall be deemed, without further agreement, that such
transferee has assumed and agreed to perform and observe all obligations of
Landlord herein during the period it is the holder of Landlord's interest under
this Lease.
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(f) The terms "herein," "hereof' and "hereunder," and words of
similar import, shall be construed to refer to this Lease as a whole, and not to
any particular Article or Section, unless expressly so stated.
(g) The term "and/or" when applied to two or more matters or things
shall be construed to apply to any one or more or all thereof as the
circumstances warrant at the time in question.
(h) The term "person" shall mean any natural person or persons, a
partnership, a corporation, and any other form of business or legal association
or entity.
(i) The term "Business Days" means Monday through Friday, except
days observed by the Federal or state government as legal holidays, and such
other days as shall be designated as holidays by the applicable building service
union employees service contract or by the applicable operating engineers
contract. The term "Business Hours" means 9:00 a.m. to 6:00 p.m. on Business
Days, except as otherwise provided in the immediately preceding sentence.
38.07 Upon the expiration or other termination of this Lease neither party
shall have any further obligation or liability to the other except as otherwise
expressly provided in this Lease and except for such obligations as by their
nature or under the circumstances can only be, or by the provisions of this
Lease, may be, performed after such expiration or other termination; and, in any
event, unless otherwise expressly provided in this Lease, any liability for a
payment (including, without limitation, Additional Rent under Articles 4, 5 and
16) which shall have accrued to or with respect to any period ending at the time
of expiration or other termination of this Lease shall survive the expiration or
other termination of this Lease.
38.08 (a) If Tenant shall request Landlord's consent or approval and
Landlord shall fail or refuse to give such consent or approval, Tenant shall not
be entitled to any damages for any withholding by Landlord of its consent or
approval, it being intended that Tenant's sole remedy shall be an action for
specific performance or injunction, and that such remedy shall be available only
in those cases where Landlord has expressly agreed in writing not to
unreasonably withhold its consent or approval or where as a matter of law
Landlord may not unreasonably withhold its consent or approval.
(b) Wherever Landlord's consent or approval is required in this
Lease and neither this Lease nor applicable law requires that such approval or
consent shall not be unreasonably withheld, Landlord may determine in its sole
discretion whether to grant or refuse to grant such consent or approval,
regardless of whether such refusal to consent or approve may be deemed
arbitrary.
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38.09 If any Superior Mortgagee shall require any modification(s) of this
Lease, Tenant shall, at Landlord's request, promptly execute and deliver to
Landlord such instruments effecting such modification(s) as Landlord shall
require, provided that such modification(s) do not adversely affect in any
material respect any of Tenant's rights under this Lease.
38.10 If an excavation shall be made upon land adjacent to or under the
Building, or shall be authorized to be made, Tenant shall afford to the person
causing or authorized to cause such excavation license to enter the Premises for
the purpose of performing such work as said person shall deem necessary or
desirable to preserve and protect the Building from injury or damage and to
support the same by proper foundations, without any claim for damages or
liability against Landlord and without reducing or otherwise affecting Tenant's
obligations under this Lease.
38.11 In the event the Fixed Base Rent or Additional Rent or any part
thereof provided to be paid by Tenant under the provisions of this Lease during
the demised term shall become uncollectible or shall be reduced or required to
be reduced or refunded by virtue of any Federal, state, county or city law,
order or regulation, or by any direction of a public officer or body pursuant to
law, or the orders, rules, codes or regulations of any organization or entity
formed pursuant to law, whether such organization or entity be public or
private, then Landlord, at its option, may at any time thereafter terminate this
Lease by not less than thirty (30) days' written notice to Tenant on a date set
forth in said notice, in which event this Lease and the term hereof shall
terminate and come to an end on the date fixed in said notice as if the said
date were the expiration date set forth herein. Landlord shall not have the
right so to terminate this Lease if within such thirty-day period Tenant shall
agree in writing that the rentals herein reserved are a reasonable rental and
agree to continue to pay said rentals including the amount representing that
portion of the Fixed Base Rent and Additional Rent payable hereunder allocable
to the cost of electrical energy, provided such agreement by Tenant shall be
legally enforceable by Landlord.
38.12 Tenant agrees that the exercise of its rights pursuant to the
provisions of Article 13 or of any other provisions of this Lease or the
Exhibits hereto shall not be done in a manner which would violate Landlord's
union contracts affecting the Land and/or Building, nor create any work
stoppage, picketing, labor disruption or dispute or any interference with the
business of Landlord or any Tenant or occupant of the Building.
38.13 Any apportionments or prorations of Fixed Base Rent or Additional
Rent to be made under this Lease shall be computed on the basis of a 360-day
year.
38.14 In addition to any remedies which Landlord may have under this
Lease, and without reducing or adversely affecting any of Landlord's rights and
remedies under Article 25, if there shall be a default hereunder by Tenant which
shall not have been remedied within the applicable grace period, Landlord shall
not be obligated to furnish to
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Tenant or the Premises any heat, ventilation or air-conditioning services
outside of Business Hours on Business Days, or any other services; and the
discontinuance of any one or more such services shall be without liability by
Landlord to Tenant and shall not reduce, diminish or otherwise affect any of
Tenant's covenants and obligations under this Lease.
38.15 Irrespective of the place of execution or performance, this Lease
shall be governed by and construed in accordance with the laws of the State of
New York, without reference to the conflicts of law principles thereof. If any
provision of this Lease or the application thereof to any person or circumstance
shall, for any reason and to any extent, be invalid or unenforceable, the
remainder of this Lease and the application of that provision to other persons
or circumstances shall not be affected but rather shall be enforced to the
extent permitted by law. The table of contents, captions, headings and titles in
this Lease are solely for convenience of reference and shall not affect its
interpretation. This Lease shall be construed without regard to any presumption
or other rule requiring construction against the party causing this Lease to be
drafted. Each covenant, agreement, obligation or other provision of this Lease
on Tenants part to be performed, shall be deemed and construed as a separate and
independent covenant of Tenant, not dependent on any other provision of this
Lease. All terms and words used in this Lease, regardless of the number or
gender in which they are used, shall be deemed to include any other number and
any other gender as the context may require.
38.16 In the event that Tenant and Landlord enter into another lease
agreement for the entire 8th floor of the Building (the "8th Floor Lease"),
Landlord and Tenant agree that Tenant shall have the option to terminate this
Lease, upon written notice to Landlord, effective on a date specified in such
notice, provided, that such date shall in no event be earlier than the date
immediately preceding the rent commencement date of the 8th Floor Lease, as
designated therein and further provided that Tenant give Landlord no less than
30 days notice.
The parties hereto have executed this Lease as of the date first written
above.
LANDLORD:
110 East 42nd Street Associates,
Limited Partnership
By: 110 Management Corporation,
its general partner
41
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By:
--------------------------------
Silvia Kessel
Senior Vice President
TENANT:
National Fiber Network, Inc.
By:
--------------------------------
Howard Finkelstein
President
42
<PAGE>
STATE OF NEW JERSEY )
SS.:
COUNTY OF BERGEN )
On this day of May, 1997, before me personally came Silvia Kessel to me
known, who, being duly sworn by me, did depose and say that she is a Vice
President of 110 Management Corporation, which is the general partner of 110
East 42nd Street Associates, Limited Partnership, the entity described in and
which executed the above instrument and that she signed her name thereto by
order of the board of directors of said corporation.
------------------------------------
Notary Public
STATE OF NEW YORK )
SS.:
COUNTY OF NEW YORK )
On this day of _____, 1997, before me personally came Howard Finkelstein
to me known, who, being duly sworn by me, did depose and say that he is the
President of National Fiber Network, Inc., the entity described in and which
executed the above instrument and that he signed his name thereto by order of
the board of directors of said corporation.
------------------------------------
Notary Public
43
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EXHIBIT A
PLAN OF PREMISES
44
<PAGE>
EXHIBIT B
Landlord's Work
Landlord shall paint the entire Premises and clean the existing carpeting
therein.
45
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. The rights of tenants in the entrances, corridors, elevators, and
escalators of the Building are limited to ingress and egress from the tenants'
premises for the tenants and their employees, licensees and invitees, and no
tenant shall use, or permit the use of, the entrances, corridors, escalators or
elevators for any other purpose. No tenant shall invite to the tenant's
premises, or permit the visit of, persons in such numbers or under such
conditions as to interfere with the use and enjoyment of any of the plazas,
entrances, corridors, escalators, elevators and other facilities of the Building
by other tenants. Tenant shall not use or permit its employees to use the
elevators before 10:00 A.M. in a "Down" direction for purposes of taking a
coffee break or similar activities. Fire exits and stairways are for emergency
use only, and they shall not be used for any other purposes by the tenants,
their employees, licensees or invitees. No tenant shall encumber or obstruct, or
permit the encumbrance or obstruction of or store or place any materials on any
of the sidewalks, plazas, entrances, corridors, escalators, fire exits or
stairways of the Building. The Landlord reserves the right to control and
operate the public portions or the Building and the Public facilities, as well
as facilities, furnished for the common use of the tenants, in such manner as it
deems best for the benefit of the tenants generally.
2. The cost of repairing any damage to the public portions of the Building
or the public facilities or to any facilities used in common with other tenants,
caused by a tenant or the employees, licensees or invitees of the tenant, shall
be paid by such tenant.
3. The Landlord may refuse admission to the Building outside of ordinary
business hours to any person not known to the watchman in charge or not having a
pass issued by the Landlord or not properly identified, and may require all
persons admitted to or leaving the Building outside of ordinary business hours
to register. Tenant's employees, agents and visitors shall be permitted to enter
and leave the Building whenever appropriate arrangements have been previously
made between the Landlord and Tenant with respect thereto. Each tenant shall be
responsible for all persons for whom he requests such permission and shall be
liable to the Landlord for all acts of such persons. Any person whose presence
in the Building at any time shall, in the judgment of the Landlord, be
prejudicial to the safety, character, reputation and interests of the Building
or its tenants may be denied access to the Building during the continuance of
the same, by closing the doors or otherwise, for the safety of the tenants and
protection of property in the Building. The Landlord may require any person
leaving the Building with any package or other object to exhibit a pass from the
tenant from whose premises the package or object is being removed, but the
establishment and enforcement of such requirement shall not impose any
responsibility on the Landlord for the protection of any tenant against the
removal of property from the premises of the tenant. The Landlord shall in no
way, be liable to any
46
<PAGE>
tenant for damages or loss arising from the admission, exclusion or ejection of
any person to or from the tenant's premises or the Building under the provisions
of this rule.
4. No tenant shall obtain or accept for use in its premises, ice, drinking
water, food, beverage, towel, barbering, boot blacking, floor polishing,
lighting maintenance, cleaning or other similar services from any persons not
authorized by the Landlord in writing to furnish such services, provided always
that the charges for such services by persons authorized by the Landlord are not
excessive. Such services shall be furnished only at such hours, in such places
within the tenant's premises and under such regulations as may be fixed by the
Landlord.
5. No awnings or other projections over or around the windows shall be
installed by any tenant, and only such window blinds as are supplied or
permitted by the Landlord shall be used in a tenant's premises.
6. There shall not be used in any space, or in the public halls of the
Building, either by the Tenant or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards.
7. All entrance doors in each tenant's premises shall be kept locked when
the tenant's premises are not in use. Entrance doors shall not be left open at
any time, all windows in each tenant's premises shall be kept closed at all
times and all blinds therein above the ground floor shall be lowered when and as
reasonably required because of the position of the sun, during the operation of
the Building air conditioning system to cool or ventilate the tenant's premises.
8. No noise, including the playing of any musical instruments, radio or
television, which, in the judgment of the Landlord, might disturb other tenants
in the Building shall be made or permitted by any tenant, and no cooking shall
be done in the Tenant's premises, as expressly approved by the Landlord. Nothing
shall be done or permitted in the Tenant's premises, which would impair or
interfere with any of the Building services or the proper and economic heating,
cleaning or other servicing of the Building or premises, or the use or enjoyment
by any other tenant of any other premises, nor shall there be installed by any
tenant any ventilating, air-conditioning, electrical or other equipment of any
kind which, in the judgment of the Landlord, might cause any such impairment or
interference. No dangerous, inflammable, combustible or explosive object or
material shall be brought into the Building by any tenant or with the permission
of any tenant.
9. Tenant shall not permit any cooking or food odors emanating within the
Premises to seep into other portions of the Building.
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<PAGE>
10. No acids, toxic wastes, vapors or other such materials shall be stored
in the Premises or discharged or permitted to be discharged into the waste
lines, vents or flues of the Building which may damage them. The water and wash
closets and other plumbing fixtures in or serving any tenant's premises shall
not be used for purposes other than the purpose for which they were designed or
constructed, and no sweepings, rubbish, rags, acids or other foreign substances
shall be deposited therein. All damages resulting from any misuse of the
fixtures shall be borne by the tenant who, or whose servants, employees, agents,
visitors, or licensees, shall have caused the same.
11. No signs, advertisements, notice or other lettering shall be
exhibited, inscribed, painted or affixed by any tenant on any part of the
outside or inside the premises or the Building without the prior written consent
of Landlord. In the event of the violation of the foregoing by any tenant,
Landlord may remove the same without any liability, and may charge the expense
incurred by such removal to the tenant or tenants violating this rule. Interior
signs and lettering on doors and elevators shall be inscribed, painted, or
affixed for each tenant by Landlord at the expense of such tenant, and shall be
of a size, color and style acceptable to Landlord. Landlord shall have the right
to prohibit any advertising by any tenant which impairs the reputation of the
Building or its desirability as a building for offices, and upon written notice
from Landlord, Tenant shall refrain from or discontinue such advertising.
12. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows in any tenant's premises and no lock on any door therein
shall be changed or altered in any respect. Duplicate keys for a tenant's
premises and toilet rooms shall be procured only from the Landlord, which may
make a reasonable charge therefor. Upon the termination of a tenant's lease, all
keys of the tenant's premises and toilet rooms shall be delivered to the
Landlord.
13. No tenant shall mark, paint, drill into, or in any way deface any part
of the Building or the premises demised to such tenant. No boring, cutting or
stringing of wires shall be permitted, except with the prior written consent of
Landlord, and as Landlord may direct. No tenant shall install any resilient tile
or similar floor covering in the premises demised to such tenant except in a
manner approved by Landlord.
14. No tenant shall lease desk space or permit the licensing of desk space
in the premises demised to such tenant.
15. No premises shall be used, or permitted to be used, at any time, as a
store for the sale, or display of goods, wares or merchandise of any kind, or as
a restaurant, shop, booth, bootblack or other stand, or for the conduct of any
business or occupation which predominantly involves direct patronage of the
general public in the premises demised to such tenant, or for manufacturing or
for other similar purposes.
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<PAGE>
16. The requirements of tenants will be attended to only upon application
at the office of the building. Employees of Landlord shall not perform any work
or do anything outside of the regular duties, unless under special instruction
from the office of the Landlord.
17. Each tenant shall, at its expense, provide artificial light in the
premises demised to such tenant for Landlord's agents, contractors and employees
while performing janitorial or other cleaning services and making repairs or
alterations in said premises.
18. Tenants' employees shall not loiter around the hallways, stairways,
elevators, front roof or any other part of the Building used in common by the
occupants thereof.
19. If the premises demised to any tenant become infested with vermin,
such tenant, at its sole cost and expense, shall cause its premises to be
exterminated, from time to time, to the satisfaction of Landlord and shall
employ such exterminators therefor as shall be approved by Landlord.
20. Any cuspidors or similar containers or receptacles used in any
tenant's premises and shall be cared for and cleaned by and at the expense of
the Tenant.
21. All movers used by any Tenant or occupant of the Building shall be
appropriately licensed and shall maintain adequate insurance coverage (proof of
such coverage shall be delivered to Landlord prior to movers providing service
in and throughout the Building). No Tenant shall move, or permit to be moved,
into or out of the Building of the premises demised to such Tenant, or move any
heavy or bulky matter without specific approval of the Landlord, and if such
matter requires special handling, only a person holding a master rigger's
license shall be employed to perform such special services. Tenant shall protect
the Premises, including all Finishing Work from damage or soiling by Tenant's
movers and contractors and shall pay for extra cleaning or replacement or
repairs by reason of Tenant's failure to do so.
22. If the Premises shall be situated on the ground floor of the Building,
the Tenant shall cause all exterior windows facing on any street or avenue to be
thoroughly cleaned inside and out at least once per calendar month. In addition,
if the Premises shall be on the ground floor, Tenant shall likewise cause the
exterior of any storefront or sign to be kept clean, properly maintained and in
good order and repair throughout the term of this Lease.
23. No bicycles, vehicles or animals of any kind shall be brought into or
kept in or about the Premises.
49
<PAGE>
24. The Premises shall not be used for lodging or sleeping or for any
immoral or illegal purposes.
25. Canvassing, soliciting, and peddling in the Building are prohibited
and each tenant shall cooperate to prevent the same.
26. No space in the Building shall be used for manufacturing,
distribution, or for the storage of merchandise or for the sale of merchandise,
goods or property of any kind at auction.
27. No tenant shall occupy or permit any portion of the Premises leased to
it to be occupied as an office for a public stenographer or typist, or for the
possession, storage, manufacture, or sale of liquor, narcotics, dope, tobacco,
in any form, or as a barber or manicure shop or as an employment bureau or
agency, or for a public finance (personal loan) business. No tenant or occupant
shall engage or pay any employees on the Premises, except those actually working
for such occupancy on the Premises, nor advertise for laborers giving an address
at the Premises.
28. Whenever Tenant shall submit to Landlord any plan, agreement or other
document for Landlord's consent or approval, Tenant agrees to pay Landlord as
additional rent, on demand, a processing fee in a sum equal to the reasonable
fee of any architect, engineer or attorney employed by Landlord to review said
plan, agreement or document.
29. Freight, furniture, business equipment, merchandise and bulky matter
of any description shall be delivered to and removed from the Premises only on
the freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Landlord. Landlord reserves the right
to inspect all freight to be brought into the Building and to exclude from the
Building all freight which violates any of these Rules and Regulations or the
lease of which these Rules and Regulations are a part.
30. Tenant, in order to obtain maximum effectiveness of the cooling system
shall lower and/or close venetian or vertical blinds or drapes when the sun's
rays fall directly on windows of the Premises.
31. In order that the Building can and will maintain a uniform appearance
to those outside of same, each Tenant in building perimeter areas shall (a) use
only building standard lighting in areas where lighting is visible from the
outside of the Building and (b) use only building standard venetian or vertical
blinds in window areas which are visible from the outside of the Building.
32. All paneling, carpets, upholstery, drapery, furniture, and decorating
materials shall be composed of fire and smoke retardant materials recommended by
the
50
<PAGE>
New York City Fire Department. Before installation of any such materials,
certification of the material's fire retardant characteristics shall be
submitted to Landlord, or its agents, in a manner satisfactory to the Landlord.
33. When alterations to or above hung ceilings are performed, sprinkler
systems will be installed at Tenant's cost and expense.
EXHIBIT D
CLEANING SPECIFICATIONS FOR 110 EAST 42ND STREET
A. Nightly:
a. Sweep all uncarpeted flooring using chemically treated dust mop to
prevent dust dispersion.
b. All carpeting and rugs to be spot vacuumed four (4) nights per week
and thoroughly vacuumed once (1) each week.
c. Empty and clean all ashtrays and screen all sand urns.
d. Empty wastebaskets and other trash receptacles, remove rubbish to
designated area within the building.
e. Hand dust and wipe clean with chemically treated cloth all
furniture, file cabinets, desk lamps, window sills and convector
enclosed tops within arm's reach.
f. Move and dust under all desk equipment and phones, replacing and
dusting said equipment.
g. Remove all gum and foreign matter on sight.
h. Scour and wash clean all water coolers and fountains.
i. During cleaning operations, a minimum number of lights are to be
left on. Upon completion of said operation, all lights should be
turned off.
B. Periodic
Perform all high dusting as outlined below once every three (3) months.
51
<PAGE>
a. Hand dust all pictures, frames, charts, graphs and similar wall
hangings not reached in nightly cleaning.
b. Dust vertical surfaces such as partitions, fixtures, ventilating
louvers, high moldings, etc. not reached in nightly cleaning.
52
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Exhibit 10.11
LICENSE AGREEMENT
-----------------
THIS AGREEMENT is made as of the 14th day of August, 1997 by and
between METROMEDIA COMPANY, a Delaware general partnership (hereinafter
referred to as the "Licensor") and METROMEDIA FIBER NETWORK, INC., a Delaware
corporation (hereinafter referred to as the "Licensee").
W I T N E S E T H:
- - - - - - - - -
WHEREAS, Licensor has extensively used "Metromedia" as its company
and trade name and as its principal trademark and Licensor is the owner of
numerous registrations for such trademark in the United states and in various
countries throughout the world;
WHEREAS, Licensee desires to use the trade name and trademark
"Metromedia" in a manner approved by Licensor during the term hereof in
connection with, among other things, it s telecommuncations business ( the
"Licensed Services");
WHEREAS, Licensor is willing to grant Licensee that right to use the
trade name and trademart "Metromedia" during the Term (as hereinafter
defined) in the United States and also worldwide; and
WHEREAS, Licensor is willing to grant the aforementioned right to
use the trade name and trademark "Metromedia" upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, for and in consideration of the premises and mutual
convenants of the parties contained herein, and of other good and valuable
consideration, it is agreed as follows:
1. Licensor hereby grants to Licensee, a non-exclusive,
non-transferable, non-assignable right and license, without the right to grant
sublicenses, to use the trade name and trademark and corporate name
"Metromedia" (the "Licensed Name") in the United states and worldwide in respect
of Licensed Services subject to the terms, obligations, conditions and
limitations of this Agreement. It shall be Licensee's obligation to
appropriately carry out fully and and all trade name filings and recordings that
may be required of Licensee anywhere by virtue of this Agreement.
<PAGE>
2
2. This Agreement and the rights and licenses granted under
Paragraph 1 shall be for a period of ten (10) years from the date of this
Agreement, except as provided below (the "Term").
3. Nothing in this Agreement or in any instructions given by
Licensor to Licensee is intended to authorize or permit use by Licensee of the
Licensed Name in combination with any other name, worked or symbol so as to
constitute a new combination name without Licensor's prior written approval of
any proposed combination name.
4. Licensee agrees that every use of the Licensed Name made by it on
or in connection with offering, sale, furnishing, performing, advertising and/or
promotion of, and/or any other activity relating to, Licensed Services shall
inure to the benefit of Licensor.
5. Licensee agrees that in using the Licensed name it will not
represent in any way that it has any right, title, or interest in or to said
Licensed Name or any registration thereof which may be granted, or in any word
or name similar thereto, whether registered or not, other than the permission
granted to it under this Agreement. Licensee will not register or attempt to
register said Licensed Name either alone or in combination with any other name
in any country in the world or aid or abet anyone else in doing so; and Licensee
agrees that any use, application or registration in breach of this covenant will
inure to the benefit of Licensor, and agrees to assign and does hereby assign
all legal and equitable rights, title and interest in and to any such name
and/or application and/or registrations to Licensor.
6. (a) Licensee shall meet all of the Licensor's standards for the
Licensed Services prescribed by law or prescribed by governmental agencies in
connection with the offering, sale, furnishing, performing, advertising and/or
promotion of, and/or any other activity relating to, such Licensed Services.
(b) In order to assure that Licensee maintains the standards of
quality set forth above, Licensee shall submit written reports, sans financial
data, as to the status of the conduct of Licensee's operations relating to the
provision of Licensed Services under the Licensed Name to Licensor on at least a
semi-annual basis to the extent any previously unreported event referenced in
this clause (b) has occurred during the preceding period. Such status reports
shall contain a listing of all complaints, if any, relating to the quality of
the Licensed Services bearing the Licensed Name received by Licensee during the
period to which each report pertains, and a listing of all interruptions in
service of Licensed Services, if any, that differ from those complaints and
interruptions in service customarily and routinely experienced with respect to
the Licensed Services, as well as contain information explaining Licensee's
handling and resolution of such complaints and of such interruptions in service.
Such reports shall further advise of any instances where the
<PAGE>
3
total number of complaints experienced or the total number of interruptions in
service, both customary and routine and those not so, exceeds the average
normally anticipated for any of the Licensed Services during the period to which
each report pertains, as well as contain information explaining Licensee's
handling and resolution of such situations.
(c) Licensor, through it representatives, shall also have the
right at reasonable intervals to inspect Licensee's premises or premises under
the Licensee's control or to which the Licensee has access where Licensed
Services in connection with which the Licensed Name is used to originate, or are
furnished, performed, maintained, monitored, administered or controlled, during
reasonable business hours and upon reasonable notice to Licensee.
7. Licensee shall observe Licensor's reasonable standards for the
application, printed, visual or otherwise, of the Licensed Name to or in
connection with Licensed Services, wherever labeling, advertising,
promotional or other materials are involved or whether printed, visual, audio
or other media are concerned. Licensee shall use the registered trademark
symbol "-Registered Trademark-" following the name Metromedia in or on all
printed and visual material relating to Licensed Services bearing the
Licensed Name.
8. (a) Licensee agrees to indemnify and hold harmless Licensor
against and in respect for any and all losses, claims, suits, actions,
proceedings (formal or informal), investigations, judgments, deficiencies,
damages, settlements, liabilities, and reasonable legal and other expenses
related thereto, arising out of the conduct by Licensee of Licensed Services.
(b) Licenser shall give Licensee prompt notice of any claim
asserted or threatened against Licenser on the basis of which Licensor
intends to seek indemnification from Licensee as herein provided (but the
obligations of Licensee under this Paragraph 8 shall not be conditioned upon
receipt of the same except to the extent Licensee is actually prejudiced by
such failure to give notice). Licensee shall promptly assume the defence of
Licensor with counsel reasonable satisfactory to Licensor, and the fees and
expenses of such counsel shall be at the sole cost and expense of Licensee,
all to the extent Liensor is entitled to indemnification hereunder.
Notwithstanding the foregoing, Licensor shall be entitled to employ counsel
separate from counsel for Licensee and from any other party in such action,
proceeding, or investigation, if the interest of Licensor may be prejudiced
without such separate counsel (including without limitation, if one or more
legal defenses may be inconsistent or in conflict with the legal defenses
available to other parties), and Licensee shall entirely and solely bear the
reasonable fees and expenses of such separate counsel (as and when incurred),
all to the extent Licensor is entitled to indemnification hereunder.
Licensor may not agree to a settlement of any such claim without the prior
written approval of Licensee, which approval shall not be
<PAGE>
4
unreasonably withheld. Licensee may not agree to a settlement of any such claim
without the prior written approval of Licensor, which approval shall not be
unreasonably withheld.
9. Licensor may terminate this Agreement upon one month's prior
written notice to License in the event that, and at any time after, (i)
Licensor or affiliates own less than 20% of the stock of Licensee; or (ii)
upon a Change of control (as hereinafer defined) of Licensee; or (iii) if any
of the stock or all or substantially all of the assets of any of the
subsidiaries of the Licensee are sold or transferred. In the even of (iii)
above, this License Agreement shall terminate with respect to such
subsidiary. A "Change of Control" is defined to include the following
transactions.
(a) A persons or "group" (within the meaning of Section 13(d)(3)
of the Securities and Exchange Act of 1934, as amended) not in existence on the
ate hereof becomes the beneficial owner of stock entitling such person or group
to exercise 50% or more of the combine voting power of all classes of stock of
Licensee.
(b) a change occurs in the composition of Licensee's Board of
Directors such that a majority of the members therefore are not "Continuing
Directors" (defined as Directors serving on the date hereof and any person
who succeeds any such Directors and who is recommended or elected by a
majority of Continuing Directors);
(c) upon the occurrence of a reorganization, merger or
consolidation where, following comsumation thereof, Licensor holds less than
20% stock of the combined voting power of all classes of Licensee's stock;
(d) Upon the occurrence of a sale or other diposition of all or
substantially all of the assets of Licensee;
(e) Upon the occurrence of any transaction the result of which
would be that Licensee's common stock would not be required to be registered
under the Securities Exchange Act of 1934. as amended, and the holders of
Licensee's common stock would not receive common stock of the survivor to the
transaction which is required to be registered under the Exchange Act.
10. This Agreement shall terminate without notice upon the
occurrence of any of the following events:
(a) Licensee or any of its subsidiaries commences use of the
Licensed Name other than in connection with Licensed Services; or
<PAGE>
5
(b) Insolvency or bankrupty of Licensee or its subsidiaries, or
appointment of a receiver, trustee, liquidator or sequestrator of the Licensee
or its subsidiaries for any reason; or
(c) Licensee or any of its subsidiaries shall fail to comply
with or observe any provision of this Agreement for a period of thirty (30)
days after written notice has been given to Licensee specifying such failure
and requesting that it be remedied, unless (i) Licensor shall agree in
writing to an extention of such time period prior to its expiration, or (ii)
the failure be such that it cannot be corrected within the applicable period
and appropriate action is instituted by Licensee within the applicable period
and is being diligently pursued to prompt correction; or
(d) Except as permitted under this Agreement, any attempt by
Licensee to assign to transfer this Agreement or any of Licensee's rights or
obligations hereunder without Licensor's prior written consent; or
11. Licensor further reserves the right to terminate this Agreement
in its entirety, including all rights and licenses under Paragraph 1,
immediately upon written notice to Licensee if, in Licensor's sole judgment,
Licensee's continued use of "Metromedia" as a trade name would jeopardize or
be detrimental to the valuable good will and reputation which Licensor enjoys
worldwide in its name "Metromedia".
12. In the event of any expiration or termination of theis Agreement,
all rights excecised by licensee by reason therof shall automatically, without
the need for any further act or deed, vest in Licensor. Any expiration or
termination of this Agreement shall not, however, terminate any obligation of
Licensee except as expressly provided herein. Upon any such expiration or
termination, Licensee agrees to discontinue immediately all use of the Licensed
Name, and further agrees that thereafter it will not make any use whatsoever of
the Licensed Name in any manner or of any name or name which in Licensor's sole
judgement, which shall not be unrasonably exercised, is confusingly similar
thereto. Also, during the term of this Agreement, Licensee shall not use any
name or term which in Licensor's sole judgment, which shall not be unreasonably
exercised, is confusingly similar to the License Name.
13. Other than in connection with a claim prusuant to Section 8(a)
above , Licensee agrees not to raise or cause to be raised any questions
concerning or objections to the the validiy of the Licensed Name or to the sole
and exclusive ownership by, and right hereto, of the Licensor, on any grounds
whatsoever.
14. Licensee and Licensor each agree to promptly notify the other of
any adverse uses of which it becomes aware of the Licensed Name or of names,
names or terms identical with or confusingly similar to the Licensed Name.
Licensor may then take such action, in its sole discretion and control, as it
deems fit.
<PAGE>
6
Licensee, upon the request of Licensor, shall provide Licensor with all
reasonable assistance in connection with such action.
15. Nothing herein contained shall be construed as preventing
Licensor, its subsidiaries, affiliates, licensees and assigns, whether current
or future, from using the Licensed Name in any manner which Licensor desires not
inconsistent with Licensee's rights hereunder.
16. The provisions of this Agreement shall be construed and its
performance governed in accordance with the laws of the State of New York.
17. Any notice, request or other communication to be given under this
Agreement to any party shall be in writing and either delivered to it by hand,
certified mail ( return receipt requested), sent by fascimile (receipt
confirmed), in each case addressed as follows;
if to Licensor:
Metromedia Company
One Meadowlands Plaza
East Rutherford, New Jersey 07073
Attention: General Counsel
Telecopy No.: (201) 804-6685
if to Licensee:
Metromedia Fiber Network, inc.
110 East 42nd Street
Suite 1502
New Yok NewYork 10017
Attention: Stephen A. Garrofalo
Telecopy No.: (212)687 -9177
18. This Agreement may be transferred or assigned in whole or in part
by the Licensor without the consent of the Licenseee and will inure to the
benefit of Licensor's successors or assigns.
<PAGE>
7
IN WITNESS WHEREOF, parties hav executed this Agreement as set forth
below effective as of the date first hereinabove written.
LICENSOR:
Metromedia Company
By: /s/ Arnold L. Wadler
--------------------------------------
Name: Arnold L. Wadler
Title: Senior Vice President
LICENSEE
Metromedia Fiber Networks, Inc
By: /s/ Howard M. Finkelstein
--------------------------------------
Name: Howard M. Finkelstein
Title: President
<PAGE>
EXHIBIT 11.1
<TABLE>
<CAPTION>
WEIGHTED AVERAGE SHARES OUTSTANDING
PERIODS ENDED
---------------------------------------------------------------------------
DECEMBER 31, JUNE 30,
------------------------------------------------ -------------------------
DATE TOTAL SHARES 1993 1994 1995 1996 1996 1997
- ------------------ ------------ --------- ---------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
4/20/93........... 1,521,000 1,521,000 1,521,000 1,521,000 1,521,000 1,521,000 1,521,000
1/20/94........... 4,563,000 4,312,973 4,563,000 4,563,000 4,563,000 4,563,000
3/16/95........... 155,994 123,235 155,994 155,994 155,994
1/12/96........... 491,105 471,461 491,105 491,105
2/13/96........... 381,087 335,356 381,087 381,087
4/11/96........... 38,025 26,998 15,971 38,025
4/11/96........... 228,150 161,987 95,823 228,150
4/15/96........... 59,359 42,145 24,931 59,359
4/15/96........... 152,100 107,991 63,882 152,100
4/15/96........... 1,521,000 1,079,910 638,820 1,521,000
5/15/96........... 456,300 287,469 114,075 456,300
5/15/96........... 152,100 95,823 38,025 152,100
6/15/96........... 38,025 20,534 3,042 38,025
7/15/96........... 12,168 5,597 12,168
7/15/96........... 38,444 17,684 38,443
8/15/96........... 182,520 68,445 182,520
9/15/96........... 10,934 3,171 10,934
1/2/97............ 152,100 152,100
2/10/97........... (588,470) (441,352)
Cheap stock
options and
warrants(1)..... 2,887,237 2,887,237 2,887,237 2,887,237 2,887,237 2,887,237
------------ --------- ---------- ----------- ------------ ----------- ------------
Total........... 9,564,940 4,408,237 8,721,210 9,094,472 11,851,801 10,993,990 12,599,295
------------ --------- ---------- ----------- ------------ ----------- ------------
------------ --------- ---------- ----------- ------------ ----------- ------------
$ (76,562)
(16,994,169)
Net Loss........ $(188,000) $ (874,000) $(4,319,101) $(10,358,697) $(7,211,564) (17,070,731)
---------- ----------- ------------ ----------- ------------
---------- ----------- ------------ ----------- ------------
Net Loss Per
Share......... $ (.04) $ (.10) $ (.48) $ (.87) $ (.66) $ (1.36)
--------- ---------- ----------- ------------ ----------- ------------
--------- ---------- ----------- ------------ ----------- ------------
</TABLE>
- ------------------------------
(1) Calculated using the treasury stock method.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial and Operating Data", "Summary Consolidated Financial and
Operating Data" and "Experts" and to the use of our report dated April 30, 1997
relating to the 1996 consolidated financial statements of Metromedia Fiber
Network, Inc. (formerly National Fiber Network, Inc.) included in this Amendment
No. 1 to the Registration Statement (No. 333-33653 on Form S-1) and related
Prospectus for the registration of shares of its Class A Common Stock.
Ernst & Young LLP
New York, New York
September 23, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial and Operating Data", "Summary Consolidated Financial and
Operating Data" and "Experts" and to the use of our report dated June 26, 1996
relating to the 1995 consolidated financial statements of Metromedia Fiber
Network, Inc. (formerly National Fiber Network, Inc.) included in this Amendment
No. 1 to the Registration Statement (No. 333-33653 on Form S-1) and related
Prospectus for the registration of shares of its Class A Common Stock. Our
report contains an explanatory paragraph regarding an uncertainty as to the
Company's ability to continue as a going concern.
M.R. Weiser & Co. LLP
New York, New York
September 23, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial and Operating Data", "Summary Consolidated Financial and
Operating Data" and "Experts" and to the inclusion of our report dated June 5,
1995 relating to the financial statements of Metromedia Fiber Network, Inc.
(formerly National Fiber Network, Inc.) for the year ended December 31, 1994 in
the this Amendment No. 1 to the Registration Statement (No. 333-33653 on Form
S-1) and related Prospectus.
Richard A. Eisner & Company, LLP
New York, New York
September 23, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF DIRECTOR NOMINEE
METROMEDIA FIBER NETWORK, INC.
I hereby consent to be named in the Registration Statement on Form S-1 of
Metromedia Fiber Network, Inc. relating to the proposed initial public offering
of shares of its Class A Common Stock, including in any supplement to any
prospectus included in such Registration Statement, any amendment to such
Registration Statement or any subsequent Registration Statement filed pursuant
to Rule 462(b) under the Securities Act of 1933, as amended.
By: /s/ David Rockefeller
David Rockefeller
New York, New York
September 23, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 464 22,893
<SECURITIES> 0 0
<RECEIVABLES> 181 355
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 645 23,509
<PP&E> 7,544 8,359
<DEPRECIATION> 650 1,005
<TOTAL-ASSETS> 7,978 31,651
<CURRENT-LIABILITIES> 13,532 2,482
<BONDS> 0 0
0 0
15 0
<COMMON> 197 219
<OTHER-SE> (7,070) 18,824
<TOTAL-LIABILITY-AND-EQUITY> 7,978 31,651
<SALES> 0 0
<TOTAL-REVENUES> 236 542
<CGS> 0 0
<TOTAL-COSTS> 699 1,082
<OTHER-EXPENSES> 6,335 15,979
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,561 679
<INCOME-PRETAX> (10,359) (16,994)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (10,359) (16,994)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (10,359) (16,994)
<EPS-PRIMARY> (0.89) (1.38)
<EPS-DILUTED> (0.89) (1.38)
</TABLE>
