<PAGE>
As filed with the Securities and Exchange Commission on February 4, 2000
Registration Statement No. 333-92011
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------
CYPRESS COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
--------------
<TABLE>
<CAPTION>
Delaware 4813 58-2330270
<S> <C> <C>
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
foIncorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
--------------
Fifteen Piedmont Center, Suite 710
Atlanta, Georgia 30305
(404) 869-2500
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive office)
--------------
R. Stanley Allen
Chief Executive Officer
Cypress Communications, Inc.
Fifteen Piedmont Center, Suite 710
Atlanta, Georgia 30305
(404) 869-2500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<CAPTION>
Gilbert G. Menna, P.C. John D. Watson, Jr., Esq.
<S> <C>
Goodwin, Procter & Hoar LLP Latham & Watkins
Exchange Place 1001 Pennsylvania Ave., N.W., Suite 1300
Boston, Massachusetts 02109-2881 Washington, D.C. 20004-2505
(617) 570-1000 (202) 637-2200
</TABLE>
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the SEC, acting pursuant to Section
8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission becomes effective. This +
+preliminary prospectus is not an offer to sell these securities nor a +
+solicitation of an offer to buy these securities in any jurisdiction where +
+the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 4, 2000
PRELIMINARY PROSPECTUS
10,000,000 Shares
[LOGO OF CYPRESS COMMUNICATIONS]
Common Stock
--------------
This is an initial public offering of 10,000,000 shares of common stock of
Cypress Communications, Inc. We are selling all of the shares of common stock
offered under this prospectus.
It is currently estimated that the initial public offering price will be
between $14.00 and $16.00 per share. We have applied to have our common stock
approved for listing on the Nasdaq National Market under the symbol "CYCO."
See "Risk Factors" beginning on page 6 about risks you should consider before
buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
--------------
<TABLE>
<CAPTION>
Per
Share Total
----- ------
<S> <C> <C>
Public offering price........................................... $ $
Underwriting discount........................................... $ $
Proceeds, before expenses, to us................................ $ $
</TABLE>
--------------
The underwriters may purchase up to an additional 1,500,000 shares of common
stock from us at the initial public offering price less the underwriting
discount to cover over-allotments.
The underwriters expect to deliver the shares against payment in New York, New
York on , 2000.
--------------
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
J.C. Bradford & Co.
The date of this prospectus is , 2000.
<PAGE>
OUTSIDE FRONT GATE
[COMPANY LOGO]
<PAGE>
INSIDE FRONT GATE
[Map of the United States depicting Buildings under contract with the Registrant
in major markets which include Atlanta, Boston, Chicago, Dallas, Denver,
Houston, Los Angeles, Minneapolis, New York, Phoenix, San Francisco and
Washington, D.C. The map illustrates those markets with completed buildings and
those with buildings under contract]
<PAGE>
PROSPECTUS SUMMARY
The following summary provides an overview of selected information and does
not contain all the information you should consider. Therefore, you should also
read the more detailed information set out in this prospectus and the financial
statements.
Our Company
We provide a full range of communications services to small and medium-sized
businesses located in multi-tenant office buildings in major metropolitan
markets throughout the United States. We offer local and long distance voice
services, digital telephone systems, high speed, always-on Internet access,
business television, voicemail, e-mail, web site hosting and other enhanced
communications services. We differentiate ourselves from other communications
companies by providing a single-source solution with a high degree of customer
service and responsiveness. Our services are delivered over state-of-the-art
fiber-optic, digital and broadband, or high capacity, networks that we
design, construct, own and operate inside large and medium-sized office
buildings. We gain access to these buildings by executing long-term license
agreements with property owners and building managers.
As of xber 31, 1999, we were operating our networks in 116 buildings
representing approximately 30 million rentable square feet in 12 major
metropolitan areas. Overall, we have long-term license agreements with building
owners and property managers giving us the right to install and operate our
networks in more than 730 buildings representing more than 229 million rentable
square feet in 50 major metropolitan areas. We have not been profitable over
the course of our limited operating history and we expect continued net losses
for the foreseeable future as we deploy our in-building networks. For the nine
months ended September 30, 1999, our revenues grew 266% over the nine months
ended September 30, 1998. We experienced a $9.0 million net loss in the nine
months ended September 30, 1999 as compared to a $2.7 million net loss in the
nine months ended September 30, 1998.
Our Solution
We believe that it is difficult for small and medium-sized businesses to
evaluate the many communications providers and services available to them and
to secure affordable access to the advanced communications services they
require. To meet these needs, we provide our customers with a high-quality,
affordable single-source solution designed to address all of their various
communications requirements.
. A comprehensive solution from a single source. We effectively function
as our customers' communications manager and provide the convenience of
"one stop shopping."
. A reliable, feature-rich communications package with performance levels
and pricing that have traditionally been available only to large
corporations. Our solution includes high speed, always-on Internet
access, state-of-the-art, multi-function telephone equipment and
reliable performance supported by our multiple carriers, backup network
components and emergency power supplies.
1
<PAGE>
. Rapid installation and service expansion with minimal capital outlay by
customers. We deliver our comprehensive package of services to a new
customer within a few days of receiving an order and can often provide
same day service for existing customers requesting new services.
Additionally, because we provide telephone equipment to most of our
customers and can upgrade this equipment as needed, our customers avoid
significant capital outlays and substantially mitigate the risks of
encountering communications capacity constraints.
. On-site or near-site customer service and support. Each of our customers
is assigned a dedicated, experienced account team available on a 24x7
basis to address customer inquiries.
Our Strategy
. Provide a broad and growing range of communications services under long-
term customer contracts.
. Provide superior customer service through dedicated account teams.
. Control the critical "last few feet" between our customers and out-of-
building networks to position us as "gatekeeper" to our in-building
customers.
. Leverage our experience and first mover advantage to rapidly secure
additional licenses with building owners.
. Deploy cost effective, flexible networks by committing capital only
after entering into long-term license agreements and by using a
combination of transmission technologies provided by multiple vendors.
. Opportunistically pursue strategic acquisitions and relationships to
expand our customer base and geographic presence.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered.............. 10,000,000 shares
Common stock to be outstanding
after the offering............... 45,856,415 shares
Use of proceeds................... We intend to use approximately $100.0
million of the net proceeds for the
construction of additional in-building
networks and the purchase of communications
equipment, approximately $10.0 million for
implementation and modification of
information systems and the remainder for
working capital and general corporate
purposes.
Proposed Nasdaq National Market CYCO
Symbol...........................
</TABLE>
The number of shares of common stock that will be outstanding after this
offering is based on the 2,759,806 shares outstanding as of December 31, 1999,
plus:
. 10,000,000 shares of common stock to be sold by us in this offering;
. 32,815,359 shares of common stock to be issued at the completion of this
offering upon the conversion of all of our outstanding convertible
preferred stock; and
. 281,250 shares of common stock to be issued in connection with our
agreed-upon investment in SiteConnect, a Seattle-based provider of
communications services.
The number of shares of common stock to be outstanding after this offering
excludes:
. 1,500,000 shares of common stock issuable pursuant to the over-allotment
option;
. 5,820,976 shares of common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $1.60 as of
December 31, 1999;
. 5,756,125 shares of common stock reserved for issuance in connection
with future grants under our stock option plan;
. 900,000 shares of common stock reserved for issuance under our employee
stock purchase plan; and
. up to 11,144,658 shares of common stock issuable upon the exercise of
warrants with an exercise price of $4.22 per share. We issued these
warrants to several real estate owners and operators in connection with
their execution of master license agreements giving us the right to
install and operate our networks in their buildings. The exact number of
shares of common stock underlying the warrants, which is based on the
gross leasable area of the buildings set forth in the master license
agreements, will not be determined until the completion of due diligence
and the finalization of the building schedules, which is expected to
occur shortly. The warrants are exercisable for a period of ten years,
but cannot be exercised until six months following completion of this
offering.
All information in this prospectus regarding shares of common stock and per
share amounts has been retroactively adjusted to reflect the proposed 4.5-for-1
stock split to occur in connection with this offering.
----------------
The address of our principal executive offices is Fifteen Piedmont Center,
Suite 710, Atlanta, Georgia 30305 and our telephone number is (404) 869-2500.
Our website address is www.cypresscom.net. The information on our website is
not a part of this prospectus.
3
<PAGE>
Summary Financial and Other Data
You should read the following summary financial and other data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes, all of which
appear elsewhere in this prospectus. The following summary statement of
operations data for the 6 1/2 months ended July 15, 1997, the 5 1/2 months
ended December 31, 1997, and the year ended December 31, 1998 and the balance
sheet data as of December 31, 1998 have been derived from our audited financial
statements. The summary statement of operations data for the nine months ended
September 30, 1998 and 1999 and the summary balance sheet data as of September
30, 1999 are derived from our unaudited financial statements. Operating results
for the nine months ended September 30, 1999 are not necessarily indicative of
the results that may be expected for the entire year.
<TABLE>
<CAPTION>
Predecessor Cypress
------------ ----------------------------------------------------
6 1/2 Months 5 1/2 Months Nine Months Ended
Ended Ended Year Ended September 30,
July 15, December 31, December 31, ------------------------
1997(1) 1997 1998 1998 1999
---------- ------------ ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 248,235 $ 461,167 $ 2,417,816 $ 1,428,497 $ 5,227,727
Operating expenses:
Cost of services...... 221,596 381,518 1,539,846 944,760 3,248,377
Sales and marketing... 122,055 326,861 1,470,107 1,075,039 2,466,844
General and
administrative....... 255,175 567,748 2,436,221 1,597,974 5,604,135
Amortization of
deferred
compensation......... 0 0 117,593 16,878 1,384,945
Depreciation and
amortization......... 66,217 288,737 891,788 587,800 1,650,253
--------- ----------- ----------- ----------- -----------
Total operating
expenses........... 665,043 1,564,864 6,455,555 4,222,451 14,354,554
--------- ----------- ----------- ----------- -----------
Operating loss........ (416,808) (1,103,697) (4,037,739) (2,793,954) (9,126,827)
Interest income, net.. 6,253 107,669 232,279 66,911 168,120
--------- ----------- ----------- ----------- -----------
Loss before income
taxes................ (410,555) (996,028) (3,805,460) (2,727,043) (8,958,707)
Income tax benefit.... -- 59,252 -- -- --
--------- ----------- ----------- ----------- -----------
Net loss ............. $(410,555) $ (936,776) $(3,805,460) $(2,727,043) $(8,958,707)
========= =========== =========== =========== ===========
Net loss per share of
common stock:
Basic and diluted..... $ (.36) $ (1.44) $ (1.03) $ (3.40)
=========== =========== =========== ===========
Weighted average
shares of common
stock outstanding:
Basic and diluted..... 2,636,906 2,636,906 2,636,906 2,636,906
=========== =========== =========== ===========
</TABLE>
- --------
(1) We were formed as a limited liability company under the laws of Georgia on
August 16, 1995. On July 15, 1997, we completed a transaction in which our
predecessor company was merged into a Delaware corporation. See Note 1 to
our financial statements.
4
<PAGE>
The pro forma balance sheet information below reflects the sale since
September 30, 1999 of 4,161,974 shares of our series C preferred stock for
total proceeds of approximately $79.1 million and the issuance of 281,250
shares of our common stock to occur in connection with our agreed-upon
investment in SiteConnect.
The pro forma as adjusted balance sheet information reflects the above
adjustments, as well as receipt of the estimated net proceeds of $137.1 million
from this offering, assuming an initial public offering price of $15.00 per
share, and the conversion upon the completion of this offering of all
convertible preferred stock into common stock.
<TABLE>
<CAPTION>
As of
December 31,
1998 As of September 30,1999
------------ ----------------------------------------
(unaudited) Pro Forma
Actual Actual Pro Forma As Adjusted
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $11,057,696 $ 3,378 $ 79,200,701 $216,300,701
Property and equipment,
net.................... 6,291,413 11,645,639 11,645,639 11,645,639
Total assets............ 20,571,247 15,196,621 98,612,694 235,712,694
Total liabilities....... 2,368,935 4,509,297 4,509,297 4,509,297
Convertible redeemable
preferred stock........ 21,317,263 21,376,037 100,453,537 --
Stockholders' (deficit)
equity................. (3,114,951) (10,688,713) (6,350,140) 231,203,397
</TABLE>
As used in the table below, EBITDA consists of net loss excluding net
interest, income taxes and depreciation and amortization. EBITDA excludes
depreciation and amortization expenses of $66,217, $288,737, $1,009,381,
$604,678, and $3,035,198 for the 6 1/2 months ended July 15, 1997, the 5 1/2
months ended December 31, 1997, the year ended December 31, 1998, and the nine
months ended September 30, 1998 and 1999, respectively. We expect that
depreciation and amortization will increase considerably as we enter into
additional property license agreements and deploy additional in-building
networks. We believe that because EBITDA is a measure of financial performance
it is useful to investors and analysts as an indicator of a company's ability
to fund its operations and to service or incur debt. However, EBITDA is not a
measure calculated under generally accepted accounting principles. Other
companies may calculate EBITDA or other similarly titled measures differently
from us; consequently, our calculation of EBITDA may not be comparable to other
companies' calculations of EBITDA or other similarly titled measures. EBITDA is
not an alternative to operating income as an indicator of our operating
performance or an alternative to cash flows from operating activities as a
measure of liquidity, and investors should consider these measures as well. We
do not expect to generate positive EBITDA in the near term.
<TABLE>
<CAPTION>
Predecessor Cypress
---------------- -------------------------------------------------------
6 1/2 Months 5 1/2 Months Nine Months Ended
Ended Ended Year Ended September 30,
July 15, December 31, December 31, -------------------------
1997 1997 1998 1998 1999
---------------- --------------- ------------ ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Other Operating Data:
Net cash used in
operating activities... $ (236,525) $ (577,322) $ (2,914,905) $(1,971,373) $ (5,775,126)
Net cash used in
investing activities... (352,359) (1,739,266) (4,991,641) (1,691,993) (5,172,675)
Net cash provided by
(used in) financing
activities............. 165,979 5,962,832 15,293,177 15,535,276 (106,517)
EBITDA.................. (350,591) (814,960) (3,028,358) (2,189,276) (6,091,629)
Capital expenditures.... (352,359) (838,364) (2,887,243) (1,691,993) (5,392,075)
Markets served.......... 1 2 4 2 9
Buildings served........ 16 19 39 24 96
Rentable square feet in
buildings served....... 2.6 million 3.6 million 11.0 million 5.5 million 23.5 million
</TABLE>
5
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the following risk factors before you decide to buy our common stock. You
should also consider the other information in this prospectus.
We expect our losses to continue to increase for the foreseeable future
Since our formation we have generated increasing negative EBITDA and larger
net losses each quarter. We have not achieved profitability and expect to
continue to incur increasing negative EBITDA and larger net losses for the
foreseeable future. For 1998, we had negative EBITDA of $3,028,358 and a net
loss of $3,805,460 on revenues of $2,417,816. For the first nine months of
1999, we had negative EBITDA of $6,091,629 and a net loss of $8,958,707 on
revenues of $5,227,727. In addition, we expect to continue to incur significant
costs as we deploy additional in-building networks and, as a result, we will
need to generate significant revenue to achieve profitability, which may not
occur.
Our business has grown rapidly and our business model is still evolving, which
makes it difficult to evaluate our prospects
We have grown our business rapidly and have experienced significant losses
in our efforts to penetrate our market. We will continue to make substantial
capital expenditures in deploying our networks before we know whether our
business plan can be successfully executed. As a result, there is a risk that
our business will fail. Additionally, our limited operating history makes it
difficult to evaluate the execution of our business model thus far.
Furthermore, because the market for services of in-building communications
providers is not well established, it is difficult for you to compare our
company with our competitors.
We are an early-stage company in an unproven industry and if we do not grow
rapidly or obtain additional capital we will not succeed
We began operating our first in-building network in June 1996 and were
operating 116 in-building networks as of December 31, 1999. We must, however,
continue to grow rapidly in order to succeed. Because the communications
industry is capital intensive, rapidly evolving and subject to significant
economies of scale, as a relatively small organization we are at a competitive
disadvantage. The growth we must achieve to reduce that disadvantage will put a
significant strain on all of our resources. Our current capital resources,
including our cash on hand, together with the proceeds of this offering, will
be sufficient to fund our operations and the projected deployment of additional
in-building networks only through mid-2001. We will require substantial
additional capital beyond then to finance our future operations according to
our current business plan. If we fail to grow rapidly or obtain additional
capital, we may not be able to compete with larger, more well-established
companies.
Additionally, we are unaware of any industry studies which have specifically
addressed the market for services of in-building communications providers. The
demand for bundled services from in-building communications providers is
unproven and may grow less than the demand for communications services
generally, or not at all. Furthermore, our own growth rate may not match the
growth rate of the in-building communications market as a whole.
6
<PAGE>
Our business plan cannot succeed unless we continue to obtain license
agreements with building owners and managers
Our business depends upon our ability to install in-building networks. The
failure of building owners or managers to grant or renew access rights on
acceptable terms, or any deterioration in our existing relationships with
building owners or managers, could harm our marketing efforts and could
substantially reduce our potential customer base. Current federal and state
regulations do not require building owners to make space available to us, or to
do so on terms that are reasonable or nondiscriminatory. Building owners or
managers may decide not to permit us to install our networks in their buildings
or may elect not to renew our license agreements. Non-renewal of these
agreements would reduce our revenues and we might not recover all of our
infrastructure costs.
We must place our network infrastructures in additional buildings before our
competitors do or we will face a substantial competitive disadvantage
Our success will depend upon our ability to quickly obtain license
agreements and install our in-building networks in many more buildings. This is
crucial in order to establish a first-mover advantage. We may not be able to
accomplish this. Each building in which we do not build a network is
particularly vulnerable to competitors. In addition, future expansions and
adaptations of our network infrastructures may be necessary to respond to
growth in the number of customers served, increased capacity demands and
changes to our services; otherwise other companies could be encouraged to
compete in buildings where we have installed networks.
In addition, future expansion will require us to outsource a significant
portion of the installation of our in-building networks. Any delays in
obtaining, or interruption in, the services of these third party installers
could delay our plans to install in-building networks, impair our ability to
acquire or retain customers and harm our business generally.
We may not be able to efficiently manage our growth, which could harm our
business
Future expansion will place significant additional strains on our personnel,
financial and other resources. The failure to efficiently manage our growth
could adversely affect the quality of our services, our business and our
financial condition. Our ability to manage our growth will be particularly
dependent on our ability to develop and retain an effective sales force and
qualified technical and managerial personnel. The competition for qualified
sales, technical and managerial personnel in the communications industry is
intense, and we may not be able to hire and retain sufficient qualified
personnel. In this regard, we note that we do not have employment contracts
with our key personnel. In addition, we may not be able to maintain the quality
of our operations, to control our costs, to maintain compliance with all
applicable regulations, and to expand our internal management, technical,
information and accounting systems in order to support our desired growth.
Our business will be harmed if our information support systems are not further
developed
Sophisticated information processing systems, including billing, are vital
to our growth and our ability to achieve operating efficiencies. A failure of
these systems could substantially impair our ability to provide services, send
invoices and monitor our operations. Among the systems we have identified as
being presently inadequate to meet the increased demands of our anticipated
growth are work-flow and customer priority management, human resources, sales
and customer support and fixed asset management, and there may be other systems
we have not identified that are in need of improvement. We estimate that
modifying or replacing these systems will cost approximately $10
7
<PAGE>
million in fiscal year 2000. Our plans for the development and implementation
of these systems rely largely upon acquiring products and services offered by
third-party vendors and integrating those products and services. We may be
unable to implement these systems on a timely basis or at all, and these
systems may not perform as expected. We may also be unable to maintain and
upgrade our operational support systems as necessary.
We operate in a highly competitive market, and we may not be able to compete
effectively against established competitors with greater financial resources
and diverse strategic plans
We face competition from many communications providers with significantly
greater financial resources, well-established brand names, larger customer
bases and diverse strategic plans and technologies. Intense competition has led
to declining prices and margins for many communications services. We expect
this trend to continue as competition intensifies in the future. We expect
significant competition from traditional and new communications companies,
including local, long distance, cable modem, Internet, digital subscriber line,
fixed and mobile wireless and satellite data service providers, some of which
are described in more detail below. If these potential competitors successfully
focus on our market, we may face intense competition which could harm our
business. In addition, we may also face severe price competition for building
access rights, which could result in higher sales and marketing expenses and
lower profit margins.
We face competition from other in-building communications providers
Some competitors, such as Allied Riser Communications, Broadband Office and
OnSite Access, are attempting to gain access to office buildings in our target
markets. To the extent these competitors are successful, we may face
difficulties in building our networks and marketing our services within some of
our target buildings. Because our agreements to use utility shaft space within
buildings are generally not exclusive, owners of such buildings could also give
similar rights to our competitors. Certain competitors already have rights to
install networks in some of the buildings in which we have rights to install
our networks. It is not clear whether it will be profitable for two or more
different companies to operate networks within the same building. Therefore, it
is critical that we build our networks in our target buildings quickly, before
our competitors do so. If a competitor installs a network in a building in
which we operate, there will likely be substantial price competition.
We face competition from local telephone companies
Incumbent local telephone companies, including GTE and regional Bell
operating companies such as Bell Atlantic and BellSouth, have several
competitive advantages over us, including established brand names and
reputations and significant capital to rapidly deploy or leverage existing
communications equipment and broadband networks. They often market their
services to tenants of buildings within our target markets and selectively
construct in-building facilities. Additionally, the regional Bell operating
companies are now permitted to provide long distance services in territories
where they are not the dominant provider of local services. These companies may
also provide long distance services in the territories where they are the
dominant provider of local services if they satisfy a regulatory checklist
established by the Federal Communications Commission. In December 1999, the FCC
ruled that Bell Atlantic has met these requirements in New York and may provide
long distance services in New York. If other regional Bell operating companies
are permitted to provide long distance services in territories where we
operate, we could face greater price competition.
8
<PAGE>
We face competition from long distance companies
We will face strong competition from long distance companies. Many of the
leading long distance carriers, including AT&T, MCI WorldCom and Sprint, could
begin to build their own in-building voice and data networks. The newer
national long distance carriers, such as Level 3, Qwest and Williams
Communications, are building and managing high speed fiber-based national
voice and data networks, partnering with Internet service providers, and may
extend their networks by installing in-building facilities and equipment.
We face competition from fixed wireless service providers
We may lose potential customers to fixed wireless service providers. Fixed
wireless service providers are communications companies who can provide high
speed communications services to customers using microwave or other facilities
or satellite earth stations on building rooftops. Some of these providers have
targeted small and medium-sized business customers and have a business
strategy that is similar to ours. These providers include Advanced Radio
Telecom, NEXTLINK and Winstar.
We face competition from Internet service providers, digital subscriber line
companies and cable-based service providers
The services provided by Internet service providers, digital subscriber
line companies and cable-based service providers can be used by our potential
customers instead of our services. Internet service providers, such as
Concentric Networks, EarthLink and PSINet, provide Internet access to
residential and business customers, generally using the existing
communications infrastructure. Digital subscriber line companies and/or their
Internet service provider customers, such as Covad, NorthPoint and Rhythms
NetConnections, typically provide broadband Internet access using digital
subscriber line technology, which enables data traffic to be transmitted over
standard copper telephone lines at much higher speeds than these lines would
normally allow. Cable-based service providers, such as Excite@Home and its
@Work subsidiary, RCN Telecom Services and Road Runner, also provide broadband
Internet access. These various providers may also offer traditional or
Internet-based voice services to compete with us.
Competitors might use new or alternative technologies to offer better or less
expensive services than we can offer
In addition to the fiber-optic technology that our networks employ, there
are other technologies that provide greater bandwidth than traditional copper
wire transmission technology and may be used instead of our voice and data
services. Furthermore, these technologies may be improved and other new
technologies may develop that provide greater bandwidth than the fiber-optic
based technology we utilize. Existing alternative technologies include:
. Digital Subscriber Line Technology. Digital subscriber line technology
was developed to produce higher data transfer rates over the existing
copper-based telephone network. The data transfer rates for digital
subscriber lines are reported to range between 144,000 bits of data per
second and six million bits of data per second.
. Cable Modems. Cable modems can allow users to send and receive data
using cable television distribution systems. According to industry
sources, cable modem users typically experience download speeds of 1.5
million bits of data per second.
9
<PAGE>
. Wireless Technologies. Wireless technologies, such as satellite and
microwave communications systems, can provide high speed data
communications. Satellite systems, such as DirecPC, can offer high
download speeds that are advertised at 400,000 bits of data per second
or higher.
. Integrated Services Digital Networks. Integrated services digital
networks have been offered by the incumbent local telephone companies
over the existing copper-based telephone network for some time. These
services offer data transfer speeds of 128,000 bits of data per second.
. Internet Telephony. Several competitors have deployed, and others are
developing, Internet telephony, whereby voice calls may be made over the
Internet. The sound quality of these services has improved since their
introduction.
The development of new technologies or the significant penetration of
alternative technologies into our target market may reduce the demand for our
services and harm our business.
Legislation and government regulation could adversely affect us
Many of our services are subject to federal, state and/or local regulation.
As we continue to expand our operations geographically, we will become subject
to the regulation of additional jurisdictions. If we fail to comply with all
applicable regulations or experience delays in obtaining required approvals,
our business could be harmed. For example, we must make regular filings in some
of the states in which we operate and could be fined if we do not timely make
these filings. Additionally, compliance with these regulatory requirements may
be costly. Regulations governing communications services also change from time
to time in ways that are difficult to predict. Such changes may harm our
business by increasing competition, decreasing revenue, increasing costs or
impairing our ability to offer services. For example, the FCC could mandate
that building owners give access to competitive providers of communications
services.
If our interpretation of regulations applicable to our operations is incorrect,
we may incur additional expenses or become subject to more stringent regulation
Some of the jurisdictions where we provide services have little, if any,
written regulations regarding our operations. In addition, the written
regulations and guidelines that do exist in a jurisdiction may not specifically
address our operations. If our interpretations of these regulations and
guidelines is incorrect, we may incur additional expenses to comply with
additional regulations applicable to our operations.
Regulation of access to office buildings could negatively affect our business
There have been proposals to require that commercial office buildings give
access to competitive providers of communications services, and some states,
such as California and Texas, already have similar laws. Regulatory or legal
requirements that mandate access rights to our target buildings or our networks
would facilitate our competitors' entry into buildings where we have access
rights. Our competitors' access to buildings in which we operate could diminish
the value of our access rights to that property and adversely affect our
competitive position. Increased access would be particularly detrimental in
buildings in which we currently have exclusive or semi-exclusive access rights.
Recently, the FCC initiated a regulatory proceeding relating to utility shaft
access in multiple tenant buildings, and a bill was introduced in Congress
regarding the same topic. Some of the issues being
10
<PAGE>
considered in these developments include requiring building owners to provide
utility shaft access to communications carriers, and requiring some
communications providers to provide access to their wiring to other
communications providers. We do not know whether or in what form these
proposals will be adopted.
We must purchase voice and data transmission capacity from third parties who
may be unable or unwilling to meet our requirements
We rely upon other communications carriers, such as local telephone
companies, long distance companies and Internet service providers, to provide
transmission capacity from the buildings we serve. Our failure to obtain
adequate connections from other carriers on a timely basis could delay or
impede our ability to provide services and generate revenue. We have
experienced, and expect to continue to experience, delays in obtaining
transmission capacity. In addition, in some of our target markets there is only
one established carrier available to provide the necessary connection. This
increases our cost and makes it extremely difficult, if not impossible, to
obtain sufficient backup, or redundant, connections. Sufficient capacity or
redundant capacity may not be readily available from third parties at
commercially reasonable rates, if at all. Our failure to obtain sufficient
redundant connectivity could result in an inability to provide service in
certain buildings and service interruptions, which could in time lead to loss
of customers and damage to our reputation. Additionally, many of the
communications carriers we rely on for transmission capacity are also our
direct competitors. See "--We operate in a highly competitive market, and we
may not be able to compete effectively against established competitors with
greater financial resources and diverse strategic plans."
We rely on local telephone companies for transmission capacity
As noted above, we rely on local telephone companies for transmission
capacity. The rates we pay to the local telephone companies are generally
approved by the regulatory agency with jurisdiction over that carrier. Local
telephone companies may try to modify the terms under which they provide us
services to make it more difficult or more costly for us to provide services to
our tenants. Changes to the rates that local telephone companies charge us may
prevent us from providing services to our tenants at rates that are competitive
and profitable. Further, local telephone companies may not provide us access to
their network facilities in a prompt and efficient manner.
We rely on long distance providers for transmission capacity
We also rely on long distance providers for transmission capacity. The rates
that we pay these providers have generally been decreasing over time. These
rates may, however, rise in the future as a result of changes in regulation or
otherwise. Further, the rates we pay some long distance providers are
contingent upon our meeting minimum volume commitments. If we fail to meet
these volume requirements, our rates may rise. Increases in the rates we pay
for long distance service may make it more costly for us to provide these
services to our tenants. Further, long distance providers may not provide us
with access to their network facilities in a prompt and efficient manner.
We rely on Internet service providers for transmission capacity
With respect to Internet connectivity, we obtain the Internet access we
provide to our tenants from Internet service providers at negotiated rates. In
some instances, we must meet minimum volume commitments to receive the
negotiated rates. If we fail to meet the minimum volume
11
<PAGE>
commitments, our rates and costs may rise. Further, Internet service providers
may not provide us with access to their network facilities in a prompt and
efficient manner.
We have commitments to pay third parties for transmission capacity, regardless
of whether we use their services
As of December 31, 1999, we have committed to pay approximately $1.9 million
for services from other communications carriers through 2002. We will have to
pay those carriers even if we do not use their services.
Our business could suffer from a reduction or interruption from our equipment
suppliers
We purchase our equipment from various vendors. Any reduction in or
interruption of deliveries from our major equipment suppliers, such as Nortel
Networks or Cisco Systems, could delay our plans to install in-building
networks, impair our ability to acquire or retain customers and harm our
business generally. In addition, the price of the equipment we purchase may
substantially increase over time, increasing the costs we pay in the future. It
could take a significant period of time to establish relationships with
alternative suppliers for each of our technologies and substitute their
technologies into our networks.
We must make capital expenditures before generating revenues, which may prove
insufficient to justify those expenditures
We typically install an in-building network before we have any customers in
that building. Since we generally do not solicit customers within a building
until our network is in place we may not be able to recoup all of our
expenditures within any building. Prior to generating revenues in a building,
we must incur initial capital expenditures that are usually less than $90,000
on a typical 335,000 square foot building. In November and December 1999, we
entered into a number of master license agreements, the aggregate effect of
which is likely to increase the average size of the buildings we serve and
therefore increase our average initial capital expenditures for network
installation. Our expenditures will also vary depending on the size of the
building and whether we encounter any construction-related difficulties. After
initial installation of our network, our capital expenditures continue to grow
based on the extent to which we add customers within a building.
Any acquisitions or investments we make could disrupt our business and be
dilutive to our existing stockholders
We intend to consider acquisitions of, or investments in, complementary
businesses, technologies, services or products. Acquisitions and investments
involve numerous risks, including:
. the diversion of management attention;
. difficulties in assimilating the acquired business;
. potential loss of key employees, particularly those of the acquired
business;
. difficulties in transitioning key customer relationships;
. risks associated with entering markets in which we have no or limited
prior experience; and
. unanticipated costs.
12
<PAGE>
In addition, these acquisitions or investments may result in:
. dilutive issuances of equity securities;
. the incurrence of debt;
. the assumption of liabilities;
. large one-time expenses; and
. the creation of goodwill or other intangible assets that result in
significant amortization expense.
Any of these factors could materially harm our business or our operating
results.
Our networks may be vulnerable to unauthorized access which could interfere
with the provision of our services
Our networks may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. Remediating the effects of computer viruses and
alleviating other security problems may require interruptions, incurrence of
costs and delays or cessation of service to our customers. Unauthorized access
could jeopardize the security of confidential information stored in our
computer systems or those of our customers, for which we could possibly be held
liable.
As an Internet access provider, we may incur liability for information
disseminated through our network
The law relating to the liability of Internet access providers and on-line
services companies for information carried on or disseminated through their
networks is unsettled. As the law in this area develops, the potential
imposition of liability upon us for information carried on and disseminated
through our network could require us to implement measures to reduce our
exposure to such liability, which may require the expenditure of substantial
resources or the discontinuation of certain products or service offerings. Any
costs that are incurred as a result of such measures or the imposition of
liability could harm our business.
Year 2000 problems could disrupt our business
During this calendar year, many software programs may not recognize calendar
dates beginning in the Year 2000. This problem could cause computers or
machines that utilize date dependent software to either shut down or provide
incorrect information. If we, or any of our key suppliers, customers or service
providers, fail to mitigate internal and external Year 2000 risks, we may
temporarily be unable to provide services or engage in any other business
activities, including customer billing, which could harm our business.
Our affiliates will own 59.0% of the outstanding common stock, and thus will
control all matters requiring a stockholder vote and, as a result, could
prevent or delay a change of control
Upon completion of this offering, our existing directors, executive officers
and greater-than-five-percent stockholders and their affiliates will, in the
aggregate, beneficially own approximately 59.0% of the outstanding shares of
common stock, or 57.1% if the underwriters' over-allotment option is exercised
in full. If all of these stockholders were to vote together as a group, they
would have the
13
<PAGE>
ability to exert significant influence over our board of directors and its
policies. For instance, these stockholders would be able to control the outcome
of all stockholders' votes, including votes concerning director elections,
charter and by-law amendments and possible mergers, corporate control contests
and other significant corporate transactions. This concentration of stock
ownership could have the effect of preventing or delaying a change of control
or otherwise discouraging a potential acquiror from attempting to obtain
control of us, which in turn could harm the market price of our common stock or
prevent our stockholders from realizing a takeover premium over the market
price for their shares of common stock.
Provisions in our certificate of incorporation and bylaws may discourage
takeover attempts
Provisions in our certificate of incorporation and bylaws may have the
effect of preventing or delaying a change of control or changes in our
management. These provisions include:
. the right of the board of directors, without stockholder approval, to
issue shares of preferred stock and to establish the voting rights,
preferences, and other terms of any preferred stock;
. the right of the board of directors to elect a director to fill a
vacancy created by the expansion of the board of directors;
. the ability of the board of directors to alter our bylaws without prior
stockholder approval;
. the election of three classes of directors to each serve three year
staggered terms;
. the elimination of stockholder voting by consent;
. the removal of directors only for cause;
. the vesting of exclusive authority in the board of directors and
specified officers (except as otherwise required by law) to call special
meetings of stockholders; and
. advance notice requirements for stockholder proposals and nominations
for election to the board of directors.
These provisions may have the effect of preventing or delaying a change of
control or impeding a merger, consolidation, takeover or other business
combination, which in turn could preclude our stockholders from recognizing a
premium over the prevailing market price of the common stock.
Prior to the completion of this offering, we intend to adopt a shareholder
rights plan. This plan will entitle our stockholders to rights to acquire
additional shares of our common stock when a third party acquires 15% of our
common stock or commences or announces its intent to commence a tender offer
for at least 15% of our common stock. This plan could delay, deter or prevent a
change of control.
You will suffer immediate and substantial dilution
The initial public offering price per share will be substantially higher
than the net tangible book value per share immediately after the offering.
Accordingly, if you purchase common stock in this offering, you will incur
immediate and substantial dilution. See "Dilution." We also have a large number
of outstanding stock options and warrants to purchase our common stock with
exercise prices significantly below the initial public offering price of the
common stock. To the extent these options and warrants are exercised, there
will be further dilution.
14
<PAGE>
Future sales and issuances of our common stock could adversely affect our stock
price
Substantial sales of our common stock in the public market following this
offering, or the perception by the market that such sales could occur, could
lower our stock price or make it difficult for us to raise additional equity
capital in the future. After this offering, we will have 45,856,415 shares of
common stock outstanding. Of these shares, the 10,000,000 shares sold in this
offering, or 11,500,000 shares if the underwriters' over-allotment is exercised
in full, will be freely tradeable. Substantially all of the remaining
35,856,415 shares will be subject to 180-day lock-up agreements. Of these
shares, up to 17,004,632 shares may be available for sale in the public market
180 days after the date of this prospectus, subject to compliance with Rule
144, and the balance will be available for sale at various times thereafter,
also subject to compliance with Rule 144. In addition, after this offering, we
also intend to register 11,577,100 shares of common stock for issuance under
our stock option plans and 900,000 shares of common stock under our employee
stock purchase plan. As of December 31, 1999, options to purchase 5,820,976
shares of common stock were issued and outstanding, of which options to
purchase 991,639 shares have vested. Additionally, up to 11,144,658 common
shares are issuable upon the exercise of warrants that were issued to several
property owners and operators pursuant to stock warrant agreements and master
license agreements executed in November and December 1999. These warrants are
exercisable for a period of ten years, but cannot be exercised until six months
following completion of this offering. We cannot predict if future sales or
issuances of our common stock, or the availability of our common stock for
sale, will harm the market price for our common stock or our ability to raise
capital by offering equity securities.
Members of our board serve on the boards of our potential competitors, which
may create conflicts of interest
Some members of our board of directors may serve as directors of other
communications or Internet services companies which might compete with us. To
the extent that any of these companies presently offer, or at some future point
begin to offer, integrated communications services similar to the services that
we provide, there may be conflicts of interest between the fiduciary duties
owed by these individuals to us and the duties owed to these other companies.
We have not adopted specific policy guidelines to address these potential
conflicts of interest, and if these conflicts of interest arise they may be
resolved on terms that are not in the best interests of all of our
stockholders.
Impairment of our intellectual property rights could harm our business
We regard certain aspects of our products, services and technology as
proprietary and attempt to protect them with patents, copyrights, trademarks,
trade secret laws, restrictions on disclosure and other methods. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our products, services or technology without authorization, or to
develop similar technology independently.
We currently have a patent application pending for our fiber-optic
infrastructure and network configuration. This patent may not be issued to us,
and if issued, it may not protect our intellectual property from competition
which could seek to design around or invalidate this patent.
We are aware of several other companies in our and other industries which
use the word "Cypress" in their corporate names. We are in the process of
attempting to secure a trademark for the name "Cypress Communications." Even if
we are able to secure this trademark, other companies
15
<PAGE>
could challenge our use of the word "Cypress." If such a challenge is
successful, we could be required to change our name and lose the goodwill
associated with the Cypress Communications name in our markets.
Our forward-looking statements are speculative and may prove to be wrong
Some of the information under the captions "Summary," "Risk Factors," "Use
of Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business," and elsewhere in this prospectus are
"forward-looking statements." These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in the prospectus that are not
historical facts. When used in this prospectus, the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risk and uncertainties, there
are important factors, including the factors discussed in this "Risk Factors"
section of the prospectus, that could cause actual results to differ materially
from those expressed or implied by these forward-looking statements.
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<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of our common stock in this
offering will be approximately $137.1 million, based on an assumed initial
public offering price of $15.00 per share, after deducting the estimated
underwriting discount and our estimated offering expenses. If the underwriters'
over-allotment option is exercised in full, we estimate that our net proceeds
will be approximately $158.0 million. We expect to use our net proceeds as
follows:
. approximately $100.0 million will be used for the construction of in-
building networks and the purchase of communications equipment;
. approximately $10.0 million will be used for the implementation and
modification of information support systems; and
. the remainder will be used for working capital and general corporate
purposes.
A portion of the net proceeds may also be used to acquire or invest in
complementary businesses, technologies, services or products. However, we
currently have no plans, agreements or commitments with respect to these types
of transactions, and we are not currently engaged in any negotiations with
respect to these types of transactions.
We will invest the net proceeds in government securities and other short-
term, investment-grade securities pending use.
DIVIDEND POLICY
To date, we have never declared or paid any cash dividends on shares of our
common stock. We currently intend to retain our earnings for future growth and
development of our business and, therefore, do not anticipate paying cash
dividends in the foreseeable future.
17
<PAGE>
CAPITALIZATION
You should read this table in conjunction with the sections entitled
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Use of Proceeds" and our financial
statements and the related notes included elsewhere in this prospectus.
The following cash and capitalization table sets forth as of September 30,
1999:
. Our actual cash and capitalization.
. Our pro forma cash and capitalization after giving effect to:
- the sale of 4,161,974 shares of our series C preferred stock since
September 30, 1999; and
- the issuance of 281,250 shares of our common stock to occur in
connection with our agreed-upon investment in SiteConnect.
. Our pro forma as adjusted cash and capitalization to reflect the above,
as well as:
- the receipt of the estimated net proceeds of $137.1 million from
this offering, assuming an initial public offering price of $15.00
per share; and
- the conversion upon the completion of this offering of all
convertible preferred stock into common stock.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------------------------
(UNAUDITED)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
Cash and cash equivalents............ $ 3,378 $ 79,200,701 $216,300,701
============ ============ ============
Capital lease obligations, including
current portion of $223,001......... 557,701 557,701 557,701
------------ ------------ ------------
Preferred stock:
$.001 par value; 1,211,140 shares
designated Series A, 1,211,140
shares issued and outstanding,
actual and pro forma; 0 shares
issued and outstanding, pro forma
as adjusted........................ 6,039,809 6,039,809 --
$.001 par value; 1,339,575 shares
designated Series B, 1,339,575
shares issued and outstanding,
actual and pro forma; 0 shares
issued and outstanding, pro forma
as adjusted........................ 10,704,559 10,704,559 --
$.001 par value; 579,613 shares
designated Series B-1, 579,613
shares issued and outstanding,
actual and pro forma; 0 shares
issued and outstanding, pro forma
as adjusted........................ 4,631,669 4,631,669 --
$.001 par value; 4,210,526 shares
designated Series C, 0 shares
issued and outstanding, actual;
4,161,974 shares issued and
outstanding, pro forma; 0 shares
issued and outstanding, pro forma
as adjusted........................ -- 79,077,500 --
------------ ------------ ------------
Total preferred stock............ 21,376,037 100,453,537 --
------------ ------------ ------------
Shareholders' (deficit) equity:
Common stock, $.001 par value;
20,594,088 shares authorized,
2,636,906 shares issued and
outstanding, actual; 20,594,088
shares authorized, 3,041,056 shares
issued and outstanding, pro forma;
150,000,000 shares authorized,
45,856,415 shares issued and
outstanding, pro forma as
adjusted........................... 2,637 3,041 45,856
Additional paid-in capital.......... 7,335,537 11,673,706 249,217,595
Deferred compensation............... (4,067,700) (4,067,700) (4,067,700)
Accumulated deficit................. (13,959,187) (13,959,187) (13,992,354)
------------ ------------ ------------
Total shareholders' (deficit)
equity.......................... (10,688,713) (6,350,140) 231,203,397
------------ ------------ ------------
Total capitalization................. $ 11,245,025 $ 94,611,098 $231,761,098
============ ============ ============
</TABLE>
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<PAGE>
The cash and capitalization table excludes:
. 1,500,000 shares of common stock issuable pursuant to the over-allotment
option;
. 5,820,976 shares of common stock issuable upon exercise of outstanding
stock options at a weighted average exercise price of $1.60 per share as
of December 31, 1999;
. 5,756,125 shares of common stock reserved for issuance in connection
with future grants under our stock option plan;
. 900,000 shares of common stock reserved for issuance under our employee
stock purchase plan; and
. up to 11,144,658 shares of common stock issuable upon the exercise of
warrants with an exercise price of $4.22 per share. We issued these
warrants to several real estate owners and operators in connection with
their execution of master license agreements giving us the right to
install and operate our networks in their buildings. The exact number of
shares of common stock underlying the warrants, which is based on the
gross leasable area of the buildings set forth in the master license
agreements, will not be determined until the completion of due diligence
and the finalization of the building schedules, which is expected to
occur shortly. The warrants are exercisable for a period of ten years,
but cannot be exercised until six months following completion of this
offering.
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<PAGE>
DILUTION
Our pro forma net tangible book value as of September 30, 1999 was $92.8
million, or $2.59 per share of outstanding common stock, after giving effect to
the adjustments shown in the pro forma column under "Capitalization" and the
conversion upon completion of this offering of all convertible preferred stock
into common stock. The pro forma net tangible book value per share represents
our total tangible assets less total liabilities, divided by 35,856,415 shares
of common stock outstanding on a pro forma basis before this offering. Dilution
per share represents the difference between the amount per share paid by
investors in this offering and the pro forma net tangible book value per share
after this offering. After giving effect to this offering, the pro forma as
adjusted net tangible book value at September 30, 1999 would have been $231.2
million, or $5.01 per share. This represents an immediate increase in net
tangible book value of $2.42 per share to existing stockholders and an
immediate dilution in net tangible book value of $9.99 per share to new
investors purchasing shares at the initial public offering price. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $15.00
------
Pro forma net tangible book value per share before this offering.. $2.59
Increase per share attributable to new investors.................. 2.42
Pro forma net tangible book value per share after this offering.... 5.01
------
Dilution per share to new investors................................ $ 9.99
======
</TABLE>
The following table summarizes, on a pro forma as adjusted basis as of
September 30, 1999, the difference between existing stockholders and new
investors with respect to the number of shares of common stock purchased, the
total consideration paid and the average price per share paid. These amounts do
not include estimated underwriting discounts and commissions and offering
expenses payable by us. The table assumes that the initial public offering
price will be $15.00.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 35,856,415 78.2% 106,588,390 41.5% $ 2.97
New investors.................. 10,000,000 21.8% 150,000,000 58.5% $15.00
---------- ---- ----------- ----
Total ....................... 45,856,415 100% 256,588,390 100%
========== ==== =========== ====
</TABLE>
The foregoing table assumes no exercise of stock options or warrants. As of
September 30, 1999, there were options outstanding to purchase 3,881,970 shares
of common stock at a weighted average exercise price of $.87 per share. Between
October 1, 1999 and December 31, 1999 additional options were granted to
purchase 2,131,655 shares of common stock at a weighted average exercise price
of $2.90 per share. In November and December 1999, we entered into stock
warrant agreements and master license agreements with several property owners
and operators in which we agreed to issue warrants to acquire up to 11,144,658
shares of our common stock at an exercise price of $4.22 per share. To the
extent outstanding options and warrants are exercised, there will be further
dilution to new investors. In addition, we may agree to issue additional
warrants to acquire common stock to property owners and operators in the future
and we may issue equity securities to pay for acquisitions.
20
<PAGE>
SELECTED FINANCIAL DATA
You should read the following selected financial data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes, all of which
appear elsewhere in this prospectus. The following selected statement of
operations data for the year ended December 31, 1996, the 6 1/2 months ended
July 15, 1997, the 5 1/2 months ended December 31, 1997 and the year ended
December 31, 1998, and the selected balance sheet data as of December 31, 1998
have been derived from the audited financial statements of our predecessor
company and our company and the related notes. The selected statement of
operations data for the period from our inception (August 16, 1995) to December
31, 1995 and for the nine months ended September 30, 1998 and 1999, and the
selected balance sheet data as of September 30, 1999 are derived from our
unaudited financial statements. Operating results for the nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the entire year.
<TABLE>
<CAPTION>
Predecessor(1) Cypress
---------------------------------------- ----------------------------------------------------
Period from 6 1/2
Inception Months 5 1/2 Months Nine Months Ended
(August 16, 1995) Year Ended Ended Ended Year Ended September 30,
to December 31, July 15, December 31, December 31, ------------------------
December 31, 1995 1996 1997 1997 1998 1998 1999
----------------- ------------ --------- ------------ ------------ ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................. $ -- $ 83,556 $ 248,235 $ 461,167 $ 2,417,816 $ 1,428,497 $ 5,227,727
Operating expenses:
Cost of services........ -- 131,771 221,596 381,518 1,539,846 944,760 3,248,377
Sales and marketing..... -- 12,189 122,055 326,861 1,470,107 1,075,039 2,466,844
General and
administrative......... 117,086 640,704 255,175 567,748 2,436,221 1,597,974 5,604,135
Amortization of deferred
compensation........... 0 0 0 0 117,593 16,878 1,384,945
Depreciation and
amortization........... 694 53,808 66,217 288,737 891,788 587,800 1,650,253
--------- --------- --------- ----------- ----------- ----------- -----------
Total operating
expenses............... 117,780 838,472 665,043 1,564,864 6,455,555 4,222,451 14,354,554
--------- --------- --------- ----------- ----------- ----------- -----------
Operating loss........... (117,780) (754,916) (416,808) (1,103,697) (4,037,739) (2,793,954) (9,126,827)
Interest income, net..... -- 13,939 6,253 107,669 232,279 66,911 168,120
--------- --------- --------- ----------- ----------- ----------- -----------
Loss before income
taxes................... (117,780) (740,977) (410,555) (996,028) (3,805,460) (2,727,043) (8,958,707)
Income tax benefit....... -- -- -- 59,252 -- -- --
--------- --------- --------- ----------- ----------- ----------- -----------
Net loss................. $(117,780) $(740,977) $(410,555) $ (936,776) $(3,805,460) $(2,727,043) $(8,958,707)
========= ========= ========= =========== =========== =========== ===========
Net loss per share of
common stock:
Basic and diluted....... $ (.36) $ (1.44) $ (1.03) $ 3.40
=========== =========== =========== ===========
Weighted average shares
of
common stock outstanding:
Basic and diluted....... 2,636,906 2,636,906 2,636,906 2,636,906
=========== =========== =========== ===========
</TABLE>
- -------
(1) We were formed as a limited liability company under the laws of Georgia on
August 16, 1995. On July 15, 1997, we completed a transaction in which our
predecessor company was merged into a Delaware corporation. See Note 1 to
our financial statements.
21
<PAGE>
The pro forma balance sheet information below reflects the sale since
September 30, 1999 of 4,161,974 shares of our series C preferred stock for
total proceeds of approximately $79.1 million and the issuance of 281,250
shares of our common stock to occur in connection with our agreed-upon
investment in SiteConnect.
The pro forma as adjusted balance sheet information reflects all of the
above adjustments, as well as the receipt of the estimated net proceeds of
$137.1 million from this offering, assuming an initial public offering price of
$15.00 per share, and the conversion upon the completion of this offering of
all convertible preferred stock into common stock.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1998 AS OF SEPTEMBER 30, 1999
------------ ---------------------------------------
(UNAUDITED)
PRO FORMA
ACTUAL ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents.................. $11,057,696 $ 3,378 $79,200,701 $216,300,701
Property and equipment,
net.................... 6,291,413 11,645,639 11,645,639 11,645,639
Total assets............ 20,571,247 15,196,621 98,612,694 235,712,694
Total liabilities....... 2,368,935 4,509,297 4,509,297 4,509,297
Convertible redeemable
preferred stock........ 21,317,263 21,376,037 100,453,537 --
Stockholders' (deficit)
equity................. (3,114,951) (10,688,713) (6,350,140) 231,203,397
</TABLE>
As used in the table below, EBITDA consists of net loss excluding net
interest, income taxes and depreciation and amortization. EBITDA excludes
depreciation and amortization expenses of $53,808, $66,217, $288,737,
$1,009,381, $604,678, and $3,035,198 for the year ended December 31, 1996, the
6 1/2 months ended July 15, 1997, the 5 1/2 months ended December 31, 1997, the
year ended December 31, 1998, and the nine months ended September 30, 1998 and
1999, respectively. We expect that depreciation and amortization will increase
considerably as we enter into additional property license agreements and deploy
additional in-building networks. We believe that because EBITDA is a measure of
financial performance it is useful to investors and analysts as an indicator of
a company's ability to fund its operations and to service or incur debt.
However, EBITDA is not a measure calculated under generally accepted accounting
principles. Other companies may calculate EBITDA or other similarly titled
measures differently from us; consequently, our calculation of EBITDA may not
be comparable to other companies' calculations of EBITDA or other similarly
titled measures. EBITDA is not an alternative to operating income as an
indicator of our operating performance or an alternative to cash flows from
operating activities as a measure of liquidity, and investors should consider
these measures as well. We do not expect to generate positive EBITDA in the
near term.
<TABLE>
<CAPTION>
PREDECESSOR CYPRESS
------------------------------ --------------------------------------------------------
6 5 NINE MONTHS ENDED
YEAR ENDED 1/2 MONTHS ENDED 1/2 MONTHS ENDED YEAR ENDED SEPTEMBER 30,
DECEMBER 31, JULY 15, DECEMBER 31, DECEMBER 31, -------------------------
1996 1997 1997 1998 1998 1999
------------ ---------------- ---------------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
Net cash used in
operating activities... $ (638,707) $ (236,525) $ (577,322) $ (2,914,905) $(1,971,373) $ (5,775,126)
Net cash used in
investing activities... (638,638) (352,359) (1,739,266) (4,991,641) (1,691,993) (5,172,675)
Net cash provided by
(used in) financing
activities............. 1,721,975 165,979 5,962,832 15,293,177 15,535,276 (106,517)
EBITDA.................. (701,108) (350,591) (814,960) (3,028,358) (2,189,276) (6,091,629)
Capital expenditures.... (518,638) (352,359) (838,364) (2,887,243) (1,691,993) (5,392,075)
Markets served.......... 1 1 2 4 2 9
Buildings served........ 15 16 19 39 24 96
Rentable square feet in
buildings served....... 2.4 million 2.6 million 3.6 million 11.0 million 5.5 million 23.5 million
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We provide a full range of communications services to small and medium-sized
businesses located in multi-tenant office buildings in major metropolitan
markets in the United States. Since the inception of our predecessor company in
August 1995, our principle activities have included securing license agreements
with building owners and real estate managers that enable us to install our in-
building fiber-optic, digital and broadband networks, marketing our services to
tenants and hiring qualified personnel to support our rapid growth. We began
operating in-building networks in June 1996 and currently provide services in
116 buildings representing approximately 30 million rentable square feet.
Overall, we have secured agreements giving us the right to operate our networks
in over 730 buildings representing more than 229 million rentable square feet.
Building and expanding our business will continue to require us to incur
significant capital expenditures. These expenditures will consist primarily of
purchases of communication equipment and construction costs associated with
building our in-building networks. We attempt to maximize the benefit of
deployed capital by investing in network assets only after entering into a
long-term license agreement with a property owner. In addition, we do not
expend capital on a customer until we have signed a contract with that
customer. As a result, a large portion of our capital expenditures is success-
based. On a typical 335,000 square foot building, our up-front capital
investment is usually less than $90,000 which includes the purchase and
installation of our in-building vertical communications infrastructure,
commonly known as a riser system, and associated network equipment. As we begin
to successfully penetrate a building, in order to provide additional network
capacity and equipment for our customers our capital deployment in that
building may grow to over $335,000.
We have experienced operating losses and generated negative EBITDA, as
defined in "Summary Financial and Other Data" and "Selected Financial Data,"
and expect to continue to generate losses and negative EBITDA for the
foreseeable future while we continue to construct in-building networks and
expand our customer base and internal information systems. As a result of our
limited operating history, prospective investors have limited operating and
financial data upon which to evaluate our performance.
Factors Affecting Future Operations
Revenue. We generate revenues from selling voice, data and other services
and from the rental of telephone systems and other equipment to tenants in the
buildings in which we own and operate our networks. The majority of our
revenues are generated on a monthly recurring basis. The remainder are derived
from non-recurring charges for installations and other one-time services. Our
customer contracts typically range between one and seven years in length and
are usually designed to coincide with our customers' office space leases. The
typical length of our customer contracts is three years.
We believe that our ability to generate revenues in the future will be
affected primarily by the following factors, some of which we cannot control:
. our ability to enter into license agreements with building owners and
install our in-building networks;
23
<PAGE>
. our ability to obtain customers before our competitors do;
. the level of competition we face from other communications providers,
including price competition, which has resulted in a trend of declining
prices and margins for communications services over time;
. the demand for our services; and
. possible regulatory changes, including regulations requiring building
owners to give access to competitive providers of communications
services.
Cost of services. Our cost of services consists primarily of leased
transport charges, which are lease payments to communications providers for the
transmission facilities used to connect our in-building networks to incumbent
local telephone companies and other competitive local and long distance
carriers networks. Other costs include per minute charges paid to long distance
providers for use of their networks, the monthly fees we pay to our Internet
providers, and labor costs associated with installing equipment and changing
customers' services. We expect these costs to increase in aggregate dollar
amount as we continue to grow our business but to decline as a percentage of
revenues due to economies of scale, expected improvements in technology and
price competition from an increased number of vendors from which we can lease
voice and data transport. However, in markets where there is only a single
carrier, or only a limited number of carriers, available to provide sufficient
transmission capacity, the cost of services may actually increase.
Sales and marketing expenses. Sales and marketing expenses include
applicable employee salaries and commission payments and marketing, advertising
and promotional expenses, Sales and marketing expenses also include payments to
building owners and operators under license agreements, as described below.
In November and December 1999, we entered into master license agreements
with several owners and operators of office buildings. Each master license
agreement sets forth a list of buildings owned or managed by the property owner
or operator that is a party to that agreement. In accordance with the terms of
these agreements, we have begun to enter into property-specific license
agreements with respect to each listed building. In some cases, the property
owner or operator may need to obtain the consent from third parties who may
have an ownership interest in the building before we can enter into a property-
specific license agreement for that building. Under the property-specific
license agreements, the property owner or operator will grant us a license to
install and operate our networks in each building in return for approximately
6% of the revenues we receive from tenants in that building. The initial term
of each property-specific license agreement is five years, with an automatic
five year extension at the end of the initial term, absent any default under
the agreement. These master license agreements give us the right to operate our
networks in more than 600 buildings representing more than 194 million rentable
square feet.
In addition to the master license agreements, we also have license
agreements with a number of other property owners and operators which we have
previously executed on a per building basis. Under these agreements, which give
us the right to operate our networks in more than 130 buildings representing
more than 35 million rentable square feet, we have agreed to pay property
owners either a base fee or between 3% and 6% of our revenues in the building.
As of September 30, 1999, our aggregate minimum obligation under these
agreements was $125,000 per year for the next seven years.
We expect to incur significant sales and marketing expenses as we continue
to grow our business and build our brand.
24
<PAGE>
General and administrative expenses. General and administrative expenses
include costs associated with the recruiting and compensation of corporate
administration, customer care and technical services personnel as well as costs
of travel and entertainment, back office systems and legal, accounting and
other professional services. We expect these costs to increase significantly as
we expand our operations, but decline as a percentage of revenues due to
economies of scale.
Depreciation and amortization. Depreciation and amortization expenses
include depreciation of network related equipment, information systems,
furniture, fixtures, leasehold improvements and the amortization of goodwill
and acquired tenant contracts.
In connection with the execution of master license agreements in November
and December 1999, we also entered into stock warrant agreements with the same
property owners and operators. Under the terms of these agreements, we issued
these owners and operators warrants to purchase up to an aggregate of
11,144,658 shares of our common stock at an exercise price of $4.22 per share.
The exact number of shares of common stock underlying the warrants, which is
based on the gross leasable area of the buildings set forth in the master
license agreements, will not be determined until the completion of due
diligence and the finalization of the building schedules, which is expected to
occur shortly. We expect that the actual number of shares underlying these
warrants will not be adjusted significantly. The measurement date for valuing
the warrants will be the date(s) on which the property owners or managers
effectively complete their performance requirements.
Based upon the current structure of the agreements governing the warrants,
we expect that the fair value of the warrants will approximate $150 million and
will be capitalized as license inducement expense and amortized over the
applicable terms of the license agreements with property owners and operators.
Such license terms are generally 10 years. Depending on the prevailing fair
market value of the warrants at the measurement date, the amount of license
inducement and related amortization may change and such change could be
material. In addition, we could incur additional cash or non-cash charges as
license inducements to current or future property owners, and such amounts may
be material.
We expect depreciation and amortization expenses to increase significantly
as we enter into additional property license agreements and install our
networks in more buildings.
Amortization of deferred compensation. Amortization of deferred compensation
is a result of granting stock options to our employees with exercise prices per
share treated for accounting purposes as below the fair value of our common
stock at the dates of grant. We have recognized amortization of deferred
compensation expense for the nine months ended September 30, 1999 of $636,792.
See Note 4 and Note 10 to our financial statements. We are amortizing the
deferred compensation over the vesting period of the applicable option.
Acquisition strategy. We intend to opportunistically pursue acquisitions or
other strategic relationships to expand our customer base or geographic
presence. These activities could significantly impact our results of operations
and require us to raise additional capital earlier than expected.
In November 1999 we entered into a letter of intent to acquire approximately
19% of the common stock of SiteConnect, a Seattle-based in-building
communications service provider, in exchange for 281,250 shares of our common
stock. The agreement gives us a one-year option to purchase the remaining
outstanding shares of common stock of SiteConnect for approximately $5.0
million of our common stock, valued at the initial public offering price, which
would be 333,333 shares based on an assumed initial public offering price of
$15.00 per share. Currently, SiteConnect provides primarily data communications
services to customers in ten commercial office buildings in Seattle.
25
<PAGE>
Results of Operations
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 1998
Revenues. Revenues for the nine months ended September 30, 1999 increased
266% to $5.2 million from $1.4 million for the same period in the prior year.
$2.4 million of the increase in revenues relates to the addition of new
customers and providing additional services to existing customers. $1.4
million of the increase relates to the acquisition of the assets and customers
of MTS Communications Company in December 1998 (see Note 9 to our financial
statements).
Cost of services. Cost of services for the nine months ended September 30,
1999 increased 243.8% to $3.2 million from $944,760 for the same period in the
prior year. The increase in cost of services was due to an increase in the
number of leased facilities connecting our buildings to local, long distance
and Internet providers and our greater volume of voice and data traffic. As of
September 30, 1999, we had networks installed in 96 buildings versus 24
buildings installed at September 30, 1998.
Sales and marketing expenses. Sales and marketing expenses for the nine
months ended September 30, 1999 increased 129.5% to $2.5 million from $1.1
million for the same period in the prior year. $1.1 million of this increase
in expenses was due to a 170% increase in the size of our direct sales force;
$0.2 million of this increase was due to increased revenue sharing payments
made to property owners with whom we have license agreements; and $0.1 million
of this increase was due to increased promotion of our services via direct
marketing and advertising in our licensed buildings. The decrease in sales and
marketing expenses as a percentage of revenue related primarily to the
additional revenue attributable to the acquisition of the assets of MTS
Communications without a comparable increase in sales and marketing expenses.
General and administrative expenses. General and administrative expenses
for the nine months ended September 30, 1999 increased 250.7% to $5.6 million
from $1.6 million for the same period in the prior year. The increase in
general and administrative expenses was due primarily to a $3.2 million
increase in salaries, benefits and recruiting expenses related to the hiring
of additional personnel, a $369,000 increase in travel and entertainment
expenses primarily related to marketing to property owners and operators and
expenses associated with personnel travelling to oversee and conduct the
installation of our networks in additional buildings, and increases in
accounting, consulting and legal fees. We expect general and administrative
expenses to continue to grow as we hire additional personnel and incur
additional expenses to support the growth of our operations.
Depreciation and amortization. Depreciation and amortization for the nine
months ended September 30, 1999 increased to $1.7 million from $587,800 for
the same period in the prior year. $0.6 million of this increase was due to
increased capital expenditures related to deploying our in-building networks
and related equipment; $0.4 million of this increase was due to depreciation
of fixed assets; and $0.1 million of this increase was due to amortization of
goodwill and tenant contracts related to the acquisition of MTS
Communications.
Interest income, net. Interest income, net for the nine months ended
September 30, 1999 increased to $168,120 from $66,911 for the same period in
the prior year. The increase in interest income, net was due to increased
investments in short-term interest bearing investments as a result of
investing the proceeds raised from our Series B preferred stock offering in
September 1998. Interest expense was nominal in both periods.
26
<PAGE>
Results for the Year Ended December 31, 1998, the 5 1/2 Months Ended December
31, 1997, the 6 1/2 Months Ended July 15, 1997, and the Year Ended December 31,
1996
Revenues. Revenues were $2.4 million, $461,167, $248,235 and $83,556 for the
year ended December 31, 1998, the 5 1/2 months ended December 31, 1997, the 6
1/2 months ended July 15, 1997, and the year ended December 31, 1996,
respectively. The growth in revenues was the result of the addition of new
customers and the provision of additional services to existing customers.
Cost of services. Cost of services was $1.5 million, $381,518, $221,596, and
$131,771 for the year ended December 31, 1998, the 5 1/2 months ended December
31, 1997, the 6 1/2 months ended July 15, 1997, and the year ended December 31,
1996, respectively. The growth in cost of services was the result of our
providing services to an increased number of customers and an increase in the
number of leased facilities connecting our buildings to local, long distance
and Internet providers.
Sales and marketing expenses. Sales and marketing expenses were $1.5
million, $326,861, $122,055 and $12,189 for the year ended December 31, 1998,
the 5 1/2 months ended December 31, 1997, the 6 1/2 months ended July 15, 1997,
and the year ended December 31, 1996, respectively. The growth in sales and
marketing expenses was the result of increases in the size of our direct sales
force, increased license fee payments made to property owners with whom we have
license agreements and increased promotion of our services via direct marketing
and advertising in our licensed buildings.
General and administrative expenses. General and administrative expenses
were $2.4 million, $567,748, $255,175 and $640,704 for the year ended December
31, 1998, the 5 1/2 months ended December 31, 1997, the 6 1/2 months ended July
15, 1997, and the year ended December 31, 1996, respectively. The growth in
general and administrative expenses was the result of increased salaries and
benefits related to the hiring of additional personnel, increased travel and
entertainment related to the installation of new sites and marketing to
property owners, and increases in accounting, consulting and legal fees.
Depreciation and amortization. Depreciation and amortization was $891,788,
$288,737, $66,217, and $53,808 for the year ended December 31, 1998, the 5 1/2
months ended December 31, 1997, the 6 1/2 months ended July 15, 1997, and the
year ended December 31, 1996, respectively. These increases were related to our
increased capital expenditures during the periods. Additionally, the year ended
December 31, 1998 and the 5 1/2 months ended December 31, 1997 include
amortization of goodwill recorded in connection with the acquisition of our
predecessor company in the amount of $332,616 and $166,306, respectively.
Interest income, net. Interest income, net was $232,279, $107,669, $6,253,
and $13,939 for the year ended December 31, 1998, the 5 1/2 months ended
December 31, 1997, the 6 1/2 months ended July 15, 1997, and the year ended
December 31, 1996, respectively. The increase in interest income, net was due
to increased investments in short-term interest bearing investments as a result
of investing the proceeds raised from our series A preferred stock offering in
July 1997 and our series B preferred stock offering in September 1998. Interest
expense was nominal in all periods.
Liquidity and Capital Resources
The results of our operations have generated a net cash outflow due to the
rate at which we have grown. Cash flow from operations totaled $(638,707),
$(236,525), $(577,322), $(2.9 million), and $(5.8 million) for the year ended
December 31, 1996, the 6 1/2 months ended July 15, 1997, the 5 1/2
27
<PAGE>
months ended December 31, 1997, the year ended December 31, 1998, and the nine
months ended September 30, 1999, respectively. The expansion of our operating
and administrative personnel, office space, and other operating expenses were
the principle contributors to the increases in the net cash outflow between the
periods. As we continue to expand our operations, these increases in period-
over-period operating cash outflows will continue.
Cash used in investing activities was $(638,638), $(352,359), $(1.7
million), $(5.0 million), and $(5.2 million) for the year ended December 31,
1996, the 6 1/2 months ended July 15, 1997, the 5 1/2 months ended December 31,
1997, the year ended December 31, 1998, and the nine months ended September 30,
1999, respectively. Our cash used in investing activities has primarily been
used to build-out our in-building networks. In 1998 we used $1.9 million to
purchase the assets of MTS Communications. As of September 30, 1999, we had
made capital expenditures of $11.6 million since inception. We expect that our
capital expenditures will increase substantially in future periods as we
construct our networks and purchase more communications equipment. We will
continue to seek access to additional buildings. If we are successful in
gaining access to additional buildings, we will have substantial needs for
additional capital for an indefinite period. We also expect to have substantial
and increasing negative EBITDA and net losses.
Cash provided by financing activities was $1.7 million, $165,979, $6.0
million, $15.3 million and $(106,517) for the year ended December 31, 1996, the
6 1/2 months ended July 15, 1997, the 5 1/2 months ended December 31, 1997, the
year ended December 31, 1998, and the nine months ended September 30, 1999,
respectively. Our financing has primarily been obtained through the issuance of
convertible preferred stock to private investors. Since September 30, 1999, we
have sold additional shares of preferred stock for total cash proceeds of
approximately $79.1 million. See Note 10 to our financial statements. The
proceeds from these equity issuances have been and will continue to be used to
fund cash outflows from our operating and investing activities.
On December 8, 1998, we acquired certain assets of MTS Communications, a
provider of communications services in California, for total consideration of
$2,574,848 consisting of $1,904,398 in cash and the assumption of certain
capital lease obligations with a fair value of $670,450. In November 1999, we
signed a binding letter of intent to acquire 254,125 shares of common stock,
representing approximately 19%, of SiteConnect, a Seattle-based provider of
communication services, for consideration of 281,250 shares of our common
stock. The agreement contains an option to purchase the remaining outstanding
common stock of SiteConnect for approximately $5.0 million of our common stock
valued at the initial public offering price, which would be 333,333 shares
based on an assumed initial public offering price of $15.00 per share.
In November and December 1999, we issued warrants to purchase up to an
aggregate of 11,144,658 shares of our common stock at an exercise price of
$4.22 per share to several property owners and operators who executed master
license agreements. The exact number of shares of common stock underlying the
warrants, which is based on the gross leasable area of the buildings set forth
in the master license agreements, will not be determined until the completion
of due diligence and the finalization of the building schedules, which is
expected to occur shortly. We expect that the actual number of shares
underlying these warrants will not be adjusted significantly. The master
license agreements give us the right to operate our networks in more than 600
buildings representing more than 194 million rentable square feet. As noted
above, on a typical 335,000 square foot building, our up front capital
investment is usually less than $90,000. As we begin to successfully penetrate
a building, our capital deployment may grow to over $335,000.
28
<PAGE>
As of September 30, 1999, we had minimum payment obligations under our
existing license agreements of $125,000 per year for the next seven years.
As of September 30, 1999, we had $557,701 in capital lease obligations
outstanding. We assumed the majority of these capital lease obligations through
our acquisition of the assets of MTS Communications. Our capital lease
obligations contain no provisions that would limit our future borrowing
ability.
We currently have contracts with several communications providers under
which we have minimum purchase obligations for leased transport. As of
September 30, 1999, these minimum purchase obligations totaled approximately
$1.0 million through 2002. As of December 31, 1999, these obligations totaled
approximately $2.1 million through 2002. We will have to pay those providers
even if we do not use their services.
We estimate that our net proceeds from the sale of common stock in this
offering will be approximately $137.1 million, based upon an assumed initial
public offering price of $15.00 per share, after deducting the estimated
underwriting discount and our estimated offering expenses. If the underwriters'
over-allotment option is exercised in full, we estimate that our net proceeds
will be approximately $158.0 million. We intend to use approximately $100.0
million of the net proceeds from this offering for construction of in-building
networks and the purchase of communications equipment and approximately $10.0
million for implementation and modification of information support systems;
however, we currently have no material purchase commitments with respect to
these planned expenditures. The remainder of the net proceeds will be available
for working capital and general corporate purposes. We may also use a portion
of the net proceeds to acquire or invest in complementary businesses,
technologies, services or products. However, we currently have no material
commitments or agreements with respect to any of these types of transactions.
We are currently operational in 12 markets, and we have plans to expand our
presence to approximately 27 markets by the end of 2000 and approximately 40
markets by the end of 2001. We estimate that this expansion will require
capital expenditures of approximately $50.0 million in 2000 and approximately
$90.0 million in 2001.
We estimate that the net proceeds of this offering in addition to our cash
on hand will be sufficient to fund our operations and the projected deployment
of our network through mid-2001. We do, however, expect to continue our growth,
expansion and the further development of our network and services beyond that
point. Accordingly, we expect that we will eventually need to arrange for
additional sources of capital through the issuance of debt or equity or bank
borrowings. We have no commitments for any such additional financing, and we
cannot be sure that we will be able to obtain any such additional financing at
the times required and on terms and conditions acceptable to us. In such event,
our growth could slow and operations could be adversely affected.
The actual amount and timing of our future capital requirements may differ
materially from our estimates as a result of many factors, some of which we
cannot control. These factors include:
. the timing of execution of license agreements;
. our ability to meet or exceed our construction schedules;
. obtaining favorable prices for purchases of equipment;
. our ability to develop, acquire and integrate the necessary operational
support systems;
. the cost of network development in each of our markets;
. demand for our services;
29
<PAGE>
. the nature and penetration of new services that may be offered by us;
. the timing and extent of future acquisitions or investments, if any, and
our ability to integrate these acquisitions or investments;
. regulatory changes; and
. changes in technology and competitive developments beyond our control.
Recent Accounting Pronouncements
We do not believe that any recent accounting pronouncements will have a
material impact on our financial statements.
Quantitative And Qualitative Disclosure About Market Risk
Our exposure to financial market risk, including changes in interest rates
and marketable equity security prices, relates primarily to our investment
portfolio. We typically do not attempt to reduce or hedge our market exposure
on our investment securities because a substantial majority of our investments
are in fixed-rate, short-term securities. We do not have any derivative
instruments. The fair value of our investment portfolio or related income would
not be significantly impacted by either a 100 basis point increase or decrease
in interest rates due mainly to the fixed-rate, short-term nature of the
substantial majority of our investment portfolio. As of September 30, 1999 we
had no debt outstanding, other than capital leases.
Year 2000 Compliance
The Year 2000 issue is the result of computer-controlled systems using two
digits rather than four to define the applicable year. For example, certain
computer programs that have time-sensitive software may recognize a date ending
in "00" as the year 1900 rather than the year 2000. This could result in system
failure or miscalculations causing disruptions of operations including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
As of February 4, 2000, we have experienced no material problems as a result
of the Year 2000 issue. Costs to ensure that our systems and networks are Year
2000 compliant have not been, and are not expected to be, material.
30
<PAGE>
BUSINESS
Overview
We provide a full range of communications services to small and medium-sized
businesses located in multi-tenant office buildings in major metropolitan
markets throughout the United States. We offer our customers a full range of
communications services, including multi-function digital telephones, local and
long distance voice services, high speed, always-on Internet access, business
television and other enhanced communications services. We deliver these
services over state-of-the-art fiber-optic, digital and broadband networks that
we design, construct, own and operate inside large and medium-sized office
buildings. We differentiate ourselves from other communications companies by
providing a single-source communications solution with a high degree of
customer service and responsiveness. Our customers are assigned a single
dedicated on-site or near-site support team to address their sales and service
needs. Our customers also benefit from the convenience and efficiency of
receiving a single integrated bill for all of their communications services.
We began providing bundled communications services and operating in-building
networks in June 1996 in Atlanta. As of December 31, 1999, we were operating
our networks in 116 buildings representing approximately 30 million rentable
square feet in 12 major metropolitan areas, including Atlanta, Boston, Chicago,
Dallas, Denver, Houston, Los Angeles, Miami, New Orleans, Orange County, San
Diego and Washington, D.C. Overall, we have license agreements with building
owners and property managers, including AEW, Boston Properties, Brookfield,
Cornerstone, Cousins, Lend Lease, Shorenstein, Taylor Simpson, Tower Realty,
Transwestern, TrizecHahn, Vornado and Westbrook, giving us the right to install
and operate our networks in more than 730 buildings representing more than 229
million rentable square feet in 50 major metropolitan areas. The typical length
of our license agreements is ten years.
Market Opportunity
In estimating our market opportunity, we have relied on reports from various
industry sources, including International Data Corporation, Dataquest, Access
Media International and Dun & Bradstreet.
According to Dun & Bradstreet, there are approximately 1.3 million small and
medium-sized businesses in the United States, which typically employ between 10
and 500 employees. According to International Data Corporation, small and
medium-sized businesses spent over $47 billion in 1998 for voice communication
services. While Dataquest estimates the demand for voice services will grow at
a modest pace to over $53 billion in 2002, the demand for data and Internet
services from this market segment is projected to grow at a substantially
greater pace. We believe, based on our industry sources, that small and medium-
sized businesses spent more than $14 billion for data and Internet services
during 1998 and that growth in data and Internet services will increase at a
compound annual growth rate of approximately 29% per year through 2002.
We are targeting this growing market segment by constructing our fiber-
optic, digital and broadband networks in the office buildings in which many
small and medium-sized businesses are
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located. We estimate that there are more than 8,100 office buildings with
greater than 100,000 square feet representing over 2.2 billion rentable square
feet of office space located in the 50 major metropolitan areas in which we
currently operate or plan to operate in the future.
As the communications market has grown rapidly over the past five years,
businesses have become inundated with offerings of new products, services and
carriers. As a result, it has become increasingly difficult for small and
medium-sized businesses, most of which do not have a dedicated communications
staff, to evaluate the vast array of communications options that are available.
In addition, these businesses have had to contend with the cost and complexity
of retaining multiple vendors in order to procure the various communications
services they require.
We believe there is a significant demand in the market for an integrated
communications provider who can offer the various communications services that
small and medium-sized businesses require. While most large enterprises build
or lease dedicated high speed networks and complex communications equipment,
most small and medium-sized businesses, due to cost and network infrastructure
constraints, are not able to enjoy the levels of service and functionality that
such facilities and equipment can provide. For example, the majority of small
and medium-sized businesses access the Internet through relatively slow dial-up
connections, often at speeds of 56,000 bits per second or less. We believe that
dedicated high speed connections to the Internet for small and medium-sized
businesses will grow significantly over the next two years, and that this will
create a significant opportunity for communications providers with the ability
to provide affordable high-speed Internet connectivity in addition to other
enhanced communications services.
Our Solution
We provide small and medium-sized businesses a broad range of communications
services over our own in-building state-of-the-art fiber-optic, digital and
broadband networks. Our solution offers these businesses a number of important
advantages, including:
. A comprehensive communications solution from a single source. We
effectively function as our customers' communications manager and
provide them with a "one stop shopping" solution. As a result, we
greatly reduce the administrative burden typically associated with
managing multiple communications vendors. Our comprehensive package of
communications services typically includes providing multi-function
digital telephones, local and long distance voice services, high speed,
always-on Internet access, business television, voicemail and e-mail. We
also offer web site hosting, domain name registration, 24x7 remote
systems monitoring, firewall, or data security, protection and many
other enhanced communications services. We offer our services at
competitive prices and deliver a single bill for all services rendered.
We are continually expanding and upgrading the products and services
that we offer our customers, so that as their needs evolve, our products
and services evolve with them.
. A reliable, feature-rich communications package typically available only
to large corporations. In addition to offering a comprehensive package
of communications services, we provide our small and medium-sized
business customers features and performance levels that traditionally
have been available only to large corporations. We provide voice
services using state-of-the-art equipment from manufacturers such as
Nortel Networks and Cisco Systems, which enables us to offer our
customers a variety of
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enhanced services. We provide our customers affordable, high speed,
always-on Internet access at transmission speeds up to 3.0 million bits
of data per second. We also have the ability to provide significantly
greater speeds should our customers require such capacity in the future.
Unlike traditional networks, our networks are designed to alleviate
network congestion resulting in slow transmission speeds, a common
problem which occurs when many customers within a multi-tenant
commercial building attempt to use traditional limited capacity
networks. In addition, to ensure reliable performance, we utilize
multiple carriers, backup network components and emergency power
supplies.
. Rapid installation and service expansion with minimal capital outlay by
customers. Because we own and operate our in-building networks, we are
able to deliver our comprehensive package of services to a new customer
within a few days of receiving an order. In addition, we are often able
to provide same day service for existing customers requesting new
services or features, such as increased Internet speeds or additional
lines. Additionally, because our customers typically rent their
telephone systems and related premise equipment from us, they avoid
significant capital outlays and substantially mitigate the risks of
being constrained by network capacity or having their phone system
become technologically obsolete.
. On-site or near-site customer service and support. Upon signing up for
service, each of our customers is assigned a dedicated, experienced
account team. This team is either on-site or near-site and is available
on a 24x7 basis to address customer inquiries. We believe that our high
standard of customer service will continue to enhance our ability to
acquire and retain customers.
Strategy
Our objective is to be a leading provider of integrated communications
services to small and medium-sized businesses. To achieve this objective, we
have developed a business strategy designed to achieve significant market
penetration and deliver superior customer service while maximizing operating
margins. Key components of this strategy include the following:
. Providing a broad range of communications services under long-term
customer contracts. We intend to continually add to and upgrade our
service offerings in order to attract new customers and further
penetrate our existing customer base. We sell our services under
contracts which are typically three years in length. We believe our
ability to provide a "one-stop shopping" solution will enable us to
continue to enter into long-term contracts with our customers. In
addition, we believe that our broad product portfolio also contributes
to our low customer defection, or churn rates. In short, our goal is to
ensure that a customer or potential customer need never look beyond
Cypress to fulfill any communications need.
. Providing superior customer service. As part of our continuous effort to
attract and retain customers, we are dedicated to providing the highest
levels of customer service and satisfaction in the industry. We assign
to each customer a dedicated team of customer service personnel that is
either on-site or near-site. Consequently, we believe that the level of
customer service and technical support we offer in terms of
responsiveness and customer knowledge exceeds that offered by
competitors who provide customer support on a regional or national
basis.
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. Controlling the critical "last few feet." We own and manage the in-
building infrastructure over which we provide services to our customers,
including the actual physical connection between our customers and out-
of-building networks. We believe this affords us important and
sustainable competitive advantages and allows us to:
- strengthen our position as "gatekeeper" to our in-building customers;
- provision services more quickly and efficiently; and
- better control service quality.
. Leveraging our experience and first mover advantage to secure license
agreements with building owners. As one of the first in-building
providers of integrated communications services in the United States, we
will continue to leverage our experience and first mover advantage to
secure additional license agreements with building owners. Before a
building owner will enter into a long-term contract with a
communications provider, the building owner must be confident that the
provider is capable of offering superior service to building tenants
throughout the life of the license agreement and thereafter. We believe
our experience, industry reputation and referenceable customer base give
us a meaningful competitive advantage with respect to instilling this
confidence. In addition, while we target all types of property owners
and managers, we have developed significant expertise in establishing
strategic relationships with owners of individual buildings or small
groups of buildings. These owners represent one of the largest single
types of ownership of office space in the country. We believe that over
the long term this competitive advantage will be particularly important
because many of the larger multi-market building owners will eventually
sign license agreements with either ourselves or our competitors.
. Deploying cost effective, flexible networks. A substantial portion of
our network related capital expenditures are made only after we have
entered into a long-term license agreement with a property owner. The
capital we deploy is highly success-based and modest on a per-building
basis. For example, our initial capital expenditures in a typical
building with approximately 335,000 rentable square feet are usually
less than $90,000, which includes the purchase and installation of our
riser system and associated network equipment. Furthermore, our networks
are designed using an open standard architecture which enables us to
rapidly and cost effectively incorporate the latest technological
developments. In addition, in order to minimize operating costs while
maximizing capacity and backup capacity, we deploy networks using a
combination of fiber-optic, copper, coaxial and wireless transmission
solutions.
. Opportunistically pursuing additional strategic acquisitions and
relationships. We opportunistically pursue acquisitions and other
strategic relationships which enable us to expand our customer base or
geographic presence or provide us with additional management, sales or
technical personnel. For example, in December 1998 we acquired the
assets of MTS Communications, which provided us access to 14 additional
buildings and expanded our customer base to the greater Los Angeles
area. In November 1999 we entered into an agreement to acquire
approximately 19% of the common stock of SiteConnect, an in-building
communications provider serving ten buildings in Seattle, with an option
to purchase the balance of the company. We intend to continue to seek
such domestic opportunities as well as explore international
opportunities either alone or with strategic partners.
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Our Communications Services
We use our state-of-the-art in-building networks to provide small and
medium-sized businesses with a full range of voice, data, video and other
enhanced communications services. We also provide paging and, in some markets,
wireless telephone services through agreements with various communications
carriers. Close contact with our customers by our direct sales force and
customer service personnel enables us to tailor our service offerings to meet
customers' needs and to creatively package our services to provide "one-stop
shopping" solutions for those customers. Services we offer are summarized as
follows:
Cypress Services Currently Available
<TABLE>
<CAPTION>
Voice Services Data Services Video/Wireless/Other
-------------- ------------- --------------------
<S> <C> <C>
. Local Dialtone . High Speed Internet Access . Business Television
. Long Distance . Electronic Mail . Wireless Voice
. Voice Mail . Web Hosting . Paging
. Telephone Equipment . Domain Name Services . Installation & Cabling
. Audio Conferencing . Firewall Services . Move, Add & Change Services
. Toll Free Services . SmartWatch
. Calling Cards . SmartView
</TABLE>
Voice services. The vast majority of our voice services customers rent their
telephones from us. This ensures a compatible interface with our state-of-the-
art in-building communications equipment and provides customers with a number
of key benefits, including:
. access to an advanced, multi-function telephone system which few small
businesses could afford to buy and support on their own;
. a significant reduction in up-front capital costs; and
. reduced risk of technological obsolescence.
Our voice offerings include both traditional telephone services, such as
local and long distance services, as well as value-added services, such as
integrated voicemail, audio conferencing, calling cards and toll-free number
services. Additional enhanced features include call waiting, call forwarding,
dialback and caller ID.
Data services. One of our most popular services is high speed, always-on
Internet access. We provide this service using our patent pending fiber-optic
infrastructure and network configuration. The key features of this service are:
. Dedicated connectivity. Our service is always on, providing
instantaneous connections and the capability to receive or transmit
information continuously.
. Range of speed options. Customers currently subscribe to delivery speeds
between 64,000 bits of data per second and 3.0 million bits of data per
second, but we have the capacity to provide up to 100.0 million bits of
data per second in response to customer demand. In addition, using
commercially available equipment, we can increase the transmission speed
of our infrastructure to one billion bits of data per second.
. Flexibility. We can usually increase a customer's bandwidth speed within
minutes of receiving a request. We can also deliver different speeds of
service to specific computers or groups of computers within a customer's
office.
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. Security. Because each customer's Internet service is provided over
dedicated fiber-optic strands, a customer's Internet traffic is secure
from that of other customers in the building.
In addition to our Internet access service, we offer other enhanced data
services such as web site hosting, e-mail, domain name registration and
firewall services. We also offer our customers SmartWatch services, in which we
provide 24-hour monitoring of web and e-mail servers, and SmartView services,
which enables our customers to monitor their bandwidth usage via the Internet.
Video, wireless and other services. In many of our buildings, we offer our
customers a comprehensive package of business television services consisting of
news, business, sports and network programming. We deliver these services
directly to our customers over our in-building networks using a combination of
direct broadcast satellite services and off-air antennas for local channels.
Our customers can elect to receive more or less programming depending on their
needs. In addition to voice, data and video services, we also offer our
customers a variety of other enhanced communications services, such as paging
and, in some markets, wireless telephones, which we are able to provide through
agreements we have with various communications carriers. We also provide on-
site installation, including installing telephone systems and configuring and
connecting customer computer equipment to our networks, as well as highly
responsive move, add and change services. We will continue to investigate, test
and add, where appropriate, complementary products and services to maintain our
"one stop shopping" strategy.
Network Architecture
We design, install, own and operate our networks inside buildings which we
serve under long-term license agreements with building owners or operators. Our
in-building networks typically consist of the following:
. a state-of-the-art riser system utilizing fiber-optic cable, broadband
coaxial cable and copper wire;
. communications equipment usually located in the building;
. high capacity leased facilities connecting our networks to the networks
of selected local, long distance and Internet service providers; and
. for our data services, high capacity leased facilities to move data
traffic to and from a central point that we establish in each market.
Riser systems inside buildings. Inside buildings, we design, install, own
and manage a vertical communications infrastructure, also known as the riser
system, that typically runs inside vertical utilities shafts from the
building's basement to the top floor. Our riser systems typically are comprised
of high capacity fiber-optic cable, broadband coaxial cable and copper wire.
These systems are designed to carry a full range of voice, data and video
traffic. We believe our riser systems have the capacity to accommodate all of
our customers' current and anticipated broadband needs.
Feeder systems inside buildings. Inside buildings, we also design, install,
own and manage a horizontal communications infrastructure, known as the feeder
system, that typically runs from our riser systems into our customers'
premises. Our feeder systems typically utilize high capacity fiber-optic cable,
broadband coaxial cable and copper wire. These systems are installed only upon
our signing a service contract with a customer. Key benefits of our feeder
systems design are as follows:
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Voice Services
. Our feeder systems provide a compatible connection between our
customers' telephone equipment and our in-building state-of-the-art
communications equipment.
Data Services
. We install our feeder link directly into our customer's local area
networks, thereby eliminating the need for our customers to purchase and
maintain their own Internet routers and switches to direct their
communications traffic.
. Our customer gains an always-on, secure connection to our network using
a link known as an Ethernet connection. These Ethernet connections allow
us to provide in-building transmission speeds ranging from 10.0 million
to 1.0 billion bits of data per second.
Video Services
. We connect our feeder systems to equipment which allows us to cost-
effectively deliver video programming to multiple television sets within
a customer's office.
Communications equipment inside buildings. Inside almost all of the
buildings we serve, we have routing and distribution equipment that connect our
riser systems to the networks of select local, long distance and Internet
service providers. This equipment include data switches, routers and voice
switches, which direct incoming and outgoing data and voice traffic, and other
video and communications equipment purchased from Nortel Networks, Cisco
Systems and other manufacturers. In the case of a multi-building real estate
complex, we are usually able to provide our services in all buildings within
that complex by deploying this communications equipment in one of the buildings
and connecting the other buildings in the complex to that equipment. This
results in significant cost savings and reduced capital expenditures.
Leased facilities outside buildings. We connect the communications equipment
in our buildings to leased network facilities of selected local, long distance
and Internet service providers that provide the out-of-building transport
necessary to provide full service to our customers. In some instances, as in
the case of a multi-building complex, we may interconnect a number of buildings
using leased facilities known as "private line" or "point-to-point"
connections.
For our Internet services, we have a central market point of presence, which
is a location at which we aggregate and disseminate data traffic to and from
all of the buildings we serve in that market. We typically connect each
building to the central market point of presence using leased high capacity
facilities, on a carrier's fiber-optic network wherever available. These lines
are leased from carriers that have previously installed fiber in the local
market. There are generally several providers in each market who are able to
provide us with connectivity for traffic between buildings and the point of
presence.
At our point of presence, we install the electronic equipment necessary to
provide our data services in the metropolitan area. This equipment includes
network servers, traffic routers and other related communications equipment. We
connect each point of presence to more than one Internet service provider to
provide diverse Internet connectivity to our network. Most points of presence
are connected to at least one other point of presence in a different market
over a dedicated leased facility to provide a backup means of transmitting data
in case any of our network connections to the Internet should fail.
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Advantages of our Network Architecture. The architecture of our network
provides us with significant competitive advantages, including the ability to:
. rapidly connect customers without the need to arrange local phone lines
and circuits for each new line added;
. capitalize on advanced Internet-protocol-based technology to construct a
more efficient and lower cost network;
. provide low cost, high performance services;
. offer always-on, secure data connections to our network and the
Internet; and
. provide a flexible platform for bandwidth upgrades and new service
offerings as communications technology and applications continue to
develop.
Network Management and Monitoring. We are implementing a state-of-the-art
automated alarm and control system to further enhance our network monitoring
capabilities. Our trained system engineering personnel use our control system
to monitor and control our networks on a 24x7 basis. This system enables fault
alarm monitoring, system control, environmental monitoring, remote system
diagnostics, physical security monitoring, backup control and usage statistics.
This Internet-enabled system allows our technicians to access and control our
systems over Internet, Intranet or local or wide area network configurations,
as well as through a dial-up connection in the unlikely event of loss of
Internet-based communications. Service affecting events are automatically
detected and immediately reported to both technical personnel located in our
network operations center and market-based field support engineers who address
network issues either remotely or directly on-site. Field engineering personnel
in our markets are equipped with a full set of parts and spares necessary to
support their routine service calls and we also maintain complete spare systems
in the unlikely event of a disaster.
Our network operations center also supports a 24x7 hotline for help desk
support. We intend to supplement this center with a geographically diverse
backup network operations center site to supplement day-to-day operations and
act as a disaster recovery site for the main network operations center.
Construction
We have developed and implemented a cost-efficient, team-based approach to
constructing and expanding our in-building networks. We have formulated
implementation procedures which incorporate standardized construction drawings
and equipment configurations to allow us to maintain high quality construction
standards which can be easily repeated for all of our installations with
minimal use of equipment space. As a result of our extensive experience gained
from having constructed over 100 in-building networks and our standardized
installation procedures, we can often begin serving customers within 45 to 60
days from the time that a property manager approves our network design. As a
result of our standardized construction process and our extensive engineering
capabilities, we are typically able to initially install our networks for less
than $90,000 per building. Thereafter, we are able to cost-effectively deploy
capital and expand our networks as needed to accommodate customer demand.
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<PAGE>
We deploy teams of building survey engineers, regional project managers and
system implementation technicians who manage our network construction in three
phases:
Phase 1. A Cypress building survey engineer performs an in-depth building
site survey to analyze a building's specific construction requirements, tenant
profile and availability of out-of-building communications infrastructure. We
then tailor our standardized implementation template to the specific needs of
the building. The resulting proposed design plan is then submitted to building
management for final approval.
Phase 2. We assign a regional project manager to manage the in-building
infrastructure construction process. The project manager reviews the
implementation plan and supervises a team of Cypress employees and third-party
contractors which installs the riser system and related communications
equipment. The regional product manager also consults with our network facility
management group to secure the appropriate network communication facilities and
with our system procurement group to ensure that the proper equipment is
purchased and available for installation when needed.
Phase 3. Once the network installation is complete, a system implementation
technician works with the network operations center to test and calibrate all
remote alarm and automated diagnostic testing features. When the acceptance
testing is finished, the technician completes the required building site
documentation and a dedicated local account team is notified to commence sales
efforts.
Marketing and Sales
We directly market our services to the tenants in buildings in which we have
secured long-term license agreements from property owners or managers. We
leverage our relationships with property owners and managers as a first and
primary means of creating tenant awareness of our services. Upon our entering a
building, property owners or managers will typically send a letter to tenants
on their letterhead introducing Cypress, describing the nature and benefits of
our service offerings and highlighting the complete package of business
communications products that we are able to offer. Shortly thereafter, we will
conduct a promotional in-building event, typically in the building lobby, where
we will demonstrate our voice, Internet and video services to generate sales
leads. After our initial service launch we continue to work closely with the
building owner, property management and leasing representatives. Our typical
license agreements enable us to display our signage and marketing materials
within the leasing office and other high traffic locations within a building.
Our agreements also contain provisions whereby our building owners, management
and leasing representatives agree to advise tenants of the availability of our
services. In most cases, property owners or managers will also notify us as new
tenants enter the building.
Our goal is to offer a comprehensive communications solution and in effect
to become our customers' outsourced communications department. As such, our
sales approach is highly consultative. In our initial sales meetings we work
closely with prospective customers to assess their particular communications
needs. We also carefully analyze the communication bills from their current
vendors to understand a prospect's usage patterns and current cost. We then
return to the prospect with a highly customized, comprehensive proposal which
is typically more cost effective, feature-rich and easier to administer than
their current communications package.
We typically assign one permanent account team for every five or six
buildings. The account team usually consists of one account executive, one
customer service representative and one on-site
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<PAGE>
or near-site technician. Our technicians and engineers provide our customers
with customized technical consulting on the use and availability of our various
services. This is generally highly valued by small and medium-sized businesses
that often have limited information technology staffs and expertise. We believe
that using dedicated account teams enhances our ability to build and retain
long-term customer relationships and our ability to cross-sell and upgrade
service offerings.
Our sales efforts are supported by our marketing department which, in
addition to creating various "point of sales" promotional materials, works with
outside advertising and public relations firms to develop a targeted, highly
cost-effective marketing approach to build Cypress brand awareness.
Real Estate Selection and Marketing
Property Selection
The criteria that our real estate professionals consider in targeting
buildings includes the buildings' location and size, the number of tenants, the
tenant mix, the proximity of the building to other buildings in which we hold
existing license agreements, and the expected time and cost involved in
installing our networks. In addition, we generally prefer buildings with some
tenant vacancy, or anticipated near-term tenant roll-over, because we believe
new tenants are particularly receptive to our single-source communications
solution. Once we have determined that a building or collection of buildings
meets our criteria, one of our real estate professionals contacts the property
owner or operator in an attempt to negotiate a license agreement which will
provide us access to the buildings.
License Agreements and Arrangements with Property Owners and Operators
We believe we present a compelling value proposition to property owners and
operators. In our negotiation with these property owners and operators, we
emphasize the following value-added benefits of doing business with Cypress:
. we pay property owners a fixed rental fee and/or a modest percentage of
the revenue we receive from providing communications services to the
tenants in their buildings;
. we enhance the marketability of the building to prospective tenants by
providing a complete communications solution with advanced features that
may not be available in other buildings; and
. we install our network architecture at no cost to the property owner.
In the past, we have entered into license agreements with property owners
and operators on a per building basis in order to gain the right to install and
operate our networks in their buildings. Under these agreements, we pay the
property owners and operators either a base fee or a modest percentage of the
revenues we generated from their tenants, typically between 3% and 6%. The
typical term of these agreements is ten years. Under these agreements, we have
the right to operate our networks in more than 130 buildings representing more
than 35 million rentable square feet.
In November and December 1999, we entered into master license agreements
with several owners and operators of multiple office buildings, including AEW,
Boston Properties, Brookfield, Cornerstone, Cousins, Lend Lease, Shorenstein,
Taylor Simpson, Tower Realty, Transwestern, TrizecHahn, Vornado and Westbrook.
Each master license agreement sets forth a list of buildings owned or managed
by the owner or operator that is a party to that agreement. In accordance with
the
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terms of these agreements, we have begun to enter into property-specific
license agreements with respect to each listed building. In some cases, the
property owner or operator may need to obtain the consent from third parties
who may have an ownership interest in the building before we can enter into a
property-specific license agreement for that building. Under the property-
specific license agreements, we will be granted a license to install and
operate our networks in each such building in return for approximately 6% of
the revenues we receive from tenants in that building. The initial term of each
property-specific license agreement is five years, with an automatic five year
extension at the end of the initial term, absent any default under the
agreement. The master license agreements give us the right to operate our
networks in more than 600 buildings representing more than 194 million rentable
square feet.
In connection with the execution of the master license agreements, we also
entered into stock warrant agreements with the same property owners and
operators. Under the terms of these agreements, we issued these owners and
operators warrants to purchase up to an aggregate of 11,144,658 shares of our
common stock at an exercise price of $4.22 per share. The exact number of
shares of common stock underlying the warrants, which is based on the gross
leasable area of the buildings set forth in the master license agreements, will
not be determined until the completion of due diligence and the finalization of
the building schedules, which it expected to occur shortly. The warrants are
exercisable for a period of ten years, but cannot be exercised until six months
following completion of this offering. We expect that the actual number of
shares underlying these warrants will not be adjusted significantly.
Generally, our license agreements are non-exclusive, which means the
property owners or operators may permit competitors to install their own in-
building networks in their buildings. Some competitors already have rights to
install networks in some of the buildings in which we have rights to install
our networks. While few in-building competitors are operating networks in
buildings in which we currently operate networks, this situation may change as
we and our competitors continue to expand operations.
Our Real Estate Relationships and Opportunities
We currently have approximately 730 office buildings, representing
approximately 229 million rentable square feet, in which we have installed, or
have the right to install, our communications infrastructure. According to
Torto Wheaton, a real estate consulting firm, there are more than 3,900 office
buildings representing approximately 950 million square feet of rentable office
space in the 12 metropolitan markets in which we currently provide our
services. We recently entered into master license agreements with property
owners and operators that will allow us to enter 38 additional metropolitan
markets. Torto Wheaton covers 32 of these markets and, according to them, there
are more than 3,900 office buildings representing approximately 1.2 billion
square feet of rentable office space in these 32 additional markets.
Accordingly, this data indicates that there are more than 7,800 office
buildings representing approximately 2.1 billion square feet of rentable office
space in 44 of the 50 markets in which we currently provide, or have the right
to provide, our services.
We have established excellent working relationships with real estate
property owners and operators across the commercial real estate industry,
including private owners, pension funds and pension fund advisors, public real
estate operating companies such as public real estate investment trusts,
property managers, life insurance companies and foreign owners of domestic real
estate. In total, the property owners and operators with whom we have entered
into master license agreements own or operate more than 1,500 buildings
representing approximately 390 million rentable square feet.
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Set forth below is a table which summarizes our success to date in obtaining
license agreements and constructing our in-building networks. Specifically, for
each target market, the table shows both the number of buildings we have in
operation and the number of buildings we have under license agreement, but
which are not yet in operation. The table also presents information regarding
the size and composition of our market opportunity. This table was compiled
using data from Torto Wheaton and includes information regarding only buildings
with 100,000 rentable square feet or more, as we currently do not plan to
target buildings of less than this size.
<TABLE>
<CAPTION>
Target Buildings Target Buildings Square Feet
---------------------------- ------------------------------------
In Under Total in In Under Total in
Market Operation Agreement Market Operation Agreement Market
- ------ --------- --------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Atlanta, GA............. 36 59 332 7,421,607 16,220,658 83,634,783
Baltimore, MD........... -- 3 105 -- 1,457,229 19,927,964
Boston, MA.............. 15 32 395 4,603,794 12,334,520 91,377,085
Charlotte, NC........... -- 9 64 -- 2,754,751 16,271,405
Chicago, IL............. 7 23 505 2,006,712 14,774,768 151,796,466
Cincinnati, OH.......... -- 1 74 -- 235,884 17,850,830
Cleveland, OH........... -- 2 79 -- 875,323 22,057,817
Columbus, OH............ -- 5 64 -- 1,403,895 12,866,860
Dallas, TX.............. 13 20 421 3,711,204 7,480,125 110,629,685
Denver, CO.............. 4 12 229 2,814,702 4,436,560 51,044,012
Detroit, MI............. -- 3 180 -- 524,256 41,004,906
Fort Worth, TX.......... -- 2 69 -- 1,325,355 15,143,802
Ft. Lauderdale, FL...... -- 2 54 -- 365,186 8,999,124
Hartford, CT............ -- 1 55 -- 155,221 11,812,220
Honolulu, HI............ -- 4 37 -- 1,895,410 8,168,251
Houston, TX............. 16 25 368 3,391,694 4,667,131 100,971,894
Indianapolis, IN........ -- 2 63 -- 816,639 13,508,804
Kansas City, MO......... -- 13 116 -- 1,919,436 22,475,756
Long Island, NY......... -- 4 98 -- 454,748 18,723,382
Los Angeles, CA......... 14 22 481 3,990,750 6,412,888 122,718,947
Miami, FL............... 1 7 107 139,000 2,381,277 21,383,132
Minneapolis, MN......... -- 30 161 -- 6,215,321 43,133,751
Nashville, TN........... -- 3 65 -- 667,967 81,119,299
New Jersey Metro ....... -- 10 369 -- 2,381,850 78,157,916
New York, NY............ -- 37 749 -- 30,166,751 352,401,110
Oakland, CA............. -- 14 132 -- 2,778,579 25,487,180
Orange County, CA....... 7 23 174 1,044,000 4,101,357 32,464,968
Orlando, FL............. -- 6 69 -- 894,518 12,064,976
Philadelphia, PA........ -- 10 204 -- 4,348,873 53,180,369
Phoenix, AZ............. -- 23 138 -- 4,531,969 26,711,581
Sacramento, CA.......... -- 7 68 -- 962,446 11,922,261
Salt Lake City, UT...... -- 3 53 -- 518,456 9,299,970
San Diego, CA........... 1 8 75 263,000 1,796,244 15,472,693
San Francisco, CA....... -- 47 208 -- 19,006,976 54,007,043
San Jose, CA............ -- 9 103 -- 1,433,534 15,592,513
Seattle, WA............. -- 6 140 -- 2,364,663 33,752,054
St. Louis, MO........... -- 6 102 -- 1,761,601 21,571,718
Stamford, CT............ -- 1 87 -- 100,399 17,130,048
Tampa, FL............... -- 7 77 -- 2,108,416 16,975,417
Washington, D.C. ....... 1 85 828 254,000 19,545,303 168,288,519
Westchester, NY......... -- 1 83 -- 234,185 16,050,416
West Palm Beach, FL..... -- 2 40 -- 450,104 8,214,621
Wilmington, DE.......... -- 1 22 -- 438,843 4,818,524
Other................... 1 27 * 453,255 9,816,883 *
--- --- ----- ---------- ----------- -------------
Total................. 116 617 7,843 30,093,718 199,516,498 2,060,184,072
</TABLE>
- --------
* Data not available for certain markets in which we currently provide, or have
the right to provide, our services. These markets include Memphis, Milwaukee,
Montreal, New Orleans, Pittsburgh, Richmond and San Antonio.
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<PAGE>
Customer Service and Technical Support
We believe that we maintain a standard of customer service higher than other
companies serving small and medium-sized businesses and that this is a key
factor in our low customer turnover rate. The key aspects of our service
include:
. Dedicated Support Teams for Timely Response. We typically designate on-
site or near-site teams of one account executive, one customer service
representative and one technician to a territory which usually includes
five or six buildings grouped as closely as possible. These teams are
closely supported by Internet sales engineers and technicians certified
in Nortel, Cisco and Microsoft technologies. Customers benefit from this
arrangement because our dedicated account teams, in addition to being
physically located near our customers, are familiar with our customers'
particular communications packages and, accordingly, are able to more
efficiently respond to their needs. The team approach also further
personalizes our customer relationships.
. Dial "H-E-L-P" for Service. In Atlanta, our largest market, a customer
need only dial "H-E-L-P" (4357 on a telephone key pad) from any
telephone that is part of our network to be connected to our customer
service team. In most cases, our customer's name will appear on our
customer service representatives telephone display, allowing us to
answer the calling party using their name, further supporting the
personalized relationship between Cypress and our customers. If a
customer is not near a telephone connected to our network, we provide a
regular ten digit contact number to reach our customer service
representatives. We are implementing this system in our other markets as
well.
. Remote System Monitoring and Service Modifications. Many elements of our
networks can be controlled and modified remotely from a customer service
office or our network operations center, allowing us to respond to
customers more rapidly and with minimal disruption. For example, we can
increase a customer's bandwidth allocation within minutes of being
contacted or we can add additional lines and voice mail boxes to a
customer's existing services without the need to make an on-site service
call.
. Efficient On-Premises Service Modifications. Some move, add and change
services require a visit to our customers' premises. For example, when a
customer expands the number of employees in their office, we will send a
customer service representative to manage this expansion and a
technician to install additional cabling and telephones. Because our
networks are modular even at the customer premises level, we can
typically add the necessary services and equipment with minimal
disruption to our customer's regular operations.
. Continuous Training. Upon implementation of the Cypress solution for a
new customer, the members of the dedicated support team introduce
themselves to the end-users at the customer's premises and explain the
functionality of the new equipment and services for which the customer
has contracted. We provide further training when the customer expands
its services or adds new employees. We believe our emphasis on training
reduces calls to our customer service team and encourages quick adoption
of and higher usage rates for installed services, which we believe leads
to increased demand for bandwidth upgrades and additional services.
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<PAGE>
Competition
The market for communications services for small and medium-sized businesses
is very competitive. We face competition from many communications providers
with significantly greater financial resources, well-established brand names,
larger customer bases and diverse strategic plans and technologies. Any of
these competitors may focus on our market strategy and subject us to intense
competition for our services or for access to the office buildings in our
target markets. We expect significant competition from traditional and new
communications companies, including the following:
Other in-building communications providers
Some competitors are attempting to gain access to office buildings in our
target markets. These companies include Advanced Radio Telecom, Allied Riser
Communications, Broadband Office, Intermedia, NEXTLINK, OnSite Access, RCN
Telecom Services, SiteLine, Teligent, Urban Media and Winstar. Some of these
competitors are seeking to develop exclusive relationships with building
owners. To the extent these competitors are successful, we may face
difficulties in building our networks and marketing our services within some of
our target buildings. Our agreements to use utility shaft space within
buildings are generally not exclusive. An owner of any of the buildings in
which we do not have exclusive rights to install a network could also give
similar rights to one of our competitors. Certain competitors already have
rights to install networks in some of the buildings in which we have rights to
install our networks. It will take a substantial amount of time to build
networks in all the buildings in which we intend to exercise our rights under
our license agreements and master license agreements. Each building in which we
do not build a network is particularly vulnerable to competitors. It is not
clear whether it will be profitable for two or more different companies to
operate networks within the same building. Therefore, it is critical that we
build our networks in additional buildings quickly. Once we have done so, if a
competitor installs a network in the same building, there will likely be
substantial price competition.
Local telephone companies
Incumbent local telephone companies, including GTE and regional Bell
operating companies such as Bell Atlantic and BellSouth, have several
competitive strengths which may place us at a competitive disadvantage. These
competitive strengths include an established brand name and reputation and
significant capital to rapidly deploy or leverage existing communications
equipment and broadband networks. Competitive local telephone companies often
market their services to tenants of buildings within our target markets and
selectively construct in-building facilities. Additionally, the regional Bell
operating companies are now permitted to provide long distance services in
territories where they are not the dominant provider of local services. These
companies may also provide long distance services in the territories where they
are the dominant provider of local services if they satisfy a regulatory
checklist established by the Federal Communications Commission. In December
1999, the FCC ruled that Bell Atlantic has met these requirements in New York
and may provide long distance services in New York. If other regional Bell
operating companies are permitted to provide long distance services in
territories where we operate, we could face greater price competition.
Long distance companies
Many of the leading long distance companies, such as AT&T, MCI WorldCom and
Sprint, could begin to build their own in-building voice and data networks. The
newer national long distance
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<PAGE>
carriers, such as Level 3, Qwest and Williams Communications, are building and
managing high speed fiber-based national voice and data networks, partnering
with Internet service providers, and may extend their networks by installing
in-building facilities and equipment.
Fixed wireless service providers
Fixed wireless service providers, such as Advanced Radio Telecom, MCI
WorldCom, NEXTLINK, Sprint, Teligent and Winstar, provide high speed
communications services to customers using microwave or other facilities or
satellite earth stations on building rooftops.
Internet service providers
Internet service providers, such as Concentric Networks, EarthLink, GTE
Internetworking, Prodigy, PSINet, Sprint, the UUNET subsidiary of MCI WorldCom,
and Verio, provide traditional and high speed Internet access to residential
and business customers, generally using the existing communications
infrastructure. Providers, such as America Online, Microsoft Network, Prodigy
and WebTV, generally target the residential market and provide Internet
connectivity, ease-of-use and a stable environment for modem connections.
Digital subscriber line companies
Digital subscriber line companies and/or their Internet service provider
customers, such as Covad, Network Access Solutions, Northpoint and Rhythms
NetConnections, provide high capacity Internet access using digital subscriber
line technology, which enables data traffic to be transmitted over standard
copper telephone lines at much higher speeds than these lines would normally
allow.
Cable-based service providers
Cable-based service providers, such as Excite@Home and its @Work subsidiary,
High Speed Access, RCN Telecom Services and Road Runner, use cable television
distribution systems to provide high capacity Internet access.
Suppliers
We must connect our in-building networks to local, long distance and
Internet service providers in order to serve our customers. In most of our
markets, to connect our networks to local, long-distance and Internet
providers, we connect our networks to and lease facilities from the local
telephone company, which is usually one of the regional Bell operating
companies such as BellSouth, Bell Atlantic, SBC-Ameritech and Pac Bell.
Typically, we are able to secure connections for local calling service within
30 days of requesting such service, although additional delays of 15 to 30 days
are not uncommon.
We purchase long-distance transmission capacity from several long-distance
communications companies, such as ITC DeltaCom, Qwest and MCI WorldCom, on
terms customary for the industry. While we have entered into several long-
distance contracts with minimum purchase commitments, we believe that none of
these contracts are material and that in most cities in which we operate there
are a number of long distance carriers with whom we could arrange long-distance
services. Typically, we are able to secure connections for long-distance
service within 30 days of requesting such service.
To provide Internet services to our customers, we purchase data transmission
capacity from Internet service providers such as MCI WorldCom, Sprint, Verio
and Savvis. We believe that our
45
<PAGE>
agreements for data transmission capacity are on customary terms for the
industry and that in most cities in which we operate there are a number of data
transmission capacity providers with whom we could arrange data transmission
services. Typically, we are able to secure connections for data transmission
capacity within 45 days of requesting such service.
Our in-building networks contain equipment such as data switches, routers,
voice switches, and other communications and video equipment that we purchase
from Nortel Networks, Cisco Systems and other manufacturers. We do not have any
minimum purchase commitments with any of our manufacturers and believe that
there are alternative vendors available to us for all the types of equipment
which we purchase.
Regulation
Our provision of basic communications services is subject to regulation at
the federal, state and local level. Often, regulations do not specifically
address our operations and the application of these regulations is subject to
interpretation. Regulators may successfully assert that additional regulations
apply to our operations. Additionally, regulation of the communications
industry is evolving rapidly. The regulations that apply to us are subject to
ongoing administrative proceedings, litigation and legislation. The outcome of
these various proceedings, as well as any other regulatory initiatives, cannot
be predicted. Future regulatory changes may have a material adverse affect on
our business and operations.
Local Voice Services
In the states where we currently provide local voice services, we believe
that we qualify as what most states refer to as a "shared tenant service
provider." Laws in these states vary as to the terms and conditions with which
we must comply to be classified as a shared tenant service provider. Some of
these terms and conditions include:
. We must maintain a switching system, or private branch exchange, in each
building or set of contiguous buildings that we serve which allows calls
to be routed directly to the individual instead of through a central
number.
. The local telephone company must be permitted by the building owner to
provide service to any tenant in the buildings in which we operate.
. In California, we may not charge our customers a higher rate for local
voice services than we are charged by the local telephone company for
those services.
. In Illinois, we must permit local telephone companies, upon payment of a
fee, to use the communication equipment in our buildings.
. In some states, we must register as a shared tenant service provider and
file reports. Registering as a shared tenant services provider simply
involves filing the required application and, in some instances, may
also involve the payment of a small fee.
. In some states, we must pay regulatory fees and universal service fees.
Universal service fees are payments to funds established to, among other
things, help subsidize the incumbent local telephone company's provision
of telephone service to certain rural and other hard-to-reach areas.
A jurisdiction's regulations or guidelines governing shared tenant service
providers may not specifically address our operations. While we believe that we
qualify as a shared tenant service provider in all the jurisdictions where we
currently provide local voice services, a regulator may
46
<PAGE>
successfully challenge our position and conclude that we need to qualify as a
competitive local telephone company. Additionally, jurisdictions may modify
their regulations to reduce or eliminate their shared tenant service provider
classification, requiring us to comply with the regulation of competitive local
telephone companies. In fact, in some states in which we intend to provide
local voice services, we will become a competitive local telephone company
because the regulations in such states will effectively require us to do so in
order to perform our operations in the manner we propose.
Competitive local telephone companies are typically subject to more
stringent state regulation than shared tenant service providers. Our cost of
regulatory compliance would increase if we were subject to regulation as a
competitive local telephone company, but not in such a way that would have a
material adverse effect on our business. Most states require that competitive
local telephone companies receive approval from the public service commission
to operate. Competitive local telephone companies generally must also file
tariffs setting forth the terms, conditions and prices for intrastate voice
services. In many states, competitive local telephone companies must also,
among other things, file accident reports, notifications of complaints and
service interruptions, and contribute to universal service support. In
addition, under federal law, including the Telecommunications Act of 1996,
competitive local telephone companies are subject to certain rights and
obligations with respect to their agreements with incumbent local telephone
companies, including the duty to interconnect with other carriers, to provide
other carriers access to their poles, ducts, conduits, and rights-of-way, and
to make their agreements with the incumbent local telephone company available
to other carriers on a non-discriminatory basis. As a result of the
Telecommunications Act, which removed most of the significant legal barriers to
entry into communications service, including local telephone company service,
there has been increased competition in our target markets for the provisioning
of local telephone services.
While we are generally subject to less regulation as a shared tenant
services provider than we would be as a competitive local telephone company, we
have the added regulatory uncertainty that arises from the fact that many
states have little, if any, written regulations regarding shared tenant
services. The regulations that do exist are often unclear. In addition, some
states rely on the tariffs of the local telephone companies to determine what
constitutes permissible shared tenant services, and there are no assurances
that such tariffs will not change in a manner that materially affects our
ability to provide services as a shared tenant services provider. In addition,
as a shared tenant services provider we have less flexibility with respect to
the use of our switching systems than competitive local telephone companies
because we must maintain a switching system, or private branch exchange, in
each building or set of contiguous buildings that we serve.
Long Distance Voice Services
While the law on this issue is unclear, we believe that given the highly
customized interstate and international long distance services that we provide,
we are not required to make any material filing with, or seek the approval of,
the Federal Communications Commission. As with our local voice services, our
long distance services may be considered to be a common carrier service by the
Federal Communications Commission. If that occurs, we will be subject to common
carrier regulation under federal law and will need to file domestic and
international tariffs and seek FCC authorization to provide international
service. Our cost of regulatory compliance would increase if we were subject to
regulation as a common carrier. On the other hand, if we are deemed to be a
common carrier, we may find it easier to market our services to prospective
customers because we could simplify our agreements with them since many of the
protections we believe we need, such as limitation of liability, could be set
forth in the tariffs.
47
<PAGE>
Additionally, as a result of the Telecommunications Act of 1996, the
regional Bell operating companies are now permitted to provide long distance
services in territories where they are not the dominant provider of local
services. These companies may also provide long distance services in the
territories where they are the dominant provider of local services if they
satisfy a regulatory checklist established by the Federal Communications
Commission. In December 1999, the FCC ruled that Bell Atlantic has met these
requirements in New York and may provide long distance services in New York.
If other regional Bell operating companies are permitted to provide long
distance services in territories where we operate, we could face greater price
competition.
Data Services
The Internet and data services that we provide generally are not subject to
federal, state or local regulation. Congress and some state legislatures have
considered imposing taxes and other burdens on Internet service providers and
regulating content provided over the Internet. Additionally, we may be
affected by statutes, regulations and court cases relating to the liability of
Internet service
providers and other on-line service providers for information carried on or
through their services or equipment, including in the areas of copyright,
indecency/obscenity, defamation and fraud. Future regulation may have a
negative impact on our ability to offer Internet services at competitive and
profitable rates.
Video and Wireless Services
Our provision of video services is subject to some federal, state and/or
local regulations. We are, for example, required to obtain consent from local
broadcasters, and pay certain copyright fees, in order to provide their
programming, and we must also pay copyright fees to provide certain other
programming. We also are subject to some technical requirements with regard to
our provision of video services, such as requirements to ensure that our
system will not cause harmful interference with certain other communications
systems. Further, to the extent that we provide programming using wireless
transmission, we must obtain and maintain federal licenses.
Our video services are regulated to a far lesser extent than the video
services of franchised cable operators, which are those video services
providers who have received franchises from the municipalities they serve and
whose facilities typically cross public streets and rights of way. For
example, we are not subject to any rate regulation, and we are not subject to
the "must carry" obligations placed upon franchised cable operators, which
require those operators to carry certain programming.
Recent rulings of the Federal Communications Commission may impact our
video services. For example, the FCC recently ruled that owners of multiple
unit premises generally cannot forbid their tenants from installing some
communication devices, such as satellite dishes, on the tenant's balconies and
other areas controlled by the tenant.
We do not have any cellular or similar types of licenses. Rather, we rent
or sell pagers and wireless phones and resell the services of wireless
providers. Consequently, while we do pay some regulatory fees, we generally
are not subject to federal regulation with respect to these services.
Multiple Unit Premises
There have been proposals to require that commercial office buildings give
access to competitive providers of communications services, and some states,
such as California and Texas, already have
48
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mandatory access laws. These laws generally prohibit a property owner from
providing exclusive access to one provider or from restricting another
provider's access to the property. In addition, the Federal Communications
Commission is considering, among other things, whether building owners offering
access to any communications provider should be required to make comparable
access available to all such providers on a nondiscriminatory basis. We do not
know whether, or in what form, these proposals will be adopted. If the FCC or
many other states in which we operate or intend to operate require commercial
property owners to provide access to all communications providers, such laws
will facilitate our competitors' access to buildings we serve. Such laws may,
however, also enable us to obtain access to buildings in which we otherwise may
have been denied access.
Intellectual Property
We regard certain aspects of our products, services and technology as
proprietary and attempt to protect them with patents, copyrights, trademarks,
trade secret laws, restrictions on disclosure and other methods. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our products, services or technology without authorization, or to
develop similar technology independently.
We currently have a patent application pending for our fiber-optic
infrastructure and network configuration. This patent may not be issued to us,
and if issued, it may not protect our intellectual property from competition
which could seek to design around or invalidate this product.
Employees
As of December 31, 1999, we had 191 full-time employees. We are not party to
any collective bargaining agreements covering any of our employees, have never
experienced any material labor disruption and are unaware of any current
efforts or plans to organize our employees. We consider our relationships with
our employees to be good.
Facilities
Our headquarters are located in facilities consisting of approximately 9,000
square feet in Atlanta, Georgia which we occupy under a lease which expires in
July 2005. We also occupy approximately 8,000 square feet of temporary space in
Atlanta under leases of less than one year, and we are currently negotiating a
lease for approximately 20,000 square feet which will replace these temporary
quarters. In addition, our engineering personnel, network operating facilities
and warehousing and distribution functions are scheduled to be relocated to a
new facility consisting of approximately 32,000 square feet in Norcross,
Georgia under a lease which expires in November 2006. We also occupy offices in
various major U.S. markets under leases of various terms. As we expand into new
markets we will continue to add office space as needed.
Legal Proceedings
We may from time to time be involved in legal proceedings in the ordinary
course of our business. We are not currently involved in any pending legal
proceedings that are expected to have a material adverse effect on our
business.
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MANAGEMENT
Executive Officers, Key Employees and Directors
Our executive officers, key employees and directors, their position and
their ages as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
R. Stanley Allen........ 42 Chief Executive Officer and Director
Ward C. Bourdeaux, Jr... 41 Executive Vice President and Director
Mark A. Graves.......... 40 President, Chief Operating Officer and Secretary
Barry L. Boniface....... 37 Chief Financial Officer, Vice President and Treasurer
C. Timothy Allaway...... 41 Vice President of Customer Service
Eugene H. Kreeft........ 50 Vice President of Engineering
Robert W. McCarthy...... 37 Vice President, General Counsel and Assistant Secretary
James W. McClintock..... 44 Vice President of International
Raymond F. Potts........ 36 Vice President of Marketing and Sales
Claire S. Schenk........ 50 Vice President of Human Resources
Alistair Sloan.......... 35 Vice President of Internet Services
William P. Egan......... 54 Director
Laurence S. Grafstein... 39 Director
Randall A. Hack......... 52 Director
John C. Halsted......... 35 Director
Jeffrey H. Schutz....... 48 Director
P. Eric Yopes........... 47 Director
</TABLE>
R. Stanley Allen is a co-founder of Cypress and has served as our Chief
Executive Officer and a director since August 1995. From August 1995 until
September 1998, he also served as our President. From March 1994 to May 1996,
Mr. Allen was President and Chief Executive Officer of Applied Video
Technologies, Inc., a wireless cable and communications investment and
development company. From 1991 to 1994, Mr. Allen was President of American
Quality Cable Corporation, a wireless cable television operator. Mr. Allen has
also held positions as Manager-Real Estate Consulting for Coopers & Lybrand and
Analyst for Wellington Real Estate, an affiliate of Boston-based Wellington
Management Company. Mr. Allen was a Director for Wireless Cable of Atlanta
before its acquisition by BellSouth in 1997 and was also a Director for the
Wireless Cable Association. Mr. Allen received a Bachelor of Arts degree in
Economics and a Master of Business Administration degree from the University of
Virginia.
Ward C. Bourdeaux, Jr. is a co-founder of Cypress and has served as our
Executive Vice President and a director since August 1995. From January 1993 to
April 1995, Mr. Bourdeaux served as Director of Development for RealCom Office
Communications, where he was responsible for identifying new building and
market opportunities and entering into new license agreements on a national
basis, and for the renewal of existing agreements nationally. Prior to that, he
spent over nine years in the commercial real estate industry with Cushman &
Wakefield and Carter & Associates. Mr. Bourdeaux received a Bachelor of Arts
degree in Communications from the University of Alabama.
Mark A. Graves has served as our President since September 1998 and our
Chief Operating Officer and Secretary since September 1997. From September 1997
until September 1998, he also served as our Chief Financial Officer. From March
1994 to September 1997, Mr. Graves was Executive Director of Corporate
Development for BellSouth Corporation, where he was involved in
50
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mergers, acquisitions and other strategic transactions. Mr. Graves' activities
principally involved BellSouth Corporation's telephone services, Internet
services unit and wireless data partnerships. From May 1989 to February 1994,
Mr. Graves was a Principal at Sterling Payot Company, a private investment firm
in San Francisco, where he provided advisory services in strategy and finance
predominantly to media and telecommunications companies, including Pacific
Telesis in its spin-off of PacTel Corp., which was renamed AirTouch
Communications. Prior to joining Sterling Payot Company, Mr. Graves held
positions at The First Boston Corporation and United Technologies Corporation.
Mr. Graves received a Bachelor of Arts degree in Economics and a Master of
Business Administration degree from Harvard University.
Barry L. Boniface has served as our Chief Financial Officer since October
1998. From September 1994 to October 1998, Mr. Boniface was Executive Director
of Corporate Development for BellSouth Corporation, where he was responsible
for domestic and international mergers, acquisitions, divestitures and other
strategic transactions. Mr. Boniface's activities principally involved
BellSouth's domestic and international wireless telephone services and
competitive local telephone activities. Prior to that, Mr. Boniface was a
principal in Berkshire Partners, Inc., a merchant banking firm based in Dallas,
Texas. He has also held the positions of Chief Operating Officer for Global
Business Acceleration, Inc., an early stage software development company, and
Vice President in the Corporate Finance Department at Principal Financial
Securities, Inc., an investment banking firm. Mr. Boniface received a Bachelor
of Business Administration degree in Management Information systems from
Southern Methodist University and a Master of Business Administration degree
from the Goizueta Business School at Emory University.
C. Timothy Allaway has served as our Vice President of Customer Service
since December 1999. From June 1996 to December 1999, Mr. Allaway was Director,
Customer Services for IBM, North America supporting the full line of hardware
and software offerings. From September 1994 to June 1996, Mr. Allaway was
Director, Small Business Sales and Partnerships for MCI. From 1986 to September
1994, Mr. Allaway held various sales and service management positions for MCI.
Prior to that, Mr. Allaway spent five years with Xerox Corporation. Mr. Allaway
received a Bachelor of Science degree in Management from Jacksonville State
University and a Master of Business Administration degree from Auburn
University.
Eugene H. Kreeft has served as our Vice President of Engineering since
February 1999. From 1991 until February 1999, Mr. Kreeft was an Executive Vice
President of Preferred Networks Inc., an outsourcing services provider to the
wireless industry which he founded in 1991. From 1989 to 1991, Mr. Kreeft
served as Director of Technical Support, U.S. Operations, for Glenayre
Technologies, a developer and provider of personal telecommunications systems.
Prior to that, Mr. Kreeft was employed by BBL Industries, Inc., a paging
equipment manufacturer, where he served as both Vice President of Engineering
and Manufacturing and Vice President of Applications/New Product Development.
Mr. Kreeft has also held management and engineering positions with Motorola,
RAM Broadcasting, AT&T, Western Union Microwave Systems, Highland Telephone
Company and Delaware Telephone Company.
Robert W. McCarthy has served as our General Counsel since December 1999.
From August 1996 until December 1999, Mr. McCarthy was a General Attorney at
BellSouth Corporation, where he specialized in domestic and international
mergers and acquisitions and joint venture transactions. Prior to that, he was
a partner in the Atlanta offices of Hunton & Williams, where he specialized in
mergers and acquisitions, joint ventures and venture capital transactions. Mr.
McCarthy received a
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Bachelor of Arts degree in Political Science and a Juris Doctor degree from the
University of North Carolina at Chapel Hill.
James W. McClintock has served as our Vice President of International since
December 1999. From March 1999 until December 1999, Mr. McClintock was Vice
President of Data Services for BellSouth International (BSI), where he led the
development of BSI's Internet and data strategy and associated business
development activities, focusing principally on Latin America and Europe. Prior
to that, Mr. McClintock was Executive Director of Corporate Development for
BellSouth Corporation, where he worked primarily with BellSouth Entertainment
and BellSouth.net, managing a number of significant merger, acquisition and
alliance activities involving these two business units. Prior to joining
BellSouth in 1993, Mr. McClintock had fourteen years of experience managing,
investing in and financing entrepreneurial ventures of all types and scale,
including positions in banking with Citicorp and in venture capital with Equity
Group Investments. Mr. McClintock received a Bachelor of Arts degree in
Economics from Washington and Lee University and a Master of Business
Administration degree in Finance from the University of North Carolina.
Raymond F. Potts has served as our Vice President of Marketing and Sales
since October 1999. From September 1997 to October 1999, Mr. Potts was Regional
Vice President for Sales, Operations and Marketing for the midwest territory of
Teligent, Inc., a wireless telecommunications company. From 1996 to September
1997, Mr. Potts served as Vice President of Sales for the midwest region of
Cable & Wireless, Inc., a wireless telecommunications company. Prior to that,
Mr. Potts spent in excess of ten years in various senior-level sales and
service management positions for Midcom Communications, Sprint, LCI and TFN
Communications. Mr. Potts received a Bachelor of Business Administration degree
from St. Joseph's College in Rensselaer, Indiana.
Claire S. Schenk has served as our Director of Human Resources since June
1999. From June 1996 until May 1999, Ms. Schenk was Vice President for Human
Resources for Trism, Inc., a national specialized transportation company
headquartered in Atlanta. From December 1989 until June 1996, Ms. Schenk was
Vice President, Senior Business Partner for two national mortgage companies.
Ms. Schenk also has ten years of human resources management experience with
Sheraton Corporation and Six Flags Corporation. Ms. Schenk received a Bachelor
of Arts degree in Psychology from Emory University.
Alistair Sloan has served as our Vice President of Internet Services since
September 1999. From January 1998 until September 1999, Mr. Sloan was our
Manager of Internet Services. Prior to joining Cypress, Mr. Sloan was Project
Manager at Systems Atlanta, where he consulted with clients on Internet and
Wide Area Networking design and security. Prior to that, Mr. Sloan was a
manager of Internet Connect, a division of Systems Atlanta specializing in
dedicated business Internet connectivity. Mr. Sloan has also held positions
with Ingram Micro, Inc. and has been an independent consultant in the field of
local area networking. Mr. Sloan received a Bachelor of Arts degree in
Political Science from the University of Bridgeport.
William P. Egan has served as a director since February 1997. Mr. Egan is a
founding partner of Burr, Egan, Deleage & Co. and Alta Communications, an
affiliated firm. For over twenty years, Mr. Egan has invested in a wide variety
of companies in the information technology, life sciences and communications
industries. He is a past President and Chairman of the National Venture Capital
Association. Mr. Egan received a Bachelor of Arts degree from Fairfield
University and a Master of Business Administration degree from the University
of Pennsylvania. He serves as a director of Cephalon, Inc.
52
<PAGE>
Laurence S. Grafstein has served as a director since November 1999. Mr.
Grafstein is Managing Director and co-founder of Gramercy Communications
Partners, Inc., a private equity firm specializing in telecommunications
investments. From February 1996 to May 1999, Mr. Grafstein was a Managing
Director and head of the global telecommunications investment banking practice
at Credit Suisse First Boston, a global investment bank. From February 1994 to
February 1996, Mr. Grafstein was a Managing Director of Wasserstein Perella &
Co., a global investment bank. Mr. Grafstein received a Bachelor of Arts degree
from Harvard University, a Master of Philosophy degree from Balliol College of
Oxford University, where he was a Rhodes Scholar and president of the Oxford
Union Society, and an LLB from the University of Toronto Law School. Mr.
Grafstein is a director of Z-Tel Technologies, Inc.
Randall A. Hack has served as a director since November 1999. He is a Senior
Managing Director of Nassau Capital. From 1990 to 1994, Mr. Hack served as
President and Chief Executive Officer of the Princeton University Investment
Company, where he had overall management responsibility for Princeton's multi
billion-dollar endowment of publicly traded securities and private investments.
From 1979 to 1988, he was President and Chief Executive Officer of Matrix
Development Group, a commercial and industrial real estate development firm,
which he founded. Mr. Hack received a Bachelor of Arts degree from Princeton
University and a Master of Business Administration degree from Harvard
University. He serves as a director of OmniCell.com, Inc., Cornerstone
Properties, Acacia Capital Corp., KMC Telecom, Inc. and Crown Castle
International Corp.
John C. Halsted has served as a director since October 1998. Mr. Halsted
serves as Senior Vice President of Beacon Capital Partners, Inc. and Chief
Investment Officer of Beacon Venture Partners, Beacon Capital's venture capital
subsidiary. From 1993 to 1997, Mr. Halsted was Vice President at Harvard
Private Capital Group. From 1991 to 1993, Mr. Halsted was an Associate with
Simmons & Company, an investment banking firm in Houston, Texas. Mr. Halsted
received a Master of Business Administration degree from The Harvard Business
School and a Bachelor of Arts degree in Economics from The University of
California at Berkeley.
Jeffrey H. Schutz has served as a director since November 1996. Mr. Schutz
is a general partner of The Centennial Funds, a venture capital firm based in
Denver, Colorado that focuses on electronic communications companies. Since
1981, Centennial has invested more than $700 million in pioneering
entrepreneurial ventures in communications networks, services and technologies.
Mr. Schutz received an AB in Economics from Middlebury College and a Master of
Business Administration degree from the Colgate Darden Graduate School of
Business Administration at the University of Virginia. Mr. Schutz is a director
of Crown Castle International Corp., Enhance Media, Inc. and Point-To-Point,
Inc.
P. Eric Yopes has served as a director since December 1999. Mr. Yopes is the
Vice Chairman-Investments of Shorenstein Management, Inc. Mr. Yopes joined
Shorenstein in 1984 and his responsibilities have encompassed all aspects of
real estate investment, development, acquisitions/sales, finance, operations
and leasing. He has served as Senior Operating Executive and Chief Financial
Officer of Shorenstein. His current responsibilities include strategy and
investment management, portfolio management, and investor and lender relations.
Mr. Yopes received a Bachelor of Arts degree from Yale University and a Juris
Doctor degree from the University of Chicago.
53
<PAGE>
Board Composition
In connection with the sale of our series C preferred stock, all of our then
existing stockholders entered into a stockholders agreement. This agreement
provides for, among other things, the nomination of and voting for a total of
nine directors of Cypress, as follows:
. two management representatives designated by the founding stockholders -
- these representatives are Messrs. Allen and Bourdeaux;
. one representative designated by The Centennial Funds -- this
representative is Mr. Schutz;
. one representative designated by Alta Communications -- this
representative is Mr. Egan;
. one representative designated by Beacon Capital Partners -- this
representative is Mr. Halsted;
. one representative designated by Nassau Capital -- this representative
is Mr. Hack;
. one representative designated by Gramercy Communications Partners --
this representative is Mr. Grafstein;
. one representative designated by Boston Properties, Cornerstone and
Shorenstein, voting together as a group -- this representative is Mr.
Yopes; and
. one outside representative designated jointly by:
(1) The Centennial Funds, Alta Communications, Beacon Capital
Partners, Nassau Capital and Gramercy Communications Partners,
voting together as a class; and
(2) R. Stanley Allen, Ward C. Bourdeaux, Jr., Mark A. Graves, Barry L.
Boniface and George J. Cisler, voting together as a class. This
last directorship is currently vacant.
The stockholders agreement requires each stockholder to vote all securities
over which they have voting control and to take all other necessary or
desirable action within their control to effect the preceding election of
directors. The provisions of the stockholders agreement regarding the
nomination and election of directors automatically terminate upon the closing
of this offering.
Following this offering, the board of directors will be divided into three
classes, each of whose members will serve for a staggered three-year term.
Messrs. Bourdeaux, Egan and Schutz will serve as Class I directors whose terms
will expire at the annual meeting of stockholders held in 2000. Messrs.
Grafstein, Hack and Yopes will serve as Class II directors whose terms will
expire at the annual meeting of stockholders held in 2001. Messrs. Allen and
Halsted will serve as Class III directors whose terms will expire at the annual
meeting of stockholders held in 2002.
Committees of the Board of Directors
Our bylaws provide that our board of directors may designate one or more
board committees. We currently have an audit committee and a compensation
committee.
Audit Committee. The audit committee is responsible for recommending to the
board of directors the engagement of our outside auditors and reviewing our
accounting controls and the results and scope of audits and other services
provided by our auditors. The members of the audit committee are Messrs. Hack,
Halsted and Grafstein.
54
<PAGE>
Compensation Committee. The compensation committee is responsible for
reviewing and approving the amount and type of consideration to be paid to
senior management. The members of the compensation committee are Messrs. Egan,
Halsted and Schutz.
Other Committees. The board of directors may establish, from time to time,
other committees to facilitate the management of our business.
Compensation Committee Interlocks and Insider Participation
As noted above, the members of the compensation committee are Messrs. Egan,
Halsted and Schutz. Mr. Egan is a general partner of Alta Communications, which
purchased 263,158 shares of series C preferred stock from Cypress on October 8,
1999 for $5.0 million. Mr. Halsted is an executive officer of Beacon Capital
Partners, which purchased 342,105 shares of series C preferred stock from
Cypress on October 8, 1999, for $6.5 million. Mr. Schutz is a general partner
of The Centennial Funds, which purchased 263,158 shares of series C preferred
stock from Cypress on October 8, 1999 for $5.0 million. Prior to 1999, these
same investors purchased additional shares of our convertible preferred stock.
See "Certain Relationships and Related Transactions."
Director Compensation
Directors who are employees receive no additional compensation for their
services as directors. We plan to compensate non-employee directors as follows:
$5,000 annual fee, $1,000 for each meeting attended in person and $500 for each
meeting attended by telephone. Non-employee directors are also eligible to
participate in our 2000 stock option plan at the discretion of the full board
of directors.
Severance Plan
We intend to adopt a severance plan which will cover Messrs. Allen,
Bourdeaux, Graves and Boniface. This plan will provide severance benefits to
these executive officers if they are terminated without "cause" or they
terminate with "good reason" within a one-year period following a change of
control of Cypress. Upon a qualifying termination, the executive officer will
be entitled to a lump sum payment equal to one and one-half times his base
salary.
Executive Compensation
The following table sets forth in summary form the compensation that was
paid to our Chief Executive Officer and the other most highly compensated
executive officers whose aggregate compensation exceeded $100,000 in the year
ended December 31, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Compensation
------------
Annual
Compensation Securities
-------------- Underlying
Name and Principal Position Salary Bonus Options
- --------------------------- -------- ----- ------------
<S> <C> <C> <C>
R. Stanley Allen.................................. $165,000 (1) 243,000
Chief Executive Officer
Mark A. Graves.................................... 155,000 (1) 306,000
President, Chief Operating Officer and Secretary
Ward C. Bourdeaux, Jr. ........................... 135,000 (1) 369,000
Executive Vice President
Barry L. Boniface ................................ 145,000 (1) 297,000
Vice President, Chief Financial Officer and
Treasurer
</TABLE>
- --------
(1) Bonus has not yet been determined.
55
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth information related to stock options granted
to our named executive officers during the year ended December 31, 1999.
Option Grants in Last Fiscal Year(1)
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------
Percent of Potential Realizable
Number of Total Value at Assumed
Securities Options Annual Rates of Stock
Underlying Granted to Exercise Assumed Price Appreciation For
Options Employees Price Public Option Terms(2)
Grant in Fiscal Per Offering Expiration -----------------------
Name (#) Year(%) Share Price Date 5% 10%
- ---- ---------- ---------- -------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
R. Stanley Allen........ 180,000 5.14% $1.07 $15.00 4/7/09 $ 209,085 $ 447,017
63,000 1.80 2.53 15.00 11/29/09 705,700 1,218,121
Mark A. Graves.......... 180,000 5.14 1.07 15.00 4/7/09 209,085 447,017
126,000 3.60 2.53 15.00 11/29/09 1,411,399 2,436,241
Ward C. Bourdeaux, Jr... 180,000 5.14 1.07 15.00 4/7/09 209,085 447,017
189,000 5.40 2.53 15.00 11/29/09 2,117,099 3,654,362
Barry L. Boniface....... 45,000 1.29 1.07 15.00 4/7/09 52,271 111,754
252,000 7.20 2.53 15.00 11/29/09 2,822,799 4,872,483
</TABLE>
- --------
(1) The number of options granted in the year ended December 31, 1999 was
3,526,655. The options expire ten years after the date of the grant and
vest 20% upon the first anniversary of the date of grant and 5% each
subsequent quarter measured from the first anniversary of the date of
grant. The options fully vest upon a change of control. The exercise price
of the options is adjusted appropriately in the event of a subdivision or
combination of the outstanding common stock or in the event of a payment of
a stock dividend in shares of common stock to the holders of common stock.
In the event of a merger, consolidation or other reorganization, the
compensation committee may make any adjustments to the option that it deems
necessary.
(2) Potential realizable value is based on the assumption that our common stock
appreciates at the annual rate shown, compounded annually, from the date of
grant until expiration of the ten-year term. These numbers are calculated
based on SEC requirements and do not reflect our projection or estimate of
future stock price growth. Potential realizable values are computed by
multiplying the number of shares of common stock subject to a given option
by the fair market value of the common stock on the date of grant,
determined to be $1.37 as of April 7, 1999 and $8.43 as of November 29,
1999, and assuming that the aggregate stock value derived from that
calculation compounds at the annual 5% or 10% rate shown in the table for
the entire ten-year term of the option and subtracting from that result the
aggregate option exercise price. Actual realizable value, if any, will be
dependent on the future price of the common stock on the actual date of
exercise, which may be earlier than the stated expiration date.
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<PAGE>
Fiscal Year-End Option Values
The following table sets forth the number of shares covered by both
exercisable and unexercisable options as of December 31, 1999 and the year-end
value of exercisable and unexercisable options as of December 31, 1999 for the
named executive officers.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at Options at
December 31, 1999 December 31, 1999(1)
---------------------------------- -----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
R. Stanley Allen........ 248,454 491,661 3,561,142 6,857,573
Mark A. Graves.......... 214,704 588,411 3,072,892 8,113,223
Ward C. Bourdeaux, Jr... 248,454 617,661 3,561,142 8,428,373
Barry L. Boniface....... 51,075 501,300 771,645 3,473,580
</TABLE>
- --------
(1) The value of the unexercised in-the-money options at December 31, 1999 was
calculated using an assumed initial public offering price of $15.00 per
share as the estimated fair value per common share at that date.
Stock Plans
1997 Management Option Plan
Our 1997 management option plan was initially adopted by our board of
directors and approved by our stockholders on July 15, 1997. We established
this plan to provide officers, directors, key employees and consultants the
ability to acquire an ownership interest in Cypress. The options generally vest
20% per year and expire ten years after issuance. At December 31, 1999, there
were options to purchase a total of 5,820,976 shares of common stock granted
under this plan, of which options to purchase 991,639 shares have vested.
Although no further options will be granted under this plan, the unvested
options will continue to vest in accordance with this plan.
2000 Stock Option and Incentive Plan
Our 2000 stock option plan was adopted by our board of directors on December
21, 1999 and was subsequently approved by our stockholders on December 23,
1999. The 2000 stock option plan permits us to make grants of:
. incentive stock options;
. non-qualified stock options;
. restricted stock;
. deferred stock awards;
. unrestricted stock; and
. performance share awards.
Under the 2000 stock option plan, the aggregate number of shares available
for grants of awards shall be 5,756,125 shares of common stock, subject to
adjustment in the event of a stock split, stock dividend or other change in
capitalization. Any shares forfeited from awards under the 2000 stock option
plan or the 1997 management option plan will also be available for future
awards under the 2000 stock option plan. No common stock has been issued to
date under the 2000 stock option plan.
57
<PAGE>
2000 Stock Option Plan Administration. The 2000 stock option plan provides
for administration by either the board of directors or the compensation
committee, which consists of non-employee directors. The committee has full
power to select, from among the individuals eligible for awards, the
participants to whom awards will be granted, to make any combination of awards
to participants, and to determine the specific terms and conditions of each
award, subject to the provisions of the 2000 stock option plan.
Eligibility and Limitations on Grants. All officers, employees, directors
and key persons (including consultants and prospective employees) are eligible
to participate in the 2000 stock option plan, subject to the discretion of the
committee. From and after the date awards made under the 2000 stock option plan
become subject to Section 162(m) of the Internal Revenue Code, no participant
may receive options to purchase more than 1,500,000 shares of common stock
(subject to adjustment for stock splits, stock dividends and other change in
capitalization) during any one calendar year period, as stated above.
Option Terms. The committee has authority to determine the terms of options
granted under the 2000 stock option plan. However, incentive stock options will
have an exercise price that is not less than 100% of the fair market value of
the shares of common stock on the date of the option grant and non-qualified
stock options, other than those granted in lieu of a participant's cash
compensation at the participant's election with the consent of the committee,
will have an exercise price that is not less than 85% of the fair market value
of the shares of common stock on the date of the option grant.
At the discretion of the committee, stock options granted under the 2000
stock option plan may include a "re-load" feature pursuant to which an optionee
exercising an option by the delivery of shares of common stock would
automatically be granted an additional stock option (with an exercise price
equal to the fair market value of the common stock on the date the additional
stock option is granted) to purchase that number of shares of common stock
equal to the number delivered to exercise the original stock option. The
purpose of this feature is to enable participants to maintain their equity
interest without dilution.
Acceleration Upon a Merger, Sale or Change of Control of Company. Upon the
occurrence of any of the following events, unless otherwise provided in the
award agreements, all outstanding awards granted pursuant to the 2000 stock
option plan shall become fully exercisable or fully vested and nonforfeitable:
. the dissolution or liquidation of Cypress;
. the sale of all or substantially all of the assets of Cypress;
. a merger, reorganization or consolidation of Cypress;
. the sale of all of the stock of Cypress; or
. a change of control of Cypress.
In the event of certain transactions, such as a merger, consolidation,
dissolution or liquidation, the committee in its discretion may provide for
appropriate substitutions or adjustments of outstanding stock options;
alternatively, outstanding stock options will terminate and the holder will
receive a cash payment equal to the excess of the fair market value per share
over the applicable exercise price, multiplied by the number of shares of
common stock covered by the stock option.
58
<PAGE>
Amendments and Termination. The board of directors may at any time amend or
discontinue the 2000 stock option plan and the committee may at any time amend
or cancel any outstanding award for the purpose of satisfying changes in law or
for any other lawful purpose, but no such action shall adversely affect the
rights under any outstanding awards without the holder's consent. To the extent
required by the Internal Revenue Code to ensure that options granted under the
2000 stock option plan qualify as incentive stock options, plan amendments
shall be subject to approval by our stockholders.
Employee Stock Purchase Plan
Our employee stock purchase plan was adopted by our board of directors on
December 21, 1999 and was subsequently approved by our stockholders on December
23, 1999. Up to 900,000 shares of common stock may be issued under the employee
stock purchase plan.
The first offering under the employee stock purchase plan will begin on the
effective date of this offering and end on October 31, 2000. Subsequent
offerings will commence on each November 1 and May 1 thereafter and will have a
duration of six months. Generally, all employees who are customarily employed
for more than 20 hours per week as of the first day of the applicable offering
period will be eligible to participate in the employee stock purchase plan. An
employee who owns or is deemed to own shares of stock representing in excess of
5% of the combined voting power of all classes of our stock will not be able to
participate in the employee stock purchase plan.
During each offering, an employee may purchase shares under the employee
stock purchase plan by authorizing payroll deductions of up to 10% of his or
her cash compensation during the offering period. The maximum number of shares
that may be purchased by any participating employee during any six-month
offering period is limited to the number of whole shares which is less than or
equal to $12,500 divided by the closing price per share on the first day of the
applicable offering period. Unless the employee has previously withdrawn from
the offering, his or her accumulated payroll deductions will be used to
purchase common stock on the last business day of the period at a price equal
to 85% of the fair market value of the common stock on the first or last day of
the offering period, whichever is lower. For purposes of the initial offering
period, the fair market value of common stock on the first day of the offering
period shall be the offering price to the public. Under applicable tax rules,
an employee may purchase no more than $25,000 worth of common stock in any
calendar year. No common stock has been issued to date under the employee stock
purchase plan.
59
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of
our common stock as of December 31, 1999. The percentage of beneficial
ownership is based on 35,575,169 shares of our common stock outstanding as of
such date, after giving effect to the conversion of all of our outstanding
shares of convertible preferred stock into common stock. The table sets forth
such information with respect to:
. each stockholder who is known by us to beneficially own 5% or more of
the common stock;
. each of our directors;
. each of the executive officers named in the "Summary Compensation
Table"; and
. all of our executive officers and directors as a group.
Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares of common stock beneficially owned
by such stockholder.
The number of shares beneficially owned by each stockholder is determined
under rules issued by the Securities and Exchange Commission. The information
is not necessarily indicative of beneficial ownership for any other purpose.
Under these rules, beneficial ownership includes any shares as to which the
individual or entity has sole or shared voting power or investment power and
any shares as to which the individual or entity has the right to acquire
beneficial ownership within 60 days after December 31, 1999, through the
exercise of any stock option or other right.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENT BENEFICIALLY
OWNED OWNED
------------------- --------------------
BEFORE AFTER
NAME OF BENEFICIAL OWNER(1) NUMBER OFFERING OFFERING(2)
- --------------------------- ------------------- -------- -----------
<S> <C> <C> <C>
Centennial Holdings V, L.P.(3)....... 8,240,153 23.2% 18.1%
Alta Communications, Inc.(4)......... 6,118,700 17.2 13.4
Beacon Capital Partners, Inc.(5)..... 4,351,973 12.2 9.5
Nassau Capital L.L.C.(6)............. 2,960,528 8.3 6.5
Gramercy Communications Partners,
Inc.(7)............................. 2,960,528 8.3 6.5
R. Stanley Allen(8).................. 979,884 2.7 2.1
Ward C. Bourdeaux, Jr.(9)............ 697,230 1.9 1.5
Jeffrey H. Schutz(3)................. 8,240,153 23.2 18.1
William P. Egan(4)................... 6,118,700 17.2 13.4
John C. Halsted(5)................... 4,351,973 12.2 9.5
Randall A. Hack(6)................... 2,960,528 8.3 6.5
Laurence S. Grafstein(7)............. 2,960,528 8.3 6.5
P. Eric Yopes(10).................... 828,950 2.3 1.8
Mark A. Graves(11)................... 285,890 * *
Barry L. Boniface(12)................ 88,830 * *
All directors and executive officers
as a group (12 persons)(13)......... 27,530,888 75.6 59.0
</TABLE>
- --------
* Represents less than 1% of the outstanding shares of common stock.
60
<PAGE>
(1) The address of Centennial Holdings V, L.P. and Mr. Schutz is 1428 15th
Street, Denver, CO 80202. The address of Alta Communications, Inc. and Mr.
Egan is One Post Office Square, Suite 3800, Boston, MA 02109. The address
of Beacon Capital Partners, Inc. and Mr. Halsted is One Federal Street,
26th Floor, Boston, MA 02110. The address of Nassau Capital L.L.C. and Mr.
Hack is 22 Chambers Street, Princeton, NJ 08542. The address of Gramercy
Communications Partners, Inc. and Mr. Grafstein is 712 Fifth Avenue, 43rd
Floor, New York, NY 10019. The address of P. Eric Yopes is c/o Shorenstein
Management, Inc., 555 California Street, 49th Floor, San Francisco, CA
94104. The address of all other listed stockholders is c/o Cypress
Communications, Inc., Fifteen Piedmont Center, Suite 710, Atlanta, GA
30305.
(2) Assumes the underwriters do not elect to exercise the over-allotment
option to purchase an additional 1,500,000 shares of common stock.
(3) Represents shares of common stock beneficially owned by investment funds
affiliated with Centennial Holdings V, L.P., of which Mr. Schutz is a
general partner, including 8,028,428 shares of common stock beneficially
owned by Centennial Fund V, L.P. and 211,725 shares of common stock
beneficially owned by Centennial Entrepreneurs Fund V, L.P. Mr. Schutz
disclaims beneficial ownership of the shares of common stock held by these
funds, except to the extent of his proportionate pecuniary interest in
such funds.
(4) Represents shares of common stock beneficially owned by investment funds
affiliated with Alta Communications, Inc., of which Mr. Egan is a general
partner, including 5,981,904 shares of common stock beneficially owned by
Alta Communications VI, L.P. and 136,796 shares of common stock
beneficially owned by Alta Comm S by S, LLC. Mr. Egan disclaims beneficial
ownership of the shares of common stock held by these funds, except to the
extent of his proportionate pecuniary interest in such funds.
(5) Represents shares of common stock beneficially owned by entities
affiliated with Beacon Capital Partners, Inc., of which Mr. Halsted is an
executive officer, including 204,242 shares of common stock beneficially
owned by Tenant Communications, Inc., 4,029,309 shares of common stock
beneficially owned by Building Communications, LLC and 118,422 shares of
common stock beneficially owned by Investor Communications LLC. Mr.
Halsted disclaims beneficial ownership of the shares of common stock held
by these funds, except to the extent of his proportionate pecuniary
interest in such funds.
(6) Represents shares of common stock beneficially owned by investment funds
affiliated with Nassau Capital L.L.C., of which Mr. Hack is a member,
including 2,914,146 shares of common stock beneficially owned by Nassau
Capital Partners III L.P. and 46,382 shares of common stock beneficially
owned by NAS Capital Partners I L.L.C. Mr. Hack disclaims beneficial
ownership of the shares of common stock held by these funds, except to the
extent of his proportionate pecuniary interest in such funds.
(7) Represents shares of common stock beneficially owned by Gramercy Cypress
LLC, an investment fund affiliated with Gramercy Communications Partners,
Inc., of which Mr. Grafstein is a Managing Director. Mr. Grafstein
disclaims beneficial ownership of the shares of common stock held by this
fund, except to the extent of his proportionate pecuniary interest in such
fund.
(8) Includes 271,058 shares of common stock held by Mr. Allen subject to
options exercisable as of December 31, 1999 or within 60 days thereafter.
(9) Includes 271,058 shares of common stock held by Mr. Bourdeaux subject to
options exercisable as of December 31, 1999 or within 60 days thereafter.
61
<PAGE>
(10) Represents shares of common stock beneficially owned by DWS Capital LLC,
an investment fund affiliated with Shorenstein Management, Inc., of which
Mr. Yopes is an executive officer. Mr. Yopes disclaims beneficial
ownership of the shares of common stock held by this fund, except to the
extent of his proportionate pecuniary interest in such fund.
(11) Includes 214,704 shares of common stock held by Mr. Graves subject to
options exercisable as of December 31, 1999 or within 60 days thereafter.
(12) Includes 63,846 shares of common stock held by Mr. Boniface subject to
options exercisable as of December 31, 1999 or within 60 days thereafter.
(13) Includes 863,874 shares of common stock held by all directors and
executive officers as a group subject to options exercisable as of
December 31, 1999 or within 60 days thereafter.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We were formed as a limited liability company under the laws of Georgia on
August 16, 1995 as Cypress Communications, L.L.C. We completed a reorganization
on July 15, 1997 in which the operations of the predecessor company were merged
into Cypress Communications, Inc., a Delaware corporation.
In connection with our reorganization on July 15, 1997, we issued an
aggregate of 2,636,906 shares of our common stock to nine persons, including
Messrs. Allen and Bourdeaux, Centennial Holdings V, L.P. and Alta
Communications, in exchange for membership interests in our predecessor
company. On that date, we also issued an aggregate of 1,200,140 shares of our
series A preferred stock for $5 per share to eight investors, including Messrs.
Allen, Bourdeaux and Graves, Centennial Holdings V, L.P. and Alta
Communications. On March 9, 1998, we issued 11,000 shares of our series A
preferred stock to Mr. Graves for $5 per share.
On September 30, 1998, we issued an aggregate of 1,333,200 shares of our
series B preferred stock to investors, including Messrs. Allen, Bourdeaux and
Graves, Centennial Holdings V, L.P., Alta Communications and Beacon Capital
Partners for $8 per share. On that same date, we also issued 579,613 shares of
our series B-1 preferred stock to Beacon Capital Partners for $8 per share. On
February 1, 1999 we issued an aggregate of 6,375 shares of our series B
preferred stock to Mr. Boniface and another employee for $8 per share.
Since September 30, 1999, we have issued an aggregate of 4,161,974 shares of
our series C preferred stock to investors, including Messrs. Allen, Bourdeaux,
Graves and Boniface, Centennial Holdings V, L.P., Alta Communications, Beacon
Capital Partners, Nassau Capital and Gramercy Communications Partners for $19
per share.
Our series A preferred stock, series B and B-1 preferred stock, and series C
preferred stock have a redemption price of $5 per share, $8 per share, and $19
per share, respectively. Redemption is mandatory beginning on October 8, 2005,
at which time up to one-third of the outstanding shares may be redeemed on each
of October 8, 2005, October 8, 2006 and October 8, 2007. In the event of any
liquidation, dissolution or winding up of our affairs, holders of the preferred
stock are entitled to be paid the redemption price, plus all accrued dividends,
before any payments to the holders of common stock. Each holder of preferred
stock, in preference to the holders of common stock, is entitled to receive
dividends, when and as declared by the board of directors. With the exception
of the series B-1 preferred stock, which is non-voting stock, each holder of
preferred stock votes with the holders of common stock on an on-converted
basis. Under the conversion rate set forth in the terms of the preferred stock,
the preferred stock was originally convertible into common stock on a one-for-
one basis. However, as a result of the proposed 4.5-for-1 stock split which
will occur in connection with this offering, the conversion rate will be
adjusted such that each share of preferred stock will be convertible into 4.5
shares of common stock. The preferred stock automatically converts into common
stock upon the completion of this offering.
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As result of the foregoing equity issuances, the following persons who are
our principal stockholders and executive officers directly own the following
shares of our capital stock:
<TABLE>
<CAPTION>
Series A Series B Series B-1 Series C
Common Preferred Preferred Preferred Preferred
Name of Related Party Stock Stock Stock Stock Stock
--------------------- ------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Centennial Holdings V,
L.P. ....................... 750,001 776,320 625,000 -- 263,158
Alta Communications, Inc..... 374,999 388,220 625,000 -- 263,158
Beacon Capital Partners,
Inc......................... -- -- 45,387 579,613 342,105
Nassau Capital L.L.C. ....... -- -- -- -- 657,895
Gramercy Communications
Partners, Inc............... -- -- -- -- 657,895
R. Stanley Allen............. 682,245 4,000 1,250 -- 658
Ward C. Bourdeaux, Jr........ 410,387 1,600 1,250 -- 658
Mark A. Graves............... -- 11,000 2,188 -- 2,632
Barry L. Boniface............ -- -- 4,500 -- 1,053
</TABLE>
Certain of our directors are affiliated with certain of our principal
stockholders. Mr. Schutz is a general partner of Centennial Holdings V, L.P.
Mr. Egan is a general partner of Alta Communications. Mr. Halsted is an
executive officer of Beacon Capital Partners. Mr. Hack is a member of Nassau
Capital. Mr. Grafstein is a Managing Director of Gramercy Communications
Partners.
One of our directors, Mr. Yopes, is an executive officer of Shorenstein
Management, Inc. In December 1999, we issued 184,211 shares of our series C
preferred stock to an investment fund affiliated with Shorenstein for $19 per
share. In addition, as part of our master license agreement program, we entered
into a master license agreement with Shorenstein under which we have obtained
the right to install and operate our networks in up to 21 buildings
representing more than 15 million rentable square feet. Upon the execution of
property-specific license agreements with respect to these buildings, we will
be required to pay Shorenstein, or the appropriate property owner,
approximately 6% of the revenues generated from tenants in those buildings. In
connection with the execution of this master license agreement, we also issued
Shorenstein warrants to acquire up to 815,108 shares of our common stock at an
exercise price of $4.22 per share. The exact number of shares of common stock
underlying the warrants, which is based on the gross leasable area of the
buildings set forth in the master license agreement, will not be determined
until the completion of due diligence and the finalization of the building
schedules, which is expected to occur shortly. The warrants are exercisable for
a period of ten years, but cannot be exercised until six months following the
completion of this offering.
During 1999, we entered into a consulting arrangement with William Zierden,
an investor in The Centennial Funds. In accordance with this arrangement, Mr.
Zierden provided consulting services to us and has received fees totaling
approximately $92,868 in fiscal 1999. In addition, in December 1999 we issued
options to purchase 3,947 shares of common stock to Mr. Zierden in connection
with this arrangement.
We believe that each of the transactions described above was entered into on
terms no less favorable to Cypress than could be obtained with non-affiliated
parties. For all future transactions, we have adopted a conflict of interest
policy whereby our audit committee will review the fairness of all material
transactions between Cypress and our officers, directors and other affiliates
and will make recommendations after such review to the entire board of
directors.
Third Amended and Restated Stockholders Agreement
In connection with the sale of our series C preferred stock, all of our then
existing stockholders entered into a stockholders agreement. This agreement
provides for, among other things, the nomination
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of and voting for a total of nine directors of Cypress, as described under
"Management--Board Composition."
The stockholders agreement generally restricts the transfer of any shares of
common or preferred stock held by the parties thereto by granting parties
rights of first refusal, rights of first offer and participation rights in
connection with any proposed transfer by any other party. In addition, the
stockholders agreement generally provides that the parties thereto will have
the right of first refusal and participation rights in any subsequent offering
of equity securities or securities convertible into equity securities, subject
to exceptions such as a registered public offering. The provisions of the
stockholders agreement regarding nomination and voting and transferability of
shares automatically terminate upon the closing of this offering.
At any time after the effective date of this offering, groups of
stockholders may require us to register all or any portion of their shares by
filing one registration statement utilizing a Form S-1 and multiple
registration statements utilizing a Form S-3. The parties will also be entitled
to unlimited piggyback registration rights in connection with any registration
by us of securities for our own account or the account of other stockholders.
The registration rights available under the stockholders agreement generally
will terminate when all shares owned by the parties to the agreement may be
immediately sold under Rule 144 and our stock is listed on a national
securities market or traded in the Nasdaq Stock Market.
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DESCRIPTION OF CAPITAL STOCK
The following summary describes the material terms of our capital stock. To
fully understand the actual terms of the capital stock you should refer to our
second amended and restated certificate of incorporation and our amended and
restated bylaws. The following summary gives effect to the conversion of all
outstanding shares of preferred stock upon completion of this offering. The
summary does not give effect to the exercise of outstanding warrants or options
to purchase common stock.
Authorized and Outstanding Capital Stock
There are currently 2,759,806 shares of common stock, 1,211,140 shares of
series A preferred stock, 1,339,575 shares of series B preferred stock, 579,613
shares of series B-1 preferred stock, 4,161,974 shares of series C preferred
stock and no shares of series C-1 preferred stock issued and outstanding. At
and subject to the closing of this offering, all of the outstanding shares of
preferred stock will be automatically converted into an aggregate of 32,815,359
shares of common stock. There are currently 13 holders of record of our common
stock and 20 holders of record of our preferred stock.
Following the offering, our authorized capital stock will consist of
150,000,000 shares of common stock, of which 45,856,415 will be issued and
outstanding, 20,000,000 shares of undesignated preferred stock authorized and
issuable in one or more series designated by our board of directors, of which
no shares will be issued and outstanding and 1,000,000 shares of series Z
junior participating cumulative preferred stock, as discussed in more detail
under "--Shareholder Rights Plan."
Common Stock
Voting Rights. The holders of our common stock have one vote per share.
Holders of our common stock are not entitled to vote cumulatively for the
election of directors. Generally, all matters to be voted on by stockholders
must be approved by a majority, or, in the case of the election of directors,
by a plurality, of the votes cast at a meeting at which a quorum is present,
voting together as a single class, subject to any voting rights granted to
holders of any then outstanding preferred stock.
Dividends. Holders of common stock will share ratably in any dividends
declared by our board of directors, subject to the preferential rights of any
preferred stock then outstanding. Dividends consisting of shares of common
stock may be paid to holders of shares of common stock.
Other Rights. Upon the liquidation, dissolution or winding up of Cypress,
all holders of common stock are entitled to share ratably in any assets
available for distribution to holders of shares of common stock. No shares of
common stock are subject to redemption or have preemptive rights to purchase
additional shares of common stock.
Preferred Stock
Our certificate of incorporation provides that shares of preferred stock may
be issued from time to time in one or more series. Our board of directors is
authorized to fix the voting rights, if any, designations, powers, preferences,
qualifications, limitations and restrictions thereof, applicable to the shares
of each series. Our board of directors may, without stockholder approval, issue
preferred stock
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with voting and other rights that could adversely affect the voting power and
other rights of the holders of the common stock and could have anti-takeover
effects, including preferred stock or rights to acquire preferred stock in
connection with implementing a shareholder rights plan. We have no present
plans to issue any shares of preferred stock. The ability of our board of
directors to issue preferred stock without stockholder approval could have the
effect of delaying, deferring or preventing a change of control of Cypress or
the removal of existing management.
Warrants
In November and December 1999, pursuant to the execution of master license
agreements and stock warrant agreements, we issued warrants to acquire up to
11,144,658 shares of common stock to several owners and operators of office
buildings. The warrants have an exercise price of $4.22 per share of common
stock, and are exercisable for a period of ten years. However, the warrants
cannot be exercised until six months following completion of this offering. The
exact number of shares of common stock underlying the warrants, which is based
on the gross leasable area of the buildings set forth in the master license
agreements, will not be determined until the completion of due diligence and
the finalization of the building schedules, which is expected to occur shortly.
Options
As of December 31, 1999:
. options to purchase a total of 5,820,976 shares of common stock at a
weighted average exercise price of $1.60 per share were outstanding, of
which options to purchase 991,639 shares have vested; and
. up to 5,756,125 additional shares of common stock may be subject to
options granted in the future under our 2000 stock option plan.
Indemnification Matters
We plan to enter into indemnification agreements with each of our directors
and certain of our executive officers. The form of indemnification agreement
provides that we will indemnify our directors and certain executive officers
for expenses incurred because of their status as such, to the fullest extent
permitted by Delaware law, our certificate of incorporation and our bylaws.
Our certificate of incorporation contains a provision permitted by Delaware
law that generally eliminates the personal liability of directors for monetary
damages for breaches of their fiduciary duty, including breaches involving
negligence or gross negligence in business combinations, unless the director
has breached his or her duty of loyalty, failed to act in good faith, engaged
in intentional misconduct or a knowing violation of law, paid a dividend or
approved a stock repurchase in violation of the Delaware General Corporation
Law or obtained an improper personal benefit. This provision does not alter a
director's liability under the federal securities laws and does not affect the
availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty. Our bylaws provide that directors and officers shall
be, and in the discretion of our board of directors, non-officer employees may
be, indemnified by Cypress to the fullest extent authorized by Delaware law, as
it now exists or may in the future be amended, against all expenses and
liabilities reasonably incurred in connection with service for or on behalf of
Cypress. Our bylaws also provide for the advancement of expenses to directors
and, in the discretion of our board of directors, officers and non-officer
employees. In addition, our bylaws provide that the right of directors and
officers to
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indemnification shall be a contract right and shall not be exclusive of any
other right now possessed or hereafter acquired under any bylaw, agreement,
vote of stockholders or otherwise. We also have directors' and officers'
insurance against certain liabilities. We believe that the indemnification
agreements, together with the limitation of liability and indemnification
provisions of our certificate of incorporation and bylaws and directors' and
officers' insurance will assist us in attracting and retaining qualified
individuals to serve as directors and officers of Cypress.
Insofar as indemnification for liabilities arising under the Securities Act
may be provided to directors, officers or person controlling Cypress as
described above, we have 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. At present, there is no
pending material litigation or proceeding involving any director, officer,
employee or agent of Cypress in which indemnification will be required or
permitted.
Anti-takeover Effects of Certain Provisions of Delaware Law and our Certificate
of Incorporation and Bylaws
Provisions of our certificate of incorporation and bylaws described below,
as well as the ability of our board of directors to issue shares of preferred
stock and to set its voting rights, preferences and other terms, may be deemed
to have an anti-takeover effect and may discourage takeover attempts not first
approved by our board of directors, including takeovers which particular
stockholders may deem to be in their best interests. These provisions also
could have the effect of discouraging open market purchases of our common stock
because they may be considered disadvantageous by a stockholder who desires
subsequent to such purchases to participate in a business combination
transaction with us or elect a new director to our board.
Classified Board of Directors. Our board of directors is divided into three
classes serving staggered three-year terms, with one-third of the board being
elected each year. Our classified board, together with certain other provisions
of our certificate of incorporation authorizing the board of directors to fill
vacant directorships or increase the size of the board, may prevent a
stockholder from removing, or delay the removal of, incumbent directors and
simultaneously gaining control of the board of directors by filling vacancies
created by such removal with its own nominees.
Director Vacancies and Removal. Our certificate of incorporation provides
that vacancies in our board of directors shall be filled only by the
affirmative vote of a majority of the remaining directors. Our certificate of
incorporation provides that directors may be removed from office only with
cause and only by the affirmative vote of holders of at least seventy-five
percent of the shares then entitled to vote in an election of directors.
No Stockholder Action by Written Consent. Our certificate of incorporation
provides that any action required or permitted to be taken by our stockholders
at an annual or special meeting of stockholders must be effected at a duly
called meeting and may not be taken or effected by a written consent of
stockholders.
Special Meetings of Stockholders. Our certificate of incorporation and
bylaws provide that a special meeting of stockholders may be called only by our
board of directors. Our bylaws provide that only those matters included in the
notice of the special meeting may be considered or acted upon at that special
meeting unless otherwise provided by law.
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Advance Notice of Director Nominations and Stockholder Proposals. Our bylaws
include advance notice and informational requirements and time limitations on
any director nomination or any new proposal which a stockholder wishes to make
at an annual meeting of stockholders. For the first annual meeting following
the completion of this offering, a stockholder's notice of a director
nomination or proposal will be timely if delivered to the secretary of Cypress
at our principal executive offices not later than the close of business on the
later of the 75th day prior to the scheduled date of such annual meeting or the
10th day following the day on which public announcement of the date of such
annual meeting is made by Cypress.
Amendment of the Certificate of Incorporation. As required by Delaware law,
any amendment to our certificate of incorporation must first be approved by a
majority of our board of directors and, if required by law, thereafter approved
by a majority of the outstanding shares entitled to vote with respect to such
amendment, except that any amendment to the provisions relating to stockholder
action by written consent, directors, limitation of liability and the amendment
of our certificate of incorporation must be approved by not less than seventy-
five percent of the outstanding shares entitled to vote with respect to such
amendment.
Amendment of Bylaws. Our certificate of incorporation and bylaws provide
that our bylaws may be amended or repealed by our board of directors or by the
stockholders. Such action by the board of directors requires the affirmative
vote of a majority of the directors then in office. Such action by the
stockholders requires the affirmative vote of at least seventy-five percent of
the shares present in person or represented by proxy at an annual meeting of
stockholders or a special meeting called for such purpose unless our board of
directors recommends that the stockholders approve such amendment or repeal at
such meeting, in which case such amendment or repeal only requires the
affirmative vote of a majority of the shares present in person or represented
by proxy at the meeting.
Shareholder Rights Plan
We have a shareholder rights plan to help ensure that our stockholders
receive fair and equal treatment in the event of any proposed acquisition of
Cypress. The rights plan may delay, deter or prevent a change of control of
Cypress and, therefore, could adversely affect stockholders' ability to realize
a premium over the then-prevailing market price for our common stock in
connection with such a transaction.
Pursuant to the rights plan, each share of our common stock outstanding as
of the closing of this offering will have attached to it one "right." Under
certain circumstances described below, each right will entitle its holder to
purchase from us shares of our series Z junior participating cumulative
preferred stock, par value $.001 per share.
Initially, the rights will not be exercisable and will be attached to, trade
with and be inseparable from the shares of common stock. Until the rights
become exercisable, they will be evidenced only by the certificates or book-
entry credits that represent shares of common stock. If a person or group
acquires ownership of 15% or more of the outstanding common stock or makes a
tender offer that could result in that person or group owning 15% or more of
the outstanding common stock, then the rights will separate from the common
stock and become their own separately tradable security. Thereafter, the rights
will be evidenced by book-entry credits or by rights certificates that we will
mail to all eligible holders of common stock. At this point, each right also
will become exercisable to acquire one one-thousandth of a share of the junior
preferred stock at a cash exercise price that will be substantially higher than
the market price of one share of our common stock, and accordingly, the
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right will be "out-of-the-money." The exercise price initially has been
established as $ per right. Each one one-thousandth of a share of junior
preferred stock will give the stockholder approximately the same dividend,
voting and liquidation rights as would one share of common stock and therefore
is expected to approximate the market price of one share of our common stock.
Prior to exercise, the right does not give its holder any dividend, voting or
liquidation rights. Any rights held by the person or group who acquired
ownership of 15% or more of the outstanding common stock or who made a tender
offer that could result in that person or group owning 15% or more of the
outstanding common stock will be void and may not be exercised.
If a person or group acquires 15% or more of the outstanding common stock,
all holders of rights except that person or group may, upon the payment of the
exercise price, purchase a number of one one-thousandths of a share of the
junior preferred stock having a market value of two times the exercise price of
the right, based on the market price of one one-thousandth of a share of junior
preferred stock prior to such acquisition. In other words, each holder of a
right will be permitted to acquire shares of the junior preferred stock at a
50% discount to the market price of such stock. Thus, at this point the rights
will be "in-the-money."
If our company is later acquired in a merger or similar transaction after a
person or group acquires ownership of 15% or more of the outstanding common
stock, holders of rights (other than that person or group, whose rights will be
void) may, upon the payment of the exercise price, purchase shares of the
acquiring corporation with a market value of two times the exercise price of
the right, based on the market price of the acquiring corporation's stock prior
to such merger or similar transaction. In other words, each holder of a right
is permitted to acquire shares of the acquiring company's common stock at a 50%
discount to the market price of such stock.
The rights plan and the rights will expire on the tenth anniversary of the
closing of the offering, unless the rights are earlier exercised, redeemed or
exchanged. Our board may redeem the rights for $.01 per right only until the
earlier of the time at which any person or group acquires ownership of 15% or
more of the outstanding common stock or the expiration of the rights plan. If
our board redeems any rights, it must redeem all of the rights. The redemption
price will be adjusted if we have a stock split of or stock dividends on our
common stock. After a person or group acquires ownership of 15% or more of the
outstanding common stock, but before that person or group owns 50% or more of
our outstanding common stock, our board may, at its option, extinguish the
rights by exchanging all or any part of the then outstanding exercisable rights
for shares of common stock at an exchange ratio specified in the rights plan,
other than rights held by that person or group, which are void.
Generally, prior to a person or group acquiring 15% or more of the
outstanding common stock or making a tender or exchange offer that could result
in such person or group owning 15% or more of the outstanding common stock, our
board of directors may amend the rights plan without the consent of the holders
of the rights, including an amendment to reduce the ownership limitation from
15% to not less than 10%. After such time, our board of directors may not amend
the rights plan in a way that adversely affects holders of the rights.
In the event that our board of directors approves a transaction that it has
determined is in the best interests of our stockholders but that otherwise
would cause the rights to separate from the common stock and become
exercisable, the board may, in connection with such approval, redeem the
rights. Once the rights are redeemed, the transaction can proceed without
causing the rights to separate from the common stock and become exercisable.
The rights plan could make it more
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difficult for a third party to acquire, and could discourage a third party from
acquiring or seeking to acquire, Cypress or a large block of our common stock.
Statutory Business Combination Provision
Following the offering, we will be subject to Section 203 of the Delaware
General Corporation Law, which prohibits a publicly held Delaware corporation
from consummating a "business combination," except under certain circumstances,
with an "interested stockholder" for a period of three years after the date
such person became an "interested stockholder" unless:
. before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination;
. upon the closing of the transaction that resulted in the interested
stockholder acquiring that status, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding shares held by directors who are
also officers of the corporation and shares held by employee stock
plans; or
. following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of at least two-thirds of the
outstanding voting stock of the corporation not owned by the interested
stockholder. The term "interested stockholder" generally is defined as a
person who, together with affiliates and associates, owns, or, within
the prior three years, owned, 15% or more of a corporation's outstanding
voting stock.
The term "business combination" includes mergers, consolidations, asset
sales involving 10% or more of a corporation's assets and other similar
transactions resulting in a financial benefit to an interested stockholder.
Section 203 makes it more difficult for an "interested stockholder" to effect
various business combinations with a corporation for a three-year period. A
Delaware corporation may "opt out" of Section 203 with an express provision in
its original certificate of incorporation or an express provision in its
certificate of incorporation or by--laws resulting from an amendment approved
by holders of at least a majority of the outstanding voting stock. Neither our
certificate of incorporation nor our by-laws contain any such exclusion.
Trading on the Nasdaq National Market System
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "CYCO."
No Preemptive Rights
No holder of any class of our stock has any preemptive right to subscribe
for or purchase any kind or class of our securities.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock will be State Street
Bank and Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. No prediction can be made as to the effect, if any, that sales of common
stock or the availability of common stock for sale will have on the market
price of our common stock. The market price of our common stock could drop due
to sale of a large number of shares of our common stock or the perception that
such sales could occur. These factors could also make it more difficult to
raise funds through future offerings of common stock.
After this offering, 45,856,415 shares of common stock will be outstanding.
Of these shares, the 10,000,000 shares sold in this offering, or 11,500,000 if
the underwriters' over-allotment is exercised in full, will be freely tradeable
without restriction under the Securities Act, except that any shares held by
our "affiliates" as defined in Rule 144 under the Securities Act may be sold
only in compliance with the limitations described below. The remaining
35,856,415 shares of common stock are "restricted securities" within the
meaning of Rule 144 under the Securities Act. The restricted securities
generally may not be sold unless they are registered under the Securities Act
or are sold pursuant to an exemption from registration, such as the exemption
provided by Rule 144 under the Securities Act.
In connection with this offering, our existing officers and directors and
substantially all of our stockholders, who will own a total of 35,856,415
shares of common stock after the offering, have entered into lock-up agreements
pursuant to which they have agreed not to offer or sell any shares of common
stock for a period of 180 days after the date of this prospectus without the
prior written consent of Bear, Stearns & Co. Inc., which may in its sole
discretion, at any time and without notice, waive any of the terms of these
lock-up agreements. Bear, Stearns & Co. Inc. presently has no intention to
allow any shares of common stock or warrants to be sold or otherwise offered by
Cypress prior to the expiration of the 180 day lock-up period, although it may
decide to do so in light of the purpose for which any such shares or warrants
are requested to be sold or otherwise offered, prevailing market conditions and
any other factor which Bear, Stearns & Co. Inc., in its sole discretion, may
deem to be relevant. Following the lock-up period, these shares will not be
eligible for sale in the public market without registration under the
Securities Act unless such sale meets the conditions and restrictions of Rule
144 as described below.
In general, under Rule 144 as currently in effect, any person or persons
whose shares are required to be aggregated, including an affiliate of ours, who
has beneficially owned shares for a period of at least one year is entitled to
sell, within any three-month period, commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of:
. 1% of the then outstanding shares of common stock, which is expected to
be approximately 458,564 shares upon the completion of this offering, or
. the average weekly trading volume in the common stock during the four
calendar weeks immediately preceding the date on which the notice of
such sale on Form 144 is filed with the Securities and Exchange
Commission.
Sales under Rule 144 are also subject to certain provisions relating to
notice and manner of sale and the availability of current public information
about us during the 90 days immediately preceding a sale. In addition, a person
who is not an affiliate of ours during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years would
be entitled to
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sell such shares under Rule 144(k) without regard to the volume limitation and
other conditions described above.
Our employees, directors, officers or consultants who purchased our shares
in connection with a written compensatory plan or contract may be entitled to
rely on the resale provisions of Rule 701. Rule 701 permits non-affiliates to
sell their Rule 701 shares without having to comply with the public
information, holding period, volume limitation or notice provisions of Rule
144. Affiliates may sell their Rule 701 shares without having to comply with
Rule 144's holding period restrictions. In each of these cases, Rule 701 allows
the shareholders to sell 90 days after the date of this prospectus.
Prior to the expiration of the lock-up agreement, we intend to register on a
registration statement on Form S-8:
. a total of 5,820,976 shares of common stock issuable upon the exercise
of options issued under our 1997 management option plan;
. a total of up to 5,756,125 shares of common stock reserved for future
issuance pursuant to the 2000 stock option plan; and
. a total of 900,000 shares of common stock reserved for future issuance
pursuant to the employee stock purchase plan.
The Form S-8 will permit the resale in the public market of shares so
registered by non-affiliates without restriction under the Securities Act.
In November and December 1999, we entered into stock warrant and master
license agreements with several property owners and operators in which we
agreed to issue warrants to acquire up to 11,144,658 shares of our common stock
at an exercise price of $4.22 per share. The exact number of shares of common
stock underlying the warrants, which is based on the gross leasable area of the
buildings set forth in the master license agreements, will not be determined
until the completion of due diligence and the finalization of the building
schedules, which is expected to occur shortly. The warrants are exercisable for
a period of ten years, but cannot be exercised until six months following
completion of this offering. Upon such exercise, the holders of these warrants
are entitled to request that we register the shares of common stock underlying
their warrants in any future registration statement which we may file. If we
are unable to accommodate such request within 18 months following this
offering, holders representing at least 50% of the aggregate shares of warrants
issuable are entitled to require that we register their shares under the
Securities Act. After these shares are registered, they will become freely
tradeable without restriction under the Securities Act.
Upon completion of this offering and subject to the 180-day lock-up period
described above, the holders of approximately 35,856,415 shares of our common
stock, including the shares to be issued upon conversion of all of our
outstanding convertible preferred stock, are entitled to request that we
register their shares under the Securities Act or to have their shares included
in a future registration statement which we may file. After these shares are
registered, they will become freely tradeable without restriction under the
Securities Act.
73
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
between us and the underwriters named below, who are represented by Bear,
Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation and
J.C. Bradford & Co., the underwriters have severally agreed to purchase from us
the following respective numbers of shares of common stock at the public
offering price less the underwriting discount set forth on the cover page of
this prospectus.
<TABLE>
<CAPTION>
Number of
Underwriter: Shares
------------ ----------
<S> <C>
Bear, Stearns & Co. Inc. .........................................
Donaldson, Lufkin & Jenrette Securities Corporation...............
J.C. Bradford & Co. ..............................................
----------
Total........................................................... 10,000,000
==========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of legal matters by their counsel and to
customary conditions, including the effectiveness of the registration
statement, the continuing correctness of our representations to them, the
receipt of a comfort letter from our accountants, the listing of the common
stock on the Nasdaq National Market and no occurrence of an event that would
have a material adverse effect on our business. The underwriters are obligated
to purchase and accept delivery of all the shares, other than those covered by
the over-allotment option described below, if they purchase any of the shares.
We have granted to the underwriters an option, exercisable for 30 days from
the date of the underwriting agreement, to purchase up to 1,500,000 additional
shares at the public offering price less the underwriting discount. The
underwriters may exercise such option solely to cover over-allotments, if any,
made in connection with this offering. To the extent that the underwriters
exercise such option, each underwriter will become obligated, subject to
conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.
The underwriters propose to initially offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to dealers at the public offering price less
a concession not in excess of $ per share. The underwriters may allow, and
such dealers may re-allow, a concession not in excess of $ per share on
sales to other dealers. After the initial offering of the shares to the public,
the representatives of the underwriters may change the public offering price
and such concessions. The underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority.
The following table shows the underwriting discount to be paid to the
underwriters by us in connection with this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of the common stock.
<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per share....................................... $ $
Total........................................... $ $
</TABLE>
The underwriting discount per share is equal to the public offering price
per share of common stock less the amount paid by the underwriters to us per
share of common stock.
74
<PAGE>
We estimate that our total expenses in connection with this offering, other
than the underwriting discount, will be approximately $2.4 million.
At our request, the underwriters have reserved for sale at the initial
public offering price up to 500,000 of the shares, or 5%, of our common stock
to be sold in this offering for sale to our directors, officers and employees
and friends and family of our directors, officers and employees. The number of
shares available for sale to the general public will be reduced to the extent
that any reserved shares are purchased. Any reserved shares not purchased will
be offered by the underwriters on the same basis as the other shares offered.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of the common stock. Specifically, the underwriters may over-allot
shares of the common stock in connection with this offering, thereby creating a
short position in the common stock for their own account. Additionally, to
cover such over-allotments or to stabilize the market price of the common
stock, the underwriters may bid for, and purchase, shares of the common stock
in the open market. Finally, the representatives, on behalf of the
underwriters, also may reclaim selling concessions allowed to an underwriter or
dealer if the underwriting syndicate repurchases shares distributed by that
underwriter or dealer. Any of these activities may maintain the market price of
our common stock at a level above that which might otherwise prevail in the
open market. The underwriters are not required to engage in these activities
and, if commenced, may end any of these activities at any time.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.
We have applied to list our common stock on the Nasdaq National Market under
the symbol "CYCO."
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock
will be determined by negotiation among us and the representatives of the
underwriters. Among the factors to be considered in determining the public
offering price will be:
. prevailing market conditions;
. our results of operations in recent periods;
. the present stage of our development;
. the market capitalizations and stages of development of generally
comparable companies; and
. estimates of our business potential.
In connection with this offering, our existing officers and directors and
substantially all of our stockholders, who will own a total of 35,856,415
shares of common stock after the offering, have entered into lock-up agreements
pursuant to which they have agreed not to offer or sell any shares of common
stock for a period of 180 days after the date of this prospectus without the
prior written consent of Bear, Stearns & Co. Inc., which may in its sole
discretion, at any time and without notice, waive any of the terms of these
lock-up agreements. Bear, Stearns & Co. Inc. presently has no intention to
allow any shares of common stock or warrants to be sold or otherwise offered by
Cypress prior to the expiration of the 180 day lock-up period, although it may
decide to do so in light of the purpose for which any such
75
<PAGE>
shares or warrants are requested to be sold or otherwise offered, prevailing
market conditions and any other factor which Bear, Stearns & Co. Inc., in its
sole discretion, may deem to be relevant. Following the lock-up period, these
shares will not be eligible for sale in the public market without registration
under the Securities Act unless such sale meets the conditions and restrictions
of Rule 144.
In addition, we have agreed that for a period of 180 days after the date of
this prospectus, we will not sell or offer to sell or otherwise dispose of any
shares of common stock without the prior written consent of Bear, Stearns & Co.
Inc., except that we may issue, and grant options to purchase, shares of common
stock under our stock option and employee stock purchase plans. During this
lock-up period, we may also issue additional warrants to acquire common stock
in connection with the execution of additional license agreements and
additional equity securities to pay for possible acquisitions, so long as the
recipients of such securities are also subject to the 180 day lock-up period
and the total amount of such securities does not exceed 20% of the shares of
common stock outstanding upon completion of this offering.
76
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Cypress by Goodwin, Procter & Hoar llp. Certain legal matters related
to the sale of the common stock offered hereby will be passed upon for the
underwriters by Latham & Watkins, Washington, D.C.
EXPERTS
The financial statements and schedules included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included in reliance upon the authority of said firm as
experts in giving said reports.
ADDITIONAL INFORMATION
In 1997 we decided to retain Arthur Andersen LLP as our independent public
accountants and dismissed our former auditors. The former auditors' report on
our financial statements for the period from inception (August 16, 1995) to
December 31, 1995 and for the year ended December 31, 1996 does not cover our
financial statements included in this prospectus. Such report did not contain
an adverse opinion or disclaimer of opinion and was not modified as to
uncertainty, audit scope or accounting principles. There were no disagreements
with the former auditors on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure at the time of
the change or with respect to our financial statements for 1995 and 1996,
which, if not resolved to the former auditors' satisfaction, would have caused
them to make reference to the subject matter of the disagreement in connection
with their report. Prior to retaining Arthur Andersen LLP, we had not consulted
with Arthur Andersen LLP regarding accounting principles.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the SEC for the
common stock we are offering by this prospectus. This prospectus does not
include all of the information contained in the registration statement. You
should refer to the registration statement and its exhibits for additional
information. Whenever we make reference in this prospectus to any of our
contracts, agreements or other documents, you should refer to the exhibits
attached to the registration statement for copies of the actual contract,
agreement or other document. When we complete this offering, we will also be
required to file annual, quarterly and special reports, proxy statements and
other information with the SEC. We intend to furnish to our stockholders annual
reports containing audited financial statements for each fiscal year.
You can read our SEC filings, including the registration statement, over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file with the SEC at its public reference facilities at
450 Fifth Street, NW, Washington, DC 20549; 7 World Trade Center, Suite 1300,
New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. You may also obtain copies of the documents
at prescribed rates by writing to the Public Reference Section of the SEC at
450 Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800-SEC-
0330 for further information on the operation of the public reference
facilities.
77
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Cypress Communications, Inc. and Cypress Communications, L.L.C.
Report of Independent Public Accountants................................. F-2
Balance Sheets--December 31, 1997 and 1998 and September 30, 1999
(Unaudited)............................................................. F-3
Statements of Operations for the Year Ended December 31, 1996, the 6 1/2
Months Ended July 15, 1997, the 5 1/2 Months Ended December 31, 1997,
the Year Ended December 31, 1998, and the Nine Months Ended September
30, 1998 and 1999 (Unaudited)........................................... F-4
Statements of Members' Equity for the Year Ended December 31, 1996 and
the 6 1/2 Months Ended July 15, 1997 and Statements of Stockholders'
Equity (Deficit) for the 5 1/2 Months Ended December 31, 1997 and the
Year Ended December 31, 1998............................................ F-5
Statements of Cash Flows for the Year Ended December 31, 1996, the 6 1/2
Months Ended July 15, 1997, the 5 1/2 Months Ended December 31, 1997,
the Year Ended December 31, 1998, and the Nine Months Ended September
30, 1998 and 1999 (Unaudited)........................................... F-6
Notes to Financial Statements............................................ F-7
MTS Communications Company, Inc.
Report of Independent Public Accountants................................. F-22
Statements of Operations for the Year Ended December 31, 1997 and for the
Period From January 1, 1998 through December 7, 1998.................... F-23
Statements of Stockholders' Equity (Deficit) for the year ended December
31, 1997 and the Period from January 1, 1998 through December 7, 1998... F-24
Statements of Cash Flows for the Year Ended December 31, 1997 and for the
Period from January 1, 1998 through December 7, 1998.................... F-25
Notes to Financial Statements............................................ F-26
Pro Forma Financial Statements
Statement of Operations for the Year Ended December 31, 1998............. F-30
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
After the 4.5 for 1 stock split of the outstanding shares of common stock
discussed in Note 10 to Cypress Communications, Inc.'s financial statements is
effected, we expect to be in a position to render the following audit report.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 24, 1999
To Cypress Communications, Inc.:
We have audited the accompanying balance sheets of CYPRESS COMMUNICATIONS,
INC. (a Delaware corporation and Successor Company to Cypress Communications,
L.L.C.) as of December 31, 1997 and 1998 and the related statements of
operations, changes in stockholders' equity (deficit), and cash flows for the 5
1/2 months ended December 31, 1997 and the year ended December 31, 1998. We
have also audited the statements of operations, changes in members' equity, and
cash flows of CYPRESS COMMUNICATIONS L.L.C. (a Delaware corporation and
Predecessor Company) for the year ended December 31, 1996 and the 6 1/2 months
ended July 15, 1997. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cypress Communications,
Inc. as of December 31, 1997 and 1998 and the results of its operations and its
cash flows for the 5 1/2 months ended December 31, 1997 and for the year ended
December 31, 1998 and the results of operations and cash flows of Cypress
Communications, L.L.C. for the year ended December 31, 1996 and the 6 1/2
months ended July 15, 1997 in conformity with generally accepted accounting
principles.
F-2
<PAGE>
CYPRESS COMMUNICATIONS, INC.
(Successor Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------ September 30,
1997 1998 1999
----------- ----------- -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ $ 3,671,065 $11,057,696 $ 3,378
Accounts receivable, net
of allowance for
doubtful accounts of
$9,945, $79,520, and
$212,985 in 1997, 1998,
and 1999 respectively.. 203,168 1,119,784 1,818,483
Note receivable......... 0 200,000 0
Prepaid expenses and
other.................. 44,423 26,238 174,994
----------- ----------- ------------
Total current assets... 3,918,656 12,403,718 1,996,855
----------- ----------- ------------
Property and equipment,
net..................... 1,609,791 6,291,413 11,645,639
----------- ----------- ------------
Other assets:
Cost in excess of net
assets acquired, net of
accumulated
amortization of
$166,306, $499,629, and
$755,455 in 1997, 1998,
and 1999,
respectively........... 1,496,758 1,248,283 992,457
Tenant contracts, net of
accumulated
amortization of $11,944
and $119,444 in 1998
and 1999,
respectively........... 0 418,056 310,556
Long-term investment.... 120,000 120,000 100,600
Other................... 0 89,777 150,514
----------- ----------- ------------
Total other assets..... 1,616,758 1,876,116 1,554,127
----------- ----------- ------------
Total assets........... $ 7,145,205 $20,571,247 $ 15,196,621
=========== =========== ============
<CAPTION>
Pro Forma
September 30,
1999
(Note 10)
-------------
(unaudited)
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........ $ 255,012 $ 381,032 $ 1,807,248
Accrued expenses........ 254,160 1,272,685 2,144,348
Current portion of
capital lease
obligations............ 24,826 192,635 223,001
----------- ----------- ------------
Total current
liabilities........... 533,998 1,846,352 4,174,597
Long-term portion of
capital lease
obligations............. 60,811 522,583 334,700
----------- ----------- ------------
Total liabilities...... 594,809 2,368,935 4,509,297
----------- ----------- ------------
Convertible redeemable
preferred stock (Note
5):
$.001 par value;
1,200,140 shares
designated Series A in
1997, 1,211,140 shares
designated Series A in
1998 and 1999, and 0
shares designated
Series A in pro forma
1999; 1,200,140,
1,211,140, 1,211,140,
and 0 shares issued and
outstanding in 1997,
1998, 1999, and pro
forma 1999,
respectively; entitled
to redemption value of
$5 per share........... 5,977,480 6,036,670 6,039,809 $ 0
$.001 par value; 0,
1,912,813, 1,919,188,
and 0 shares designated
Series B in 1997, 1998,
1999, and pro forma
1999, respectively; 0,
1,333,200, 1,339,575,
and 0 shares issued and
outstanding in 1997,
1998, 1999, and pro
forma 1999,
respectively; entitled
to redemption value of
$8 per share........... 0 10,650,328 10,704,559 0
$.001 par value; 0,
579,613, 579,613, and 0
shares designated
Series B-1 in 1997,
1998, 1999, and pro
forma 1999,
respectively; 0,
579,613, 579,613, and 0
shares issued and
outstanding in 1997,
1998, 1999, and pro
forma 1999,
respectively; entitled
to redemption value of
$8 per share........... 0 4,630,265 4,631,669 0
----------- ----------- ------------ ------------
Total preferred stock.. 5,977,480 21,317,263 21,376,037 0
----------- ----------- ------------ ------------
Commitments and
contingencies (Note 7)
Stockholders' equity
(deficit):
Common stock, $.001 par
value; 5,023,467 shares
authorized in 1997,
20,594,088 shares
authorized in 1998,
1999, and pro forma
1999; 2,636,906 shares
issued and outstanding
in 1997, 1998, and
1999, 16,723,382 shares
issued and outstanding
in pro forma 1999...... 2,637 2,637 2,637 16,723
Additional paid-in
capital................ 1,765,299 4,061,937 7,335,537 28,730,655
Deferred compensation... 0 (2,179,045) (4,067,700) (4,067,700)
Accumulated deficit..... (1,195,020) (5,000,480) (13,959,187) (13,992,354)
----------- ----------- ------------ ------------
Total stockholders'
equity (deficit)...... 572,916 (3,114,951) (10,688,713) $ 10,687,324
----------- ----------- ------------ ------------
Total liabilities and
stockholders' equity
(deficit)............. $ 7,145,205 $20,571,247 $ 15,196,621
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
CYPRESS COMMUNICATIONS, INC.
(Successor Company)
AND
CYPRESS COMMUNICATIONS, L.L.C.
(Predecessor Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Predecessor Company Successor Company
---------------------- ----------------------------------------------------
6 1/2
Months 5 1/2 Months Nine Months Ended
Year Ended Ended Ended Year Ended September 30,
December 31, July 15, December 31, December 31, ------------------------
1996 1997 1997 1998 1998 1999
------------ --------- ------------ ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues....................................... $ 83,556 $ 248,235 $ 461,167 $ 2,417,816 $ 1,428,497 $ 5,227,727
Operating expenses:
Cost of services.............................. 131,771 221,596 381,518 1,539,846 944,760 3,248,377
Sales and marketing........................... 12,189 122,055 326,861 1,470,107 1,075,039 2,466,844
General and administrative.................... 640,704 255,175 567,748 2,436,221 1,597,974 5,604,135
Amortization of deferred compensation......... 0 0 0 117,593 16,878 1,384,945
Depreciation and amortization................. 53,808 66,217 288,737 891,788 587,800 1,650,253
--------- --------- ----------- ----------- ----------- -----------
Total operating expenses...................... 838,472 665,043 1,564,864 6,455,555 4,222,451 14,354,554
--------- --------- ----------- ----------- ----------- -----------
Operating loss................................. (754,916) (416,808) (1,103,697) (4,037,739) (2,793,954) (9,126,827)
Interest income, net........................... 13,939 6,253 107,669 232,279 66,911 168,120
--------- --------- ----------- ----------- ----------- -----------
Loss before income taxes....................... (740,977) (410,555) (996,028) (3,805,460) (2,727,043) (8,958,707)
Income tax benefit............................. 0 0 59,252 0 0 0
--------- --------- ----------- ----------- ----------- -----------
Net loss....................................... $(740,977) $(410,555) $ (936,776) $(3,805,460) $(2,727,043) $(8,958,707)
========= ========= =========== =========== =========== ===========
Net loss per common share (Note 10):
Basic and diluted............................. $ (.36) $ (1.44) $ (1.03) $ (3.40)
=========== =========== =========== ===========
Weighted average number of common shares
outstanding:
Basic and diluted............................. 2,636,906 2,636,906 2,636,906 2,636,906
- --------------------------------------------------
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CYPRESS COMMUNICATIONS, INC.
(Successor Company)
AND
CYPRESS COMMUNICATIONS, L.L.C.
(Predecessor Company)
STATEMENTS OF MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE 6 1/2 MONTHS ENDED JULY 15, 1997
AND
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE 5 1/2 MONTHS ENDED DECEMBER 31, 1997 AND
THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Contributed
Members' Shares or
or Common Stock Treasury Shares Additional
---------------- --------------- Paid-In Deferred Accumulated
Shares Amount Shares Amount Capital Compensation Deficit Total
--------- ------ ------ -------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY:
Balance, December 31,
1995................... 100,000 $ 0 0 $ 0 $ 94,400 $ 0 $ (117,780) $ (23,380)
Capital contributions.. 291,290 0 0 0 1,582,569 0 0 1,582,569
Issuance of shares for
employee services..... 9,141 0 0 0 54,847 0 0 54,847
Forgiveness of debt by
related party......... 0 0 0 0 155,697 0 0 155,697
Net loss............... 0 0 0 0 0 0 (740,977) (740,977)
--------- ------ ------ -------- ---------- ----------- ----------- -----------
Balance, December 31,
1996................... 400,431 0 0 0 1,887,513 0 (858,757) 1,028,756
Issuance of member
shares................ 41,667 0 0 0 250,000 0 0 250,000
Repurchase of member
shares................ 0 0 11,904 (71,421) 0 0 0 (71,421)
Net loss............... 0 0 0 0 0 0 (410,555) (410,555)
--------- ------ ------ -------- ---------- ----------- ----------- -----------
Balance, July 15, 1997.. 442,098 $ 0 11,904 $(71,421) $2,137,513 $ 0 $(1,269,312) $ 796,780
========= ====== ====== ======== ========== =========== =========== ===========
- --------------------------------------------------------------------------------
SUCCESSOR COMPANY:
Acquisition of
Predecessor
Company (Note 1)...... 2,636,906 2,637 0 $ 0 $1,765,299 $ 0 $ (258,244) $ 1,509,692
Net loss............... 0 0 0 0 0 0 (936,776) (936,776)
--------- ------ ------ -------- ---------- ----------- ----------- -----------
Balance, December 31,
1997................... 2,636,906 2,637 0 0 1,765,299 0 (1,195,020) 572,916
Deferred compensation... 0 0 0 0 2,296,638 (2,296,638) 0 0
Amortization of deferred
compensation........... 0 0 0 0 0 117,593 0 117,593
Net loss............... 0 0 0 0 0 0 (3,805,460) (3,805,460)
--------- ------ ------ -------- ---------- ----------- ----------- -----------
Balance, December 31,
1998................... 2,636,906 $2,637 0 $ 0 $4,061,937 $(2,179,045) $(5,000,480) $(3,114,951)
========= ====== ====== ======== ========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
CYPRESS COMMUNICATIONS, INC.
(Successor Company)
AND
CYPRESS COMMUNICATIONS, L.L.C.
(Predecessor Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Predecessor
Company Successor Company
---------------------- -----------------------------------------------------
6 1/2
Months 5 1/2 Months Nine Months Ended
Year Ended Ended Ended Year Ended September 30,
December 31, July 15, December 31, December 31, -------------------------
1996 1997 1997 1998 1998 1999
------------ --------- ------------ ------------ ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss.............. $ (740,977) $(410,555) $ (936,776) $(3,805,460) $(2,727,043) $ (8,943,159)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 53,808 66,217 288,737 891,788 587,800 1,650,253
Amortization of
deferred
compensation......... 0 0 0 117,593 16,878 1,384,945
Deferred income
taxes................ 0 0 (59,252) 0 0 0
Other................. 0 0 1,920 5,737 3,141 7,774
Changes in operating
assets and
liabilities:
Accounts receivable,
net.................. (34,249) (97,997) (70,922) (916,616) (445,909) (698,699)
Prepaid expenses and
other current
assets............... (6,776) (6,186) (25,960) 18,185 21,344 (148,756)
Other assets.......... 0 0 0 (89,777) (81,251) (60,737)
Accounts payable and
accrued expenses..... 89,487 211,996 224,931 863,645 653,667 1,048,801
---------- --------- ----------- ----------- ----------- ------------
Net cash used in
operating
activities......... (638,707) (236,525) (577,322) (2,914,905) (1,971,373) (5,775,126)
---------- --------- ----------- ----------- ----------- ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of property
and equipment........ (518,638) (352,359) (838,364) (2,887,243) (1,691,993) (5,392,075)
Purchase of assets of
MTS Communications... 0 0 0 (1,904,398) 0 0
(Advance to) repayment
from MTS
Communications....... 0 0 0 (200,000) 0 200,000
(Purchase) sale of
investment, net...... (120,000) 0 0 0 0 19,400
Purchase of
Predecessor Company.. 0 0 (900,902) 0 0 0
---------- --------- ----------- ----------- ----------- ------------
Net cash used in
investing
activities......... (638,638) (352,359) (1,739,266) (4,991,641) (1,691,993) (5,172,675)
---------- --------- ----------- ----------- ----------- ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of Series A preferred
stock, net of
offering expenses.... 0 0 5,975,560 55,000 55,000 0
Proceeds from issuance
of Series B and B-1
preferred stock, net
of offering
expenses............. 0 0 0 15,279,046 15,000,000 51,000
Principal payments on
capital lease
obligations.......... (16,291) (12,600) (12,728) (40,869) (19,724) (157,517)
Proceeds from sale of
member shares........ 0 250,000 0 0 0 0
Repurchase of member
shares............... 0 (71,421) 0 0 0 0
Borrowings under line
of credit............ 0 0 0 500,000 500,000 0
Repayments of line of
credit............... 0 0 0 (500,000) 0 0
Proceeds from capital
contributions........ 1,582,569 0 0 0 0 0
Proceeds from related
party borrowing...... 155,697 0 0 0 0 0
---------- --------- ----------- ----------- ----------- ------------
Net cash provided by
financing
activities......... 1,721,975 165,979 5,962,832 15,293,177 15,535,276 (106,517)
---------- --------- ----------- ----------- ----------- ------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS........... 444,630 (422,905) 3,646,244 7,386,631 11,871,910 (11,054,318)
CASH AND CASH
EQUIVALENTS, beginning
of period............. 3,096 447,726 24,821 3,671,065 3,671,065 11,057,696
---------- --------- ----------- ----------- ----------- ------------
CASH AND CASH
EQUIVALENTS, end of
period................ $ 447,726 $ 24,821 $ 3,671,065 $11,057,696 $15,542,975 $ 3,378
---------- --------- ----------- ----------- ----------- ------------
SUPPLEMENTAL
DISCLOSURES:
Cash paid for
interest............. $ 3,669 $ 2,581 $ 2,031 $ 12,563 $ 5,710 $ 11,924
========== ========= =========== =========== =========== ============
Conversion of related
party borrowing to
equity............... $ 155,697 $ 0 $ 0 $ 0 $ 0 $ 0
========== ========= =========== =========== =========== ============
Common stock issued in
connection with
predecessor company
acquisition.......... $ 0 $ 0 $ 1,257,936 $ 0 $ 0 $ 0
========== ========= =========== =========== =========== ============
Assets acquired under
capital leases....... $ 127,256 $ 0 $ 0 $ 670,450 $ 0 $ 0
========== ========= =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CYPRESS COMMUNICATIONS, INC.
(Successor Company)
AND
CYPRESS COMMUNICATIONS, L.L.C.
(Predecessor Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, JULY 15, 1997, DECEMBER 31, 1997 AND 1998
AND SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
1. ORGANIZATION AND NATURE OF BUSINESS
Cypress Communications, Inc. (the "Company" or "Successor Company") was
incorporated July 15, 1997 under the laws of Delaware. The Company was
formed to affect the acquisition of Cypress Communications, L.L.C. (the
"Predecessor Company"). The Company provides building-centric
communications services and equipment to tenants of office buildings. The
Company currently serves tenants in Georgia, Massachusetts, Illinois,
Texas, Colorado, Washington, D.C., Florida, Louisiana, and California.
Cypress Communications, L.L.C. was incorporated August 16, 1995 as a
limited liability company under the laws of Georgia. Prior to 1996, the
Predecessor Company was a development-stage enterprise.
As part of an agreement with an investor in the Predecessor Company (Note
4), the Predecessor Company was required to change its legal entity status
from a limited liability company to a C corporation in order to obtain
additional financing from the investor. To effect this change in legal
entity status, on July 15, 1997, Cypress Communications, L.L.C. was
acquired by Cypress Communications, Inc. and ceased to exist as a legal
entity (the "Acquisition").
The Acquisition was completed concurrent with investments in the Successor
Company that resulted in a change in control. Immediately prior to the
acquisition, one stockholder of the Successor Company owned 19.37% of the
Predecessor Company and, concurrently, had voting control of the Successor
Company. The portion of the Predecessor Company owned by the controlling
stockholder of the Successor Company at the time of the Acquisition was
recorded at that stockholder's historical cost ("Predecessor Basis"); the
remaining 80.63% interest in the Predecessor Company was recorded at
estimated fair value.
The Company purchased the 80.63% interest of Cypress Communications, L.L.C.
as follows: exchanged 1,886,904 shares of the Company's common stock for
209,656 member shares of the Predecessor Company, purchased 137,205 member
shares of the Predecessor Company for $823,230 in cash and incurred $77,672
in other cash transaction costs. Management estimated the fair value of the
common shares of the Successor Company using a market-based approach that
considered private transactions in the Company's stock. The value per
common share at July 15, 1997, as determined by management, was $.67.
The following table summarizes the net assets purchased by the Company in
connection with its acquisition of the 80.63% of Cypress Communications,
L.L.C. and the amount attributable to cost in excess of net assets
acquired:
F-7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Purchase price................................................... $2,158,838
Net assets....................................................... 583,194
----------
Cost in excess of net assets acquired............................ $1,575,644
==========
</TABLE>
The common stock portion of the acquisition of these assets has been
accounted for as a noncash transaction in the statements of cash flows.
The Company has experienced operating losses since its inception. The
Company expects to continue to focus on increasing its customer base and
expanding its operations. Accordingly, the Company expects that its
operating expenses and capital expenditures will continue to increase
significantly, all of which will have a negative impact on short-term
operating results and will require significant capital. Accordingly, the
Company may be required to raise additional funds through public or private
financing or other arrangements, or it may have to slow its rate of
expansion. There can be no assurance that any required additional funding,
if needed, will be available on terms attractive to the Company or at all,
which could have a material adverse effect on the Company's business,
financial condition, cash flows and results of operations.
Other Risk Factors
The Company faces certain other risk factors including the
following: growth and expansion may strain the Company's resources,
dependence on key personnel, dependence on third-party suppliers of
equipment and communications services, dependence on relationships with
certain building owners and managers, competition from other providers of
communications services, and potential disruption of services due to system
failures.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are presented on the accrual basis of
accounting. As a result of the Acquisition, the capital structure of, and
the basis of accounting for, the Company differs from those of the
Predecessor Company prior to the Acquisition. Financial data of the Company
with respect to all reporting periods subsequent to July 15, 1997 (the
"Successor Period") reflect the Acquisition under the purchase method of
accounting. Therefore, financial data with respect to the Predecessor
Company prior to the Acquisition (the "Predecessor Period") generally will
not be comparable to that of the Company with respect to the items
described below. Except as it relates to the Acquisition, the accounting
policies of the Company are unchanged from those of the Predecessor
Company.
The Successor Period includes amortization of cost in excess of net assets
acquired. Also, as a result of purchase accounting, the net book values of
the property and equipment at the date of their acquisition approximated
their fair values and became their new cost bases with respect to the
Company. Accordingly, the depreciation of property and equipment for the
Successor Period is based on the newly established cost bases of these
assets. Additionally, because the Predecessor Company was not separately
taxable for federal or state income tax purposes, the deferred tax
consequences of temporary differences in reporting items for financial
statement and income tax purposes were recognized as part of the
acquisition.
F-8
<PAGE>
The statement of operations, stockholders' equity, and cash flows for 1997
are divided between the 6 1/2 months ended July 15, 1997 when the
Predecessor Company held the controlling interest and the 5 1/2 months
ended December 31, 1997 when the Successor Company held the controlling
interest following the transfer of ownership discussed in Note 1.
Interim Information
The balance sheet as of September 30, 1999 and the statements of operations
and cash flows for the nine months ended September 30, 1998 and 1999 are
unaudited and have been prepared by management in accordance with rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, the balance sheet and statements of operations and cash flows
contain all necessary adjustments (consisting of only normal recurring
adjustments) necessary for the fair presentation of the financial position
and results of operations for the interim periods. The results of
operations for the nine months ended September 30, 1999 are not necessarily
indicative of the results to be expected for the entire year.
Accounting 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 dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual amounts could differ from these
estimates and such differences could be material.
Revenue Recognition
The Company's revenues include recurring charges for local access, long-
distance, equipment rental, Internet, voicemail and inbound 800 charges as
well as non-recurring revenues for installations and moves, adds, and
changes charges, all of which are recognized as services are provided. To
date, installation revenues have not exceeded the direct costs of
installation. To date, revenues from moves, adds, and changes have exceeded
the related direct costs by an insignificant amount. All expenses related
to services provided are recognized as incurred.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the
assets (generally three to seven years). Leasehold improvements are
depreciated over the lesser of the average lease term (or the term of the
related license agreement) or the assets' useful lives. Depreciation
expense was $53,808, $66,217, $112,431, and $546,521 for the year ended
December 31, 1996, the 6 1/2 months ended July 15, 1997, the 5 1/2 months
ended December 31, 1997, and the year ended December 31, 1998,
respectively. Maintenance and repairs are charged to expense as incurred.
Gains or losses on disposal of property and equipment are recognized in
operations in the year of disposition. There were no significant gains or
losses in any periods presented.
F-9
<PAGE>
Income Taxes
The Predecessor Company was a limited liability company for federal and
state income tax purposes. The Internal Revenue Code and applicable state
statutes provide that income and expenses are not separately taxable to the
limited liability company but rather accrue directly to the members.
Accordingly, no provision for income taxes has been made in the statements
of operations of the Predecessor Company. For the Successor Company, income
taxes have been provided for using the liability method in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes."
Intangibles
The cost over the fair values of net assets acquired was recorded in
connection with the Company's purchase of Cypress Communications, L.L.C.,
as discussed in Note 1, and the purchase of substantially all of the assets
of MTS Communications Company, Inc. ("MTS Communications") (Note 9). These
costs are being amortized using the straight-line method over five years
and ten years, respectively. Tenant contracts were acquired in the MTS
Communications acquisition and are being amortized using the straight-line
method over three years.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets, including property and equipment
and intangibles, for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset should be assessed. An
impairment will be recognized when the future net cash flows estimated to
be generated by the asset are insufficient to recover the current carrying
value of the asset. Estimates of future cash flows are based on many
factors, including current operating results, expected market trends, and
competitive influences. Management believes that the long-lived assets in
the accompanying financial statements are appropriately valued.
Long-Term Investment
The Company maintains a certificate of deposit, which is pledged under a
letter of credit with a communications equipment supplier. The investment
is classified as held to maturity in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet approximate the fair
values for cash and capital lease obligations.
In accordance with SFAS No. 107, "Disclosures about Fair Values of
Financial Instruments," the Company has estimated the fair value of the
Series A preferred stock as approximately $3.6 million and $5.8 million at
December 31, 1997 and 1998, respectively. The Company has estimated the
fair value of the Series B and Series B-1 preferred stock as $6.4 million
and $2.8 million, respectively, at December 31, 1998. The fair value of the
preferred stock is based on the estimated fair value of the Company's
common stock and the number of shares of common stock into which the
preferred stock converts.
F-10
<PAGE>
Accrued Expenses
Accrued expenses includes the following at December 31:
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Property and equipment additions........................ $ 62,965 $ 280,900
Compensation............................................ 96,675 257,838
Taxes................................................... 26,833 171,118
Recurring network costs................................. 3,182 221,912
Contracted support...................................... 44,562 53,286
Other................................................... 19,943 287,631
-------- ----------
$254,160 $1,272,685
======== ==========
</TABLE>
Net Loss Per Common Share
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 98, for the periods prior to the Company's anticipated initial public
offering (Note 10), basic net loss per share is computed using the weighted
average number of shares of common stock outstanding during the period.
Diluted net loss per share is computed using the weighted average number of
shares of common stock outstanding during the period and nominal issuances
of common stock and common stock equivalents, regardless of whether they
are antidilutive, as well as the potential dilution of common stock
equivalents, if dilutive.
The Company has not issued common stock or common stock equivalents for
consideration that management considers nominal. Additionally, potential
common stock equivalents are excluded from the calculation of diluted net
loss per share, as their effect is antidilutive. As such, diluted net loss
per share is the same as basic net loss per share for all periods
presented. Convertible redeemable preferred stock was outstanding at
December 31, 1997 and 1998 and September 30, 1998 and 1999. These
securities were not considered in the computation of net loss per share as
the conversion is dependent upon a qualifying public offering, as defined
in the preferred stock sale agreements. Net loss per share is not shown for
the Predecessor Company, as it is not comparable.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
System infrastructure................................ $1,067,573 $4,650,955
System equipment..................................... 414,634 1,583,018
Computer and office equipment........................ 144,405 495,737
Leasehold improvements............................... 95,610 220,655
---------- ----------
1,722,222 6,950,365
Less accumulated depreciation and amortization....... (112,431) (658,952)
---------- ----------
$1,609,791 $6,291,413
========== ==========
</TABLE>
4. CAPITAL TRANSACTIONS
Predecessor Company Amendments to Operating Agreements
The Predecessor Company amended its operating agreements on four occasions
between February 1996 and February 1997. The primary purpose of these
amendments was to adjust the
F-11
<PAGE>
Predecessor Company's ownership to reflect additional capital investments.
Significant changes to the original operating agreements included the
authorization for issuance of 5,000,000 shares of the Predecessor Company's
shares and the redefining of initial ownership. Ownership had initially
been defined as a percentage of interest in the Predecessor Company; the
second amendment to the operating agreements required the issuance of
100,000 shares that were allocated to the initial owners in proportion to
their ownership. All references to shares of the Predecessor Company have
been restated to give effect to the amendments of the operating agreements.
Predecessor Company Capital Contributions
In 1996, the Predecessor Company issued a total of 300,431 shares for
capital contributions totaling $1,793,113, including cash investments of
$1,582,569, debt forgiveness of $155,697, and employee services valued at
$54,847. The fair value of the shares issued for employee services were
recorded as compensation expense at the date of issuance.
Of the cash investments made during 1996, the Predecessor Company issued
83,333 shares to an investment company for $500,000. Under the terms of
this investment agreement, the Predecessor Company was required to first
offer any additional capital financing terms to this investor until total
capital contributions by this investor exceeded $3.5 million. In the event
the investor exercised its rights to purchase additional shares as offered
by the Predecessor Company, the Predecessor Company was required to change
its legal organization to a C corporation.
In anticipation of the above mentioned investors' participation in the
financing represented by the issuance of the Successor Company's Series A
preferred stock (Note 5), the Acquisition described in Note 1 was effected
to satisfy the requirement to change to a C corporation.
In February 1997, the Predecessor Company issued 41,667 shares to an
investment company for $250,000.
Predecessor Company Treasury Stock Transactions
In February 1997, the Predecessor Company repurchased 11,904 shares
outstanding for $71,421 in cash.
Stock Option Plans
In February 1996, the Predecessor Company adopted the 1996 Share Incentive
Plan (the "Predecessor Plan"). The Predecessor Plan was intended to provide
incentives to officers and key employees of the Predecessor Company. At
July 15, 1997, the Predecessor Company had options for 20,000 shares
outstanding with exercise prices of $5 to $6 per share based on the
estimated fair market value at dates of grant. These options were converted
pro rata into options, with identical terms, on the Company's common stock.
In July 1997, the 1997 Management Option Plan (the "1997 Option Plan") was
adopted by the Company. The 1997 Option Plan provides for the granting of
either incentive stock options or nonqualified stock options to purchase
shares of the Company's common stock to officers, directors, and key
employees responsible for the direction and management of the Company. The
options expire ten years after the date of grant and vest 20% upon the
first anniversary of the date of grant and 5% each subsequent quarter
measured from the first anniversary of the date
F-12
<PAGE>
of grant. At December 31, 1997 and 1998, 1,004,693 and 3,899,385 shares,
respectively, of common stock were reserved for issuance under the 1997
Option Plan.
Statement of Financial Accounting Standards No. 123
A summary of the changes in the option plans is as follows:
<TABLE>
<CAPTION>
Weighted
Weighted Average
Average Exercise
Shares Price
--------- --------
<S> <C> <C>
Balance at inception, February 1996...................... -- $ --
Granted................................................ 25,000 5.40
---------
Balance at December 31, 1996............................. 25,000 5.40
Forfeited.............................................. (5,000) 5.00
---------
Balance at July 15, 1997................................. 20,000 5.50
=========
------------------------------------------------------------------------
Conversion of Predecessor Company options................ 180,000 .61
Granted................................................ 1,536,345 .67
---------
Balance at December 31, 1997............................. 1,716,345 .66
Granted................................................ 1,087,875 1.00
Forfeited.............................................. (76,500) 1.07
---------
Balance at December 31, 1998............................. 2,727,720 .78
=========
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Number of Weighted
Options Average Weighted Exercisable
Outstanding at Remaining Average As of
Exercise December 31, Contractual Exercise December
Price 1998 Life Price 1998
------------- -------------- ----------- -------- -----------
<S> <C> <C> <C> <C>
$.56 90,000 7.25 years $ .56 48,920
$.67 1,815,345 8.63 years $ .67 465,219
$1.07 822,375 9.81 years $1.07 0
--------- -------
$.56 to $1.07 2,727,720 8.95 years $0.78 514,139
========= =======
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its option plans. The Company has
recorded deferred compensation of approximately $2.2 million in 1998 which
represents the difference between the exercise prices per option and the
fair value of the Company's common stock at the dates of grant. Deferred
compensation is amortized over the vesting period of the stock options
which is generally five years.
Had compensation cost for the Company's stock-based compensation plans been
determined consistent with SFAS No. 123, the Company's net loss would have
been the pro forma amount indicated below. The pro forma net loss is
calculated using the Black-Scholes option pricing model, with the following
assumptions: risk-free interest rates of 5.28% for 1998, from 5.82% to
6.19% for 1997 and 6.09% to 6.19% for 1996, expected life of six years,
dividend yield of 0%, and expected volatility of 0%. The weighted average
fair value of options granted during the year ended December 31, 1996, the
5 1/2 months ended December 31, 1997, and the year ended December 31, 1998
was $.33, $.18 and $3.22 per option, respectively. No options were granted
during the 6 1/2 months ended July 15, 1997.
F-13
<PAGE>
<TABLE>
<CAPTION>
6 5
Year Ended 1/2 Months Ended 1/2 Months Ended Year Ended
December 31, July 15, December 31, December 31,
1996 1997 1997 1998
------------ ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
Net loss, as
reported............. $(740,977) $(410,555) $(936,776) $(3,805,460)
Net loss, pro forma... $(745,477) $(416,175) $(986,499) $(4,037,679)
Net loss per common
share, as reported... $ (.36) $ (1.44)
Net loss per common
share, pro forma..... $ (.37) $ (1.53)
</TABLE>
Amendment to Certificate of Incorporation
In September 1998, the Company filed an amended and restated certificate of
incorporation (the "Certificate") which, among other things, increased the
total number of authorized common stock and preferred stock to 20,594,088
and 3,703,566, respectively. Additionally, the Certificate amended the
terms of the existing Series A preferred stock (Note 5) and increased the
number of shares of preferred stock designated as Series A to 1,211,140.
See Note 10 where further changes to the Company's capital structure
subsequent to December 31, 1998 are discussed.
Stock Split
In May 1998, the Company's board of directors and the majority stockholders
approved a 2-for-1 stock split (the "Split") with respect to each
outstanding share of common stock and Series A preferred stock. The Split
was effected in the form of a stock dividend that was paid in September
1998. All references to share amounts for the Successor Company have been
restated to reflect the Split on a retroactive basis. See note 10 regarding
an additional stock split.
5.CONVERTIBLE REDEEMABLE PREFERRED STOCK
On July 15, 1997, the Company authorized and issued 1,200,140 shares of
convertible and mandatorily redeemable preferred stock, designated as
Series A, for $5 per share. On September 30, 1998, the Company issued
1,333,200 and 579,613 shares of convertible and mandatorily redeemable
preferred stock, designated as Series B and Series B-1, respectively, for
$8 per share. These shares are entitled to 4.5 votes per share on all
matters upon which common stockholders are entitled to vote, except for the
Series B-1 shares which do not have any voting rights. In October 1999, in
connection with the second amended and restated stockholders' agreement,
certain terms of the Series A, Series B, and Series B-1 preferred stock
(the "Preferred Stock") were changed.
The Series A and Series B and B-1 preferred stock has a redemption price of
$5 and $8 per share, respectively, together with accrued and unpaid
dividends thereon. Redemption is mandatory beginning October 8, 2005, at
which time up to one-third of the outstanding shares may be redeemed on
October 8, 2005, October 8, 2006, and October 8, 2007. In the event of any
liquidation, dissolution, or winding up of the affairs of the Company,
holders of Series B and Series B-1 preferred stock shall be paid the
redemption price, plus all accrued dividends, before any payment to other
stockholders. In the event of any liquidation, dissolution, or winding up
of the affairs of the Company, holders of Series A preferred stock shall be
paid the redemption price, plus all accrued dividends, before any payment
to other stockholders, exclusive of any payments to be made to holders of
Series B and Series B-1 preferred stock. The Preferred Stock is convertible
into common stock at the discretion of the holder and automatically
converts into common stock upon the completion of an initial public
offering of the Company's common stock with proceeds in excess of
$50,000,000 and an adjusted per share
F-14
<PAGE>
price of at least $8.44. Under these conversion terms, the Preferred Stock
converts 4.5 for 1 into common stock. The holders of the Preferred Stock
are entitled to receive dividends, out of the unreserved and unrestricted
surplus or net profits of the Company, as declared by the board of
directors. No such dividends have been declared as of December 31, 1998.
The Company is accreting the issuance costs of the Preferred Stock, which
is the difference between the redemption price and the face value of the
shares, over the period from the date of sale to the initial redemption
date. Such amount was $1,920 and $5,737 for the 5 1/2 months ended December
31, 1997 and the year ended December 31, 1998, respectively, and is
included in interest expense in the accompanying statements of operations.
6.RELATED-PARTY TRANSACTIONS
The Predecessor Company received advances totaling $155,697 during 1996
from a company which had the same ownership as the Predecessor Company. In
March of 1996, the Predecessor Company was relieved of its obligation to
repay these amounts and these advances were recorded as capital
contributions.
A portion of the proceeds from the Predecessor Company's sale of member
shares was received from officers, directors, or other parties related to
the Predecessor Company. A portion of the cost of the Predecessor Company's
purchase of member shares was paid to officers, directors, or other parties
related to the Predecessor Company.
A portion of the proceeds from the Company's sale of Series A, Series B,
and Series B-1 preferred stock (Note 5) was received from officers,
directors, or other parties related to the Company. The sales were
conducted concurrently with and on the same terms as those entered into
with unrelated parties.
7.COMMITMENTS AND CONTINGENCIES
Leases
The Company is obligated under several operating and capital lease
agreements, primarily for office space and equipment. Future annual minimum
rental payments under these leases as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Operating Capital
---------- --------
<S> <C> <C>
1999................................................... $ 385,178 $283,923
2000................................................... 396,197 261,784
2001................................................... 411,123 181,345
2002................................................... 411,123 109,003
2003................................................... 404,939 28,186
Thereafter............................................. 558,058 0
---------- --------
$2,566,618 $864,241
==========
Less amount representing interest and taxes............ $149,023
--------
Present value of future minimum capital lease
payments.............................................. 715,218
Less current portion................................... 192,635
--------
Long-term portion...................................... $522,583
========
</TABLE>
F-15
<PAGE>
Rental expense was $35,270 for the year ended December 31, 1996, $22,219
for the 6 1/2 months ended July 15, 1997, $32,685 for the 5 1/2 months
ended December 31, 1997, and $159,236 for the year ended December 31, 1998.
In November 1999, the Company entered into an agreement to lease additional
office space for seven years at a minimum of $250,000 (unaudited) per year.
Commission Obligation
The Company has entered into license agreements with the owners and/or
management companies of several office buildings whereby the Company has
the right to provide enhanced, integrated communications services. Under
the terms of the agreements, the Company is generally obligated to pay a
commission based on the greater of a base fee or a percentage of revenue
earned in the related building or development. At December 31, 1998 and
September 30, 1999, the Company's minimum obligation under these agreements
is $62,500 and $125,000 (unaudited), respectively, per year for the next
seven years.
Purchase Obligation
At December 31, 1998, the Company has contracted with a communications
service provider to purchase a minimum of $50,000 of service per month
through September 2000.
At December 31, 1998, the Company has contracted with a communications
service provider to purchase a minimum of $12,000 of service per month
through July 15, 2000 and $11,000 per month through August 31, 2002.
During November 1999, the Company entered into an agreement with a
communications service provider to purchase a minimum of $50,000
(unaudited) of service per month for the next two years.
Line of Credit
The Company entered into an agreement with Silicon Valley Bank ("Silicon")
on September 1, 1998 for a credit line totaling $500,000 bearing interest
at Silicon's prime rate plus 1.25%. The total amount was borrowed and
subsequently repaid prior to December 31, 1998. The agreement expired on
April 22, 1999. Borrowings were secured by a security interest in certain
of the Company's assets.
Employee Benefit Plan
In 1997, the Company adopted a 401(k) defined contribution plan.
Participants may elect to defer 15% of compensation up to a maximum amount
determined annually pursuant to Internal Revenue Service regulations.
Legal Proceedings
The Company is subject to legal proceedings and claims that arise in the
ordinary course of business. There are no pending legal proceedings to
which the Company is a party that management believes will have a material
adverse effect on the financial position, results of operations, or cash
flows of the Company.
F-16
<PAGE>
8. INCOME TAXES
On July 15, 1997, the Company recorded a deferred tax liability in the
amount of $73,487 which represents the Predecessor Company's tax
consequences of temporary differences in reporting items for financial
statement and income tax purposes at the time of the Acquisition (Note 1).
In accordance with SFAS No. 109, the portion of this deferred tax liability
attributable to the ownership interest carried at Predecessor Basis was
recognized as income tax expense; the remainder was treated as having been
assumed and was included in the net assets acquired.
The income tax effects of temporary differences between the carrying amount
of assets and liabilities in the financial statements and their respective
income tax bases, which give rise to deferred tax assets and liabilities,
as of December 31 are as follows:
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards...................... $448,025 $1,737,863
Allowance for doubtful accounts....................... 3,779 30,218
Other................................................. 3,800 14,358
-------- ----------
Total deferred income tax assets..................... 455,604 1,782,439
Deferred income tax liabilities:
Depreciation.......................................... (144,838) (191,419)
Valuation allowance.................................... (310,766) (1,591,020)
-------- ----------
Net deferred income taxes............................. $ -- $ --
======== ==========
</TABLE>
The Company has provided a valuation allowance against its net deferred tax
assets, as management has concluded that it is not more likely than not
that such assets will be realized. The Company had approximately $4.6
million of federal and state net operating loss carryforwards at December
31, 1998. The net operating loss carryforwards begin to expire in the year
2017 if not previously utilized. Utilization of existing net operating loss
carryforwards may be limited in future years if significant ownership
changes were to occur.
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
5
1/2 Months Ended Year Ended
December 31, December
1997 31, 1998
---------------- -----------
<S> <C> <C>
Current........................................ $ -- $ --
Deferred....................................... (370,018) (1,280,254)
Increase in valuation allowance................ 310,766 1,280,254
--------- -----------
Total income tax benefit...................... $ (59,252) $ --
========= ===========
</TABLE>
The differences between the federal statutory income tax rate and the
Company's effective rate are as follows:
<TABLE>
<CAPTION>
5 1/2 Months Ended Year Ended
December 31, December 31,
1997 1998
------------------- ------------
<S> <C> <C>
Federal statutory rate.................... (34)% (34)%
State income taxes, net of federal
benefit.................................. (3) (4)
Permanent differences..................... 5 3
Acquisition of predecessor interest....... 1 --
Increase in valuation allowance........... 31 35
--- ---
Effective rate............................ -- % -- %
=== ===
</TABLE>
F-17
<PAGE>
9.ACQUISITIONS
On December 8, 1998, the Company acquired certain assets of MTS
Communications, a provider of building-centric communications services in
California, for total consideration of $2,574,848 consisting of $1,904,398
in cash and the assumption of certain capital lease obligations with a fair
value of $670,450 (the "MTS Acquisition"). The acquisition was accounted
for as a purchase and the results of operations of MTS Communications have
been included since the date of acquisition in the accompanying statements
of operations. The purchase price was allocated as follows:
<TABLE>
<S> <C>
Property and equipment........................................... $2,060,000
Tenant contracts................................................. 430,000
Cost in excess of net assets acquired............................ 84,848
----------
$2,574,848
==========
</TABLE>
Prior to the MTS Acquisition, the Company advanced $200,000 to MTS
Communications in the form of a secured 8% promissory note to fund working
capital requirements of MTS Communications. The note was due March 8, 1999
and was repaid in full.
As discussed in Note 1, the Company acquired the Predecessor Company on
July 15, 1997. The following unaudited pro forma results of operations for
the year ended December 31, 1997 and 1998 assumes that the acquisition of
the Predecessor Company and the MTS Acquisition occurred on January 1,
1997. The pro forma information is presented for informational purposes
only and may not be indicative of the actual results had the acquisition
occurred on the assumed date, nor is the information necessarily indicative
of future results of operations.
<TABLE>
<CAPTION>
1997 1998
----------- -----------
(unaudited)
<S> <C> <C>
Revenues.......................................... $ 2,325,428 $ 4,485,236
=========== ===========
Net loss.......................................... $(2,040,315) $(4,189,754)
=========== ===========
Net loss per common share......................... $ (.77) $ (1.58)
=========== ===========
</TABLE>
10.EVENTS SUBSEQUENT TO YEAR-END (UNAUDITED)
Changes in Capital Structure
In October 1999, the Company increased the authorized number of shares of
its common stock and preferred stock to 49,023,324 and 7,687,704,
respectively. In October 1999, the Company designated an additional
6,375 shares as Series B preferred stock and designated 3,977,763 shares as
Series C preferred stock. In December 1999, the Company increased the
authorized number of its common stock and preferred stock to 58,620,758 and
7,920,467, respectively. Additionally, in December 1999, the Company
designated an additional 232,763 shares as Series C preferred stock.
The Series C preferred stock has a redemption price of $19 per share,
together with accrued and unpaid dividends thereon. Redemption of the
Series C preferred stock is mandatory beginning October 8, 2005, at which
time up to one-third of the outstanding shares are to be redeemed on each
of the sixth, seventh, and eighth anniversaries of October 8, 1999. In the
event of any liquidation, dissolution, or winding up of the affairs of the
Company, holders of Series C preferred stock shall be paid the redemption
price, plus all accrued dividends, before any
F-18
<PAGE>
payment to other stockholders. The Series C preferred stock is convertible
into common stock at the discretion of the holder. The Series C preferred
stock automatically converts into common stock upon the completion of an
initial public offering of the Company's common stock with proceeds in
excess of $50,000,000 and an adjusted per share price of at least $8.44.
Under these conversion terms, the Series C preferred stock converts 4.5 for
1 into common stock.
Sale of Preferred Stock
In February 1999, the Company sold 6,375 shares of its Series B preferred
stock to two employees of the Company for $8 per share for total proceeds
of $51,000.
In October 1999, the Company completed the sale of 2,819,868 shares of its
Series C preferred stock to existing and new third party investors for $19
per share for total proceeds of approximately $53.6 million.
In November 1999 and December 1999, the Company completed the sale of
1,157,895 and 184,211 shares, respectively, of its Series C preferred stock
to certain property owners and operators for $19 per share for total
proceeds of $25.5 million.
In accordance with EITF 98-5, the Company will record a charge in the
quarter ending December 31, 1999 of approximately $79.1 million to reflect
the beneficial conversion features related to the shares of Series C
preferred stock.
Stock Option Grants
For the period from January 1, 1999 through October 7, 1999, the Company
granted 1,620,000 common stock options to employees with an exercise price
of $1.78 per share. For the period from October 8, 1999 through December 2,
1999, the Company granted 1,791,000 common stock options to employees with
an exercise price of $2.53 per share. For the period from December 3, 1999
through December 31, 1999, the Company granted 90,000 common stock options
to employees with exercise prices which will be equal to the initial public
offering price.
During the year ended December 31, 1999, the Company will record deferred
compensation expense of approximately $26.3 million for the difference
between the exercise prices of options granted to employees and fair market
value at the dates of grant. Deferred compensation will be amortized over
the applicable vesting period, which is generally five years.
In December 1999, the Company granted 25,655 options to purchase common
stock, with an exercise price of $2.53 per share, to two consultants for
prior services. The options vested immediately and the consultants
exercised these options prior to December 31, 1999. The Company will record
an expense of approximately $300,000 related to this grant.
Warrants
In November and December 1999, the Company entered into master license
agreements and stock warrant agreements with several property owners and
operators. Under the terms of these agreements, the Company issued warrants
to purchase up to an aggregate of 11,144,658 shares of the Company's common
stock at an exercise price of $4.22 per share. The exact number of shares
of common stock underlying the warrants, which is based on the gross
leasable area of the building set forth in the master license agreements,
will not be determined until the completion of due diligence and the
finalization of the building schedules. The Company expects that the actual
number of shares underlying these warrants will not be adjusted
significantly. The measurement date for valuing the warrants will be the
date(s) on which the property owners or operators effectively complete
their performance requirements.
F-19
<PAGE>
Accounting for License Inducements
Management estimates that the aggregate amount of license inducements
expense related to current license agreements will approximate $150 million
and will be amortized over the terms of the applicable license agreements,
which are expected to be 10 years. The actual expense related to license
inducements may differ from management's estimate depending on the ultimate
valuation of the Company's stock and such difference may be material.
Investment in SiteConnect, Inc.
In November 1999, the Company signed a binding letter of intent (the
"Agreement") to acquire 254,125 shares of common stock, representing less
than 20%, of SiteConnect, Inc. ("SiteConnect"), a Seattle-based provider of
communications services, for consideration of 281,250 shares of the
Company's common stock. The Agreement contains an option for the Company to
purchase the remaining outstanding common stock of SiteConnect for
approximately $5 million. The option is exercisable at any time prior to
the first anniversary of the closing date of the initial investment. The
option is payable in common stock of the Company valued at the per share
price as sold in the Company's proposed initial public offering.
Proposed Initial Public Offering
The Company is in the process of registering shares of its common stock
with the Securities and Exchange Commission. There can be no assurance that
this offering will be completed.
2000 Stock Option Plan
On December 21, 1999, the Company's board of directors adopted the 2000
stock option plan (the "2000 Plan") which was approved subsequently by the
stockholders on December 23, 1999. All officers, directors, and key persons
are eligible to participate in the plan, subject to the discretion of a
committee appointed by the board of directors. The board of directors
reserved a combined 11.7 million shares for issuance under the 1997 Plan
and the 2000 Plan.
Shareholder Rights Plan
In December 1999, the Company approved a stockholder rights plan. This plan
entitles the stockholders to rights to acquire additional shares of the
Company's common stock when a third party acquires 15% of the Company's
common stock or commences or announces its intent to commence a tender
offer for at least 15% of the Company's common stock. This plan could
delay, deter or prevent a change of control.
Employee Stock Purchase Plan
In December 1999, the board of directors and stockholders approved an
employee stock purchase plan. Up to 900,000 shares of common stock may be
issued under this plan.
Stock Split
In January 2000, a committee appointed by the Company's board of directors
approved a preliminary 4.5-for-1 stock split with respect to its
outstanding common stock. This stock split
F-20
<PAGE>
will be effected in the form of a stock dividend and will be made in
connection with the Company's proposed initial public offering. All shares
of common stock and per share amounts in the accompanying financial
statements have been retroactively adjusted to reflect this split.
Pro Forma Stockholders' Equity and Loss Per Share
Simultaneous with the Company's initial public offering and pursuant to the
contractual agreements with the preferred stockholders, all shares of the
Company's Series A, Series B, Series B-1, and Series C preferred stock will
be converted into 14,086,476 shares of common stock. Pro forma
stockholders' equity at September 30, 1999 after giving effect to the
conversion of the Series A, Series B and Series B-1 preferred stock would
be $10,687,324. Had the conversion of the Series A and Series B preferred
stock occurred at the of time of the sale of the preferred stock, net loss
per share would have been $(.38) for the year ended December 31, 1998 and
$(.54) for the nine months ended September 30, 1999.
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To MTS Communications Company, Inc.:
We have audited the accompanying statements of operations of MTS
COMMUNICATIONS COMPANY, INC. (a California S Corporation) for the year ended
December 31, 1997 and for the period from January 1, 1998 to December 7, 1998
and the related statements of stockholders' equity (deficit) and cash flows.
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 audits.
We conducted our audits 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of MTS
Communications Company, Inc. for the year ended December 31, 1997 and for the
period from January 1, 1998 to December 7, 1998 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 29, 1999
F-22
<PAGE>
MTS COMMUNICATIONS COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
January 1,
Year Ended 1998 to
December 31, December
1997 7, 1998
------------ ----------
<S> <C> <C>
OPERATING REVENUES.................................... $1,616,026 $1,933,794
---------- ----------
OPERATING EXPENSES:
Cost of services.................................... 690,631 756,646
Selling and marketing............................... 108,703 103,422
General and administrative.......................... 1,127,314 940,769
Depreciation and amortization....................... 154,187 193,271
---------- ----------
Total operating expenses.......................... 2,080,835 1,994,108
---------- ----------
Operating loss.................................... (464,809) (60,314)
INTEREST EXPENSE, net................................. (63,785) (184,813)
---------- ----------
NET LOSS.............................................. $ (528,594) $ (245,127)
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-23
<PAGE>
MTS COMMUNICATIONS COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock
----------------
Total
Stockholders'
Accumulated Equity
Shares Amount Deficit (Deficit)
------- -------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996......... 200,000 $450,000 $ (355,841) $ 94,159
Transfer of equity interests
(Note 5)........................ 0 264,000 0 264,000
Net loss......................... 0 0 (528,594) (528,594)
------- -------- ----------- ----------
BALANCE, December 31, 1997......... 200,000 714,000 (884,435) (170,435)
Net loss......................... 0 0 (245,127) (245,127)
------- -------- ----------- ----------
BALANCE, December 7, 1998.......... 200,000 $714,000 $(1,129,562) $ (415,562)
======= ======== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-24
<PAGE>
MTS COMMUNICATIONS COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended January 1, 1998
December 31, to December 7,
1997 1998
------------ ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $(528,594) $(245,127)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................. 154,187 193,271
Amortization of debt discount................. 8,000 88,000
Noncash compensation expense.................. 168,000 0
Changes in operating assets and liabilities:
Accounts receivable......................... (13,682) (212,440)
Interest receivable......................... (16,511) (17,160)
Other assets................................ (14,096) (6,340)
Accounts payable............................ (27,241) 58,911
Accrued interest............................ 14,383 14,582
Unearned revenue............................ 11,147 (18,089)
Accrued expenses............................ 302,488 49,010
--------- ---------
Total adjustments......................... 586,675 149,745
--------- ---------
Net cash provided by (used in) operating
activities............................... 58,081 (95,382)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............. (93,161) (50,266)
Loans to employees.............................. (44,151) (20,000)
Collection on employee loans receivable......... 0 12,000
--------- ---------
Net cash used in investing activities..... (137,312) (58,266)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt and short-term
borrowings..................................... (185,959) (277,206)
Proceeds from the issuance of debt and short-
term borrowings................................ 395,147 549,228
Principal payments on capital lease
obligations.................................... (110,279) (138,345)
--------- ---------
Net cash provided by financing
activities............................... 98,909 133,677
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 19,678 (19,971)
CASH AND CASH EQUIVALENTS, beginning of period.... 293 19,971
--------- ---------
CASH AND CASH EQUIVALENTS, end of period.......... $ 19,971 $ 0
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest.......... $ 51,914 $ 59,852
========= =========
Property and equipment acquired under capital
lease.......................................... $ 200,031 $ 365,180
========= =========
Property and equipment acquired under issuance
of note payable................................ $ 0 $ 85,000
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE>
MTS COMMUNICATIONS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31, 1997 and
for the Period from January 1, 1998 to December 7, 1998
1. NATURE OF BUSINESS
MTS Communications Company, Inc. ("MTS Communications," or the "Company")
provides building-centric communications services in the greater Los
Angeles, California, area. The Company was incorporated as an S corporation
in California on April 20, 1992. On December 8, 1998, Cypress
Communications, Inc. acquired certain assets of the Company (Note 6).
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are prepared on the accrual basis of
accounting.
Accounting 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 dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual amounts could differ from these
estimates.
Revenue recognition
Revenues are recognized in the month in which services are provided.
Recurring charges for future access services are billed one month in
advance and are recorded as unearned revenue until the month the service is
provided. Revenues include installation fees. To date, the revenues from
installations have not exceeded the related direct costs by a significant
amount. All expenses related to services provided are recognized as
incurred.
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Depreciation expense
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets (three to seven years). Leasehold improvements
are depreciated over the lesser of the lease term or the assets' useful
lives. Maintenance and repairs are charged to expense as incurred. Gains or
losses on disposal of property and equipment are recognized in operations
in the year of disposition.
Income Taxes
The Company is an S corporation and is treated as a partnership for federal
and state income tax purposes. The taxable income or loss of the Company is
attributed directly to its shareholders.
F-26
<PAGE>
MTS COMMUNICATIONS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Accordingly, no provision for any federal or state income taxes has been
made in the accompanying statements of operations.
Sources of Supply
All of the Company's network components are manufactured by large,
recognized telecommunications manufacturers who distribute their products
through multiple distribution channels. The Company currently uses only one
supplier for many components of its telecommunication systems in order to
receive more favorable terms and conditions. If the supplier is unable to
meet the Company's needs as it expands its systems infrastructure, then
delays and increased costs in the expansion could result while the Company
arranged alternative suppliers, which would adversely affect operating
results.
3.RELATED-PARTY TRANSACTIONS
For the year ended December 31, 1997 and the period from January 1, 1998 to
December 7, 1998, the Company received advances of $171,147 and $214,228
from several employees and affiliates of the Company to fund working
capital requirements. Of these amounts, $118,239 and $212,026 were repaid
during the year ended December 31, 1997 and the period from January 1, 1998
to December 7, 1998.
For the year ended December 31, 1997 and the period from January 1, 1998 to
December 7, 1998, the Company made loans of $44,151 and $20,000 to two of
the Company's officers. Of these amounts, $12,000 was repaid during the
period from January 1, 1998 to December 7, 1998.
4.COMMITMENTS AND CONTINGENCIES
Leases
The Company is obligated under several operating and capital lease
agreements, primarily for network equipment and office space. Future annual
minimum rental payments under these leases as of December 7, 1998 are as
follows:
<TABLE>
<CAPTION>
Operating Capital
---------- --------
<S> <C> <C>
1999.................................................. $ 162,881 $228,261
2000.................................................. 169,396 196,549
2001.................................................. 176,172 135,233
2002.................................................. 183,219 94,921
2003.................................................. 190,547 32,976
Thereafter............................................ 147,155 0
---------- --------
$1,029,370 $687,940
========== ========
</TABLE>
Rent expense was $148,633 for the year ended December 31, 1997 and $145,037
for the period from January 1, 1998 to December 7, 1998.
F-27
<PAGE>
MTS COMMUNICATIONS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Legal Proceedings
The Company is subject to various legal proceedings and claims that arise
in the ordinary course of business. In the opinion of management, the
amount or ultimate liability with respect to these actions will not
materially affect the Company's financial position, cash flows or results
of operations.
5. CAPITAL TRANSACTIONS
On December 15, 1997, the principal stockholder of the Company transferred
an aggregate 45,833 shares of the Company's common stock to the Company's
other two stockholders in consideration for services provided to MTS
Communications. These transactions were accounted for in the accompanying
financial statements in accordance with the Securities and Exchange
Commission Staff Accounting Bulletin No. 79. The first stockholder received
16,666 shares (or 8% additional equity interest) in consideration for
guaranteeing a line of credit on behalf of MTS Communications. The fair
value of these shares was recorded as debt issuance costs in the amount of
$96,000 related to the line of credit based on the estimated fair value of
these shares at the date of issuance. The discount was amortized to
interest expense over the term of the line of credit, which was one year.
The second stockholder received 29,167 shares (or 14% additional equity
interest) in consideration for services to the Company. The estimated fair
value of these shares at the date of issuance was recorded as compensation
expense in the amount of $168,000 in the accompanying statements of
operations for the year ended December 31, 1997.
6.ACQUISITION OF THE COMPANY
On December 8, 1998, certain assets of the Company were acquired by Cypress
Communications, Inc. ("Cypress"), a provider of building-centric
communications services, for total consideration of $2,574,848.
7.SUBSEQUENT EVENTS
In September 1999, an arbitrator ordered MTS Communications to pay
approximately $100,000 to a third party for disputed services received by
the Company in connection with its acquisition by Cypress. The Company
intends to petition the California Superior Court to vacate the arbitration
award. The Company has not accrued any liability related to this claim.
F-28
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
As discussed in Note 9 to the financial statements of Cypress
Communications, Inc. (the "Company"), on December 8, 1998, the Company
purchased substantially all of the assets of MTS Communications for total
consideration valued at $2,574,848.
The pro forma adjustments to the statements of operations for the year ended
December 31, 1998 reflect the acquisition of MTS Communications as if the
acquisition occurred on January 1, 1998.
The pro forma financial information does not purport to represent what the
Company's results of operations would have been if this acquisition would have
occurred on January 1, 1998, nor does it purport to indicate the future results
of operations of the Company. The pro forma adjustments are based on currently
available information and certain assumptions that management believes to be
reasonable.
F-29
<PAGE>
CYPRESS COMMUNICATIONS, INC.
PRO FORMA STATEMENT OF OPERATIONS
For the Year ended December 31, 1998
<TABLE>
<CAPTION>
Pro Forma
Cypress MTS Adjustments(a) Pro Forma
----------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Revenues $ 2,417,816 $2,067,420 $ -- $ 4,485,236
Operating Expenses:
Cost of services....... 1,539,846 890,272 -- 2,430,118
Sales and marketing.... 1,470,107 103,422 -- 1,573,529
General and
administrative........ 2,436,221 940,769 -- 3,376,990
Depreciation and
amortization.......... 891,788 193,271 139,167 1,224,226
----------- ---------- --------- -----------
Total operating
expenses............ 6,337,962 2,127,734 139,167 8,604,863
----------- ---------- --------- -----------
Operating loss........... (3,920,146) (60,314) (139,167) (4,119,627)
Interest income
(expense), net.......... 232,279 (184,813) 47,466
----------- ---------- --------- -----------
Loss before income
taxes................... (3,687,867) (245,127) (139,167) (4,072,161)
Income tax benefit....... -- -- -- --
----------- ---------- --------- -----------
Net loss................. $(3,687,867) $(4,072,161)
=========== ===========
Net loss per common
share:
Basic and diluted...... $ (1.40) $ (1.54)
=========== ===========
Weighted average number
of common
shares outstanding:
Basic and diluted...... 2,636,906 2,636,906
=========== ===========
</TABLE>
- --------
(a) Reflects additional amortization of intangibles related to goodwill of
$84,848 and tenant contracts valued at $430,000 recorded in connection with
the acquisition of MTS Communications and being amortized over ten years
and three years, respectively.
F-30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULES
After the 4.5 for one stock split of the outstanding shares of common stock
discussed in Note 10 to Cypress Communications, Inc.'s financial statements is
effected, we expect to be in a position to render the following audit report.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 24, 1999
We have audited, in accordance with generally accepted auditing standards,
the financial statements of CYPRESS COMMUNICATIONS, INC. and CYPRESS
COMMUNICATIONS, L.L.C. included in this Form S-1 and have issued our report
thereon dated November 24, 1999. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedules listed in the index are the responsibility of the Companies'
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
S-1
<PAGE>
CYPRESS COMMUNICATIONS, INC.
AND
CYPRESS COMMUNICATIONS, L.L.C
SCHEDULES
Allowance for Doubtful Accounts:
<TABLE>
<CAPTION>
Beg. Charged to Writeoffs/ Ending
Balance expense Recoveries Balance
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
For the Year Ended December 31,
1996............................ $ 0 $ 0 $ 0 $ 0
For the 6 1/2 months ended July
15, 1997........................ $ 0 $ 0 $ 0 $ 0
For the 5 1/2 ended December 31,
1997............................ $ 0 $ 9,945 $ 0 $ 9,945
For the Year Ended December 31,
1998............................ $ 9,945 $ 69,575 $ 0 $ 79,520
Deferred Tax Asset Valuation Allowance:
<CAPTION>
Beg. Charged to Ending
Balance expense Reversals Balance
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
For the 5 1/2 ended December 31,
1997............................ $ 0 $ 310,766 $0 $ 310,766
For the Year Ended December 31,
1998............................ $310,766 $1,280,254 $0 $1,591,020
</TABLE>
S-2
<PAGE>
INSIDE BACK COVER
[Graphic illustration of the Registrant's In-Building Network]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Prospective investors may rely only on the information contained in this pro-
spectus. Neither Cypress Communications, Inc. nor any underwriter has autho-
rized anyone to provide prospective investors with different or additional in-
formation. This prospectus is not an offer to sell nor is it seeking an offer
to buy these securities in any jurisdiction where such offer or sale is not
permitted. The information contained in this prospectus is correct only as of
the date of this prospectus, regardless of the time of delivery of this pro-
spectus or any sale of these securities.
--------------------
TABLE OF CONTENTS
--------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 20
Selected Financial Data.................................................. 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 31
Management............................................................... 50
Principal Stockholders................................................... 60
Certain Relationships and Related Transactions........................... 63
Description of Capital Stock............................................. 66
Shares Eligible for Future Sale.......................................... 72
Underwriting............................................................. 74
Legal Matters............................................................ 77
Experts.................................................................. 77
Additional Information................................................... 77
Where You Can Find Additional Information................................ 77
Index to Financial Statements............................................ F-1
</TABLE>
----------------
Until , 2000 (25 days after the date of this prospectus), all dealers that
effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[CYPRESS LOGO APPEARS HERE]
10,000,000 Shares
Common Stock
--------------
PROSPECTUS
--------------
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
J.C. Bradford & Co.
, 2000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses payable by us in
connection with the offering (excluding underwriting discounts and
commissions):
<TABLE>
<CAPTION>
Nature of Expense Amount
----------------- ----------
<S> <C>
SEC Registration Fee............................................. $ 48,576
NASD Filing Fee.................................................. 18,900
Nasdaq National Market Listing Fee............................... 95,000
Accounting Fees and Expenses..................................... 550,000
Legal Fees and Expenses.......................................... 900,000
Director and Officer Insurance Expenses.......................... 250,000
Printing Expenses................................................ 300,000
Blue Sky Qualification Fees and Expenses......................... 7,500
Transfer Agent's Fee............................................. 5,500
Miscellaneous.................................................... 224,524
TOTAL.......................................................... $2,400,000
==========
</TABLE>
The amounts set forth above, except for the Securities and Exchange
Commission, National Association of Securities Dealers, Inc. and Nasdaq
National Market fees, are in each case estimated.
Item 14. Indemnification of Directors and Officers
In accordance with Section 145 of the Delaware General Corporation Law,
Article VII of our second amended and restated certificate of incorporation
provides that no director of Cypress be personally liable to Cypress or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (1) for any breach of the director's duty of loyalty to
Cypress or its stockholders, (2) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3) in
respect of unlawful dividend payments or stock redemptions or repurchases, or
(4) for any transaction from which the director derived an improper personal
benefit. In addition, our second amended and restated certificate of
incorporation provides that if the Delaware General Corporation Law is amended
to authorize the further elimination or limitation of the liability of
directors, then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Article V of our amended and restated by-laws provides for indemnification
by Cypress of its officers and certain non-officer employees under certain
circumstances against expenses, including attorneys fees, judgments, fines and
amounts paid in settlement, reasonably incurred in connection with the defense
or settlement of any threatened, pending or completed legal proceeding in which
any such person is involved by reason of the fact that such person is or was an
officer or employee of Cypress if such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of Cypress, and, with respect to criminal actions or proceedings, if
such person had no reasonable cause to believe his or her conduct was unlawful.
We have also entered into indemnification agreements with each of our
directors and certain of our executive officers. These agreements provide that
we indemnify each of our directors and such
II-1
<PAGE>
officers to the fullest extent permitted under law and our by-laws, and provide
for the advancement of expenses to each director and each such officer. We have
also obtained directors and officers insurance against certain liabilities.
** Confidential treatment requested as to these exhibits.
Item 15. Recent Sales of Unregistered Securities
Since its formation on July 15, 1997, Cypress Communications, Inc. has sold
or issued the following securities that were not registered under the
Securities Act of 1933, as amended (the "Securities Act"). No underwriters were
used in connection with these sales and issuances.
(1) On July 15, 1997, Cypress issued an aggregate of 2,636,906 shares of
common stock to The Centennial Funds, Alta Communications, ITC
Services, R. Stanley Allen, Ward C. Bourdeaux, Jr., Michael Moh and
Andrew Purinton in connection with a reorganization in consideration
for the membership interests of the predecessor company. The sale and
issuance of these securities was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, on the basis that the
transaction did not involve a public offering.
(2) On July 15, 1997, Cypress issued an aggregate of 1,200,140 shares of
series A preferred stock to The Centennial Funds, Alta Communications,
R. Stanley Allen, Ward C. Bourdeaux, Jr., John L. Thompson and Mark H.
Dunaway for an aggregate consideration of $6,000,700. The sale and
issuance of these securities was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, on the basis that the
transaction did not involve a public offering.
(3) On March 9, 1998, Cypress issued 11,000 shares of series A preferred
stock to Mark A. Graves for consideration of $55,000. The sale and
issuance of these securities was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, on the basis that the
transaction did not involve a public offering.
(4) On September 30, 1998, Cypress issued an aggregate of 1,333,200 shares
of series B preferred stock to The Centennial Funds, Alta
Communications, Beacon Capital Partners, R. Stanley Allen, Ward C.
Bourdeaux, Jr., Mark A. Graves, Michael Moh, John L. Thompson and
Andrew Purinton for an aggregate consideration of $10,665,600. The sale
and issuance of these securities was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, on the basis that the
transaction did not involve a public offering.
(5) On September 30, 1998, Cypress issued 579,613 shares of series B-1
preferred stock to Beacon Capital Partners for consideration of
$4,636,904. The sale and issuance of these securities was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof,
on the basis that the transaction did not involve a public offering.
(6) On February 1, 1999, Cypress issued an aggregate of 6,375 shares of
series B preferred stock to Barry L. Boniface and George J. Cisler for
an aggregate consideration of $51,000. The sale and issuance of these
securities was exempt from registration under the Securities Act
pursuant to Section 4(2) thereof, on the basis that the transaction did
not involve a public offering.
(7) On October 8, 1999, Cypress issued an aggregate of 2,819,868 shares of
series C preferred stock to The Centennial Funds, Alta Communications,
Beacon Capital Partners, Nassau
II-2
<PAGE>
Capital, Gramercy Communications Partners, Latona Cycom, AEW Partners,
Vornado, R. Stanley Allen, Ward C. Bourdeaux, Jr., Mark A. Graves,
Barry L. Boniface, Michael Moh and John L. Thompson for an aggregate
consideration of $53,577,492. The sale and issuance of these securities
was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof, on the basis that the transaction did not involve
a public offering.
(8) On November 23, 1999, Cypress issued an aggregate of 1,157,895 shares
of series C preferred stock to Brookfield International, Boston
Properties, Shorenstein and Cornerstone Properties for an aggregate
consideration of $22,000,000. The sale and issuance of these securities
was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof, on the basis that the transaction did not involve
a public offering.
(9) On December 2, 1999, Cypress issued 184,211 shares of series C
preferred stock to Vornado for consideration of $3,500,000. The sale
and issuance of these securities was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, on the basis that the
transaction did not involve a public offering.
(10) On July 15, 1997, Cypress issued stock options to purchase 90,000
shares of common stock to an employee with an exercise price of $.56
per share pursuant to a stock option plan. The sale and issuance of
these securities was exempt from registration under the Securities Act
pursuant to Rule 701 promulgated thereunder, on the basis that these
options were offered and sold pursuant to a written compensatory
benefit plan.
(11) From July 15, 1997 to June 1, 1998, Cypress issued stock options to
purchase an aggregate of 1,815,345 shares of common stock to employees
with an exercise price of $.67 per share pursuant to stock option
plans. The sales and issuances of these securities were exempt from
registration under the Securities Act pursuant to Rule 701 promulgated
thereunder, on the basis that these options were offered and sold
pursuant to a written compensatory benefit plan.
(12) From October 1, 1998 to October 7, 1999, Cypress issued stock options
to purchase an aggregate of 2,518,875 shares of common stock to
employees with an exercise price of $1.07 per share pursuant to stock
option plans. The sales and issuances of these securities were exempt
from registration under the Securities Act pursuant to Rule 701
promulgated thereunder, on the basis that these options were offered
and sold pursuant to a written compensatory benefit plan.
(13) From October 11, 1999 to December 2, 1999, Cypress issued stock
options to purchase an aggregate of 1,791,000 shares of common stock
to employees with an exercise price of $2.53 per share pursuant to
stock option plans. The sales and issuances of these securities were
exempt from registration under the Securities Act pursuant to Rule 701
promulgated thereunder, on the basis that these options were offered
and sold pursuant to a written compensatory benefit plan.
(14) On November 23, 1999, Cypress issued warrants to purchase up to an
aggregate of 2,745,321 shares of common stock to Aetna Life Insurance
Company, AEW Partners III, L.P., Alaska State Pension Investment
Board, Brookfield Properties, Inc., McCord Development, Inc., The
Milwaukee Employees' Retirement System, Principal Office
II-3
<PAGE>
Investors, LLC, Tower Realty Management Corporation and Westbrook Fund
III Acquisitions, L.L.C. with an exercise price of $4.22 per share
pursuant to stock warrant agreements. The sale and issuance of these
securities was exempt from registration under the Securities Act
pursuant to Section 4(2) thereof, on the basis that the transaction did
not involve a public offering.
(15) On November 30, 1999, Cypress issued warrants to purchase up to an
aggregate of 1,033,229 shares of common stock to Mezzanine Investors
Partners, SJ Plaza, LLC, Transwestern Investment Company LLC,
TrizecHahn Office Properties, Inc. and 101 Park, LLC with an exercise
price of $4.22 per share pursuant to stock warrant agreements. The
sale and issuance of these securities was exempt from registration
under the Securities Act pursuant to Section 4(2) thereof, on the
basis that the transaction did not involve a public offering.
(16) On December 1, 1999, Cypress issued warrants to purchase up to an
aggregate of 4,074,576 shares of common stock to Lend Lease Real
Estate Investments, Inc. and Vornado Communications, L.L.C. with an
exercise price of $4.22 per share pursuant to stock warrant
agreements. The sale and issuance of these securities was exempt from
registration under the Securities Act pursuant to Section 4(2)
thereof, on the basis that the transaction did not involve a public
offering.
(17) On December 2, 1999, Cypress issued warrants to purchase up to an
aggregate of 3,291,536 shares of common stock to Boston Properties
Limited Partnership, Cornerstone Properties Limited Partnership,
Cousins Properties Incorporated and Shorenstein Company, L.P. with an
exercise price of $4.22 per share pursuant to stock warrant
agreements. The sale and issuance of these securities was exempt from
registration under the Securities Act pursuant to Section 4(2)
thereof, on the basis that the transaction did not involve a public
offering.
II-4
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
**3.1 Amended and Restated Certificate of Incorporation.
**3.2 First Certificate of Amendment to the Amended and Restated
Certificate of Incorporation.
**3.3 Second Certificate of Amendment to the Amended and Restated
Certificate of Incorporation.
**3.4 Third Certificate of Amendment to the Amended and Restated
Certificate of Incorporation.
**3.5 Fourth Certificate of Amendment to the Amended and Restated
Certificate of Incorporation.
3.6 Form of Fifth Certificate of Amendment to the Amended and Restated
Certificate of Incorporation.
3.7 Form of Second Amended and Restated Certificate of Incorporation.
3.8 Form of Amended and Restated Bylaws.
4.1 Specimen certificate for shares of common stock, $.001 par value
per share.
**4.2 Form of Shareholder Rights Agreement.
5.1 Opinion of Goodwin, Procter & Hoar llp as to the legality of the
securities being offered.
**10.1 1997 Management Option Plan.
**10.2 Form of 2000 Stock Option and Incentive Plan.
**10.3 Form of Employee Stock Purchase Plan.
**10.4 Third Amended and Restated Stockholders Agreement.
**10.5 First Amendment to the Third Amended and Restated Stockholders
Agreement.
**10.6 Second Amendment to the Third Amended and Restated Stockholders
Agreement.
10.7 Form of Master Communications License Transaction Agreement.
10.8 Form of Stock Warrant Agreement.
**10.9 Series A Preferred Stock Purchase Agreement, by and among Cypress
Communications, Inc. and the purchasers thereto, dated as of July
15, 1997.
**10.10 Series B and B-1 Preferred Stock Purchase Agreement, by and among
Cypress Communications, Inc. and the purchasers thereto, dated as
of September 30, 1998.
**10.11 Series C and C-1 Preferred Stock Purchase Agreement, by and among
Cypress Communications, Inc. and the purchasers thereto, dated as
of October 8, 1999.
**10.12 Series C Preferred Stock Purchase Agreement, by and among Cypress
Communications, Inc. and the purchasers thereto, dated as of
November 23, 1999.
**10.13 Series C Preferred Stock Purchase Agreement, by and among Cypress
Communications, Inc. and the purchasers thereto, dated as of
December 1, 1999.
**10.14 Series C Preferred Stock Purchase Agreement, by and among Cypress
Communications, Inc. and the purchasers thereto, dated as of
December 2, 1999.
**10.15 Binding Summary of Terms of Stock Purchase Agreement, by and among
Cypress Communications, Inc., SiteConnect, Inc. and the
shareholders of SiteConnect, Inc., and the amendments thereto.
10.16 Form of Indemnification Agreement.
10.17 Form of Executive Officer Severance Plan.
23.1 Consent of Goodwin, Procter & Hoar llp (included in Exhibit 5.1
hereto).
23.2 Consent of Arthur Andersen LLP.
**24.1 Powers of Attorney (contained on the signature page to this
registration statement).
**27.1 Financial Data Schedule.
</TABLE>
--------
* To be filed by amendment to this registration statement.
** Previously filed.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Atlanta, Georgia, on February 4, 2000.
CYPRESS COMMUNICATIONS, INC.
By: /s/ R. Stanley Allen
-----------------------------------
R. Stanley Allen
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ R. Stanley Allen Chief Executive February 4, 2000
- ------------------------------------- Officer and
R. Stanley Allen Director (Principal
Executive Officer)
* President, Chief February 4, 2000
- ------------------------------------- Operating Officer
Mark A. Graves and Secretary
* Executive Vice February 4, 2000
- ------------------------------------- President and
Ward C. Bourdeaux, Jr. Director
* Chief Financial February 4, 2000
- ------------------------------------- Officer (Principal
Barry L. Boniface Financial and
Accounting Officer)
* Director February 4, 2000
- -------------------------------------
William P. Egan
* Director February 4, 2000
- -------------------------------------
Laurence Grafstein
* Director February 4, 2000
- -------------------------------------
Randall A. Hack
* Director February 4, 2000
- -------------------------------------
John C. Halsted
* Director February 4, 2000
- -------------------------------------
Jeffrey H. Schutz
* Director February 4, 2000
- -------------------------------------
P. Eric Yopes
</TABLE>
/s/ R. Stanley Allen
*By: ________________________________
R. Stanley Allen
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
**3.1 Amended and Restated Certificate of Incorporation.
**3.2 First Certificate of Amendment to the Amended and Restated
Certificate of Incorporation.
**3.3 Second Certificate of Amendment to the Amended and Restated
Certificate of Incorporation.
**3.4 Third Certificate of Amendment to the Amended and Restated
Certificate of Incorporation.
**3.5 Fourth Certificate of Amendment to the Amended and Restated
Certificate of Incorporation.
3.6 Form of Fifth Certificate of Amendment to the Amended and Restated
Certificate of Incorporation.
3.7 Form of Second Amended and Restated Certificate of Incorporation.
3.8 Form of Amended and Restated Bylaws.
4.1 Specimen certificate for shares of common stock, $.001 par value
per share.
**4.2 Form of Shareholder Rights Agreement.
5.1 Opinion of Goodwin, Procter & Hoar llp as to the legality of the
securities being offered.
**10.1 1997 Management Option Plan.
**10.2 Form of 2000 Stock Option and Incentive Plan.
**10.3 Form of Employee Stock Purchase Plan.
**10.4 Third Amended and Restated Stockholders Agreement.
**10.5 First Amendment to the Third Amended and Restated Stockholders
Agreement.
**10.6 Second Amendment to the Third Amended and Restated Stockholders
Agreement.
10.7 Form of Master Communications License Transaction Agreement.
10.8 Form of Stock Warrant Agreement.
**10.9 Series A Preferred Stock Purchase Agreement, by and among Cypress
Communications, Inc. and the purchasers thereto, dated as of July
15, 1997.
**10.10 Series B and B-1 Preferred Stock Purchase Agreement, by and among
Cypress Communications, Inc. and the purchasers thereto, dated as
of September 30, 1998.
**10.11 Series C and C-1 Preferred Stock Purchase Agreement, by and among
Cypress Communications, Inc. and the purchasers thereto, dated as
of October 8, 1999.
**10.12 Series C Preferred Stock Purchase Agreement, by and among Cypress
Communications, Inc. and the purchasers thereto, dated as of
November 23, 1999.
**10.13 Series C Preferred Stock Purchase Agreement, by and among Cypress
Communications, Inc. and the purchasers thereto, dated as of
December 1, 1999.
**10.14 Series C Preferred Stock Purchase Agreement, by and among Cypress
Communications, Inc. and the purchasers thereto, dated as of
December 2, 1999.
**10.15 Binding Summary of Terms of Stock Purchase Agreement, by and among
Cypress Communications, Inc., SiteConnect, Inc. and the
shareholders of SiteConnect, Inc., and the amendments thereto.
10.16 Form of Indemnification Agreement.
10.17 Form of Executive Officer Severance Plan.
23.1 Consent of Goodwin, Procter & Hoar llp (included in Exhibit 5.1
hereto).
23.2 Consent of Arthur Andersen LLP.
**24.1 Powers of Attorney (contained on the signature page to this
registration statement).
**27.1 Financial Data Schedule.
</TABLE>
--------
* To be filed by amendment to this registration statement.
** Previously filed.
<PAGE>
Exhibit 1.1
CYPRESS COMMUNICATIONS, INC.
10,000,000 Shares of Common Stock
FORM OF
UNDERWRITING AGREEMENT
February ___, 2000
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
J.C. BRADFORD & CO.
<PAGE>
10,000,000 Shares of Common Stock
CYPRESS COMMUNICATIONS, INC.
UNDERWRITING AGREEMENT
----------------------
February ___, 2000
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
J.C. Bradford & Co.
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Ladies and Gentlemen:
Cypress Communications, Inc., a corporation organized and existing under
the laws of Delaware (the "Company"), proposes, subject to the terms and
-------
conditions stated herein, to issue and sell to the several underwriters named in
Schedule 1 hereto (collectively, the "Underwriters") an aggregate of 10,000,000
------------
shares (the "Firm Shares") of its common stock, par value $0.01 per share (the
-----------
"Common Stock") and, for the sole purpose of covering over-allotments in
- -------------
connection with the sale of the Firm Shares, at the option of the Underwriters,
up to an additional 1,500,000 shares (the "Additional Shares") of Common Stock.
-----------------
The Firm Shares and any Additional Shares purchased by the Underwriters are
referred to herein as the "Shares". The Shares are more fully described in the
------
Registration Statement referred to below.
1. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to, and agrees with, each of the Underwriters that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (No.
333-92011), and amendments thereto, and related preliminary prospectuses
for the registration under the Securities Act of 1933, as amended (the
"Securities Act"), of shares of common stock, which registration statement,
---------------
as so amended, has been declared effective by the Commission and copies of
which have heretofore been delivered to the Underwriters. The registration
statement, as amended at the time it became effective, including the
exhibits and information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act, is hereinafter referred to as the "Registration Statement."
-----------------------
If the Company has filed or is required pursuant to the terms hereof to
file a registration statement pursuant to Rule 462(b) under the Act
registering additional shares of Common Stock (a "Rule 462(b) Registration
------------------------
Statement"), then, unless otherwise specified, any reference herein to the
---------
term "Registration Statement" shall be deemed to include such Rule 462(b)
Registration Statement. Other than a Rule 462(b) Registration Statement,
which became effective upon filing, no other document with respect to the
Registration Statement has heretofore been filed with the Commission (other
than prospectuses filed pursuant to Rule 424(b) of the rules and
regulations of the Commission under
<PAGE>
the Securities Act (the "Securities Act Regulations"), each in the form
--------------------------
heretofore delivered to the Underwriters). No stop order suspending the
effectiveness of either the Registration Statement or the Rule 462(b)
Registration Statement, if any, has been issued and no proceeding for that
purpose has been initiated or, to the Company's knowledge, threatened by
the Commission. The Company, if required by the Securities Act Regulations,
proposes to file the Prospectus with the Commission pursuant to Rule 424(b)
of the Securities Act Regulations. The Prospectus, in the form in which it
is to be filed with the Commission pursuant to Rule 424(b) of the
Securities Act Regulations, is hereinafter referred to as the "Prospectus,"
----------
except that if any revised prospectus or prospectus supplement shall be
provided to the Underwriters by the Company for use in connection with the
offering and sale of the Shares (the "Offering") which differs from the
--------
Prospectus (whether or not such revised prospectus or prospectus supplement
is required to be filed by the Company pursuant to Rule 424(b) of the
Securities Act Regulations), the term "Prospectus" shall refer to such
revised prospectus or prospectus supplement, as the case may be, from and
after the time it is first provided to the Underwriters for such use; and,
provided, further, that the term "Prospectus" shall be deemed to include
any wrapper or supplement thereto prepared in connection with the
distribution of any Reserved Shares (as defined in Section 2(f), below).
Any preliminary prospectus or prospectus subject to completion included in
the Registration Statement or filed with the Commission pursuant to Rule
424 under the Securities Act is hereafter called a "Preliminary
-----------
Prospectus". All references in this Agreement to the Registration
----------
Statement, the Rule 462(b) Registration Statement, a Preliminary Prospectus
and the Prospectus, or any amendments or supplements to any of the
foregoing, shall be deemed to include any copy thereof filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval System ("EDGAR").
-----
(b) The Registration Statement and Preliminary Prospectus, dated
as of January 14, 2000, and each Preliminary Prospectus thereafter,
complied in all material respects with the requirements of the Securities
Act and the Securities Act Regulations, and did not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading. The
Registration Statement and the Prospectus, at the time the Registration
Statement became effective and as of the Closing Date (as defined in
Section 2(b) below), complied and will comply in all material respects with
the requirements of the Securities Act and the Securities Act Regulations,
and did not and will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading. The Prospectus, as of the
date hereof (unless the term "Prospectus" refers to a prospectus which has
been provided to the Underwriters by the Company for use in connection with
the offering of the Shares which differs from the Prospectus filed with the
Commission pursuant to Rule 424(b) of the Securities Act Regulations, in
which case at the time it is first provided to the Underwriters for such
use) and on the Closing Date, does not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the representations
and warranties in this Section (1)(b) shall not apply to statements in or
omissions from the Registration Statement or Prospectus made in reliance
upon and in conformity with information relating to any Underwriter
furnished to the Company in writing by any Underwriter expressly for use in
the Registration Statement or the Prospectus. Each Preliminary Prospectus
and Prospectus filed as part of the Registration Statement, as part of any
amendment thereto or pursuant to Rule 424 under the Securities Act
Regulations, if filed by electronic transmission pursuant to Regulation S-T
under the Securities Act, was identical to the copy thereof delivered to
the Underwriters for use in connection with the
2
<PAGE>
Offering (except as may be permitted by Regulation S-T under the Securities
Act). There are no contracts or other documents required to be described in
the Prospectus or to be filed as exhibits to the Registration Statement
under the Securities Act that have not been described or filed therein as
required, and there are no business relationships or related-party
transactions involving the Company or any of its subsidiaries or any other
person required to be described in the Prospectus that have not been
described therein as required.
(c) Each of the Company and its subsidiaries (i) has been duly
organized and is validly existing as a corporation in good standing under
the laws of its respective jurisdiction of incorporation, (ii) has all
requisite corporate power and authority to carry on its business as it is
currently being conducted and as described in the Prospectus and to own,
lease and operate its properties, and (iii) is duly qualified and in good
standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification except, with respect to
clauses (i) (as it relates to good standing) and (iii), where the failure
to be so qualified or in good standing does not and could not reasonably be
expected to (x) individually or in the aggregate, result in a material
adverse effect on the properties, business, results of operations,
condition (financial or otherwise), affairs or prospects of the Company and
its subsidiaries, taken as a whole, (y) interfere with or adversely affect
the issuance or marketability of the Shares pursuant hereto or (z) in any
manner draw into question the validity of this Agreement (any of the events
set forth in clauses (x), (y) or (z), a "Material Adverse Effect").
-----------------------
(d) All of the outstanding shares of capital stock of the
Company have been duly authorized, validly issued, and are fully paid and
nonassessable and were not issued in violation of any preemptive or similar
rights. The Shares, when issued, delivered and sold in accordance with
this Agreement, will be duly authorized and validly issued, fully paid and
nonassessable, and will not have been issued in violation of or subject to
any preemptive or similar rights. At September 30, 1999, after giving
effect to the issuance and sale of the Shares pursuant hereto and the
application of the net proceeds from the sale thereof and the conversion of
all convertible preferred stock into Common Stock, the Company had the pro
forma as adjusted consolidated capitalization as set forth in the
Prospectus under the caption "Capitalization".
--------------
(e) All of the outstanding capital stock of, or other ownership
interests in, the Company's subsidiaries is owned by the Company, free and
clear of any security interest, claim, lien, limitation on voting rights or
encumbrance; and all such securities have been duly authorized, validly
issued, and are fully paid and nonassessable and were not issued in
violation of any preemptive or similar rights.
(f) Except as disclosed in the Prospectus there are not
currently, and will not be as a result of the Offering, any outstanding
subscriptions, rights, warrants, calls, commitments of sale or options to
acquire or instruments convertible into or exchangeable for, any capital
stock or other equity interest of the Company or any of its subsidiaries
(other than options issued pursuant to the Company's stock option plans).
(g) The Common Stock (including the Shares) is registered
pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the
"Exchange Act") and is listed for quotation on the Nasdaq National Market
-------------
System ("Nasdaq"), and the Company has taken no action designed to, or
------
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act or delisting the Common Stock from Nasdaq, nor
has the
3
<PAGE>
Company received any notification that the Commission or Nasdaq is
contemplating terminating such registration or listing.
(h) The statistical and market-related data included in the
Prospectus are based on or are derived from sources which the Company
believes to be reliable and accurate in all material respects.
(i) The Company has all requisite corporate power and authority
to execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby, including, without
limitation, the corporate power and authority to issue, sell and deliver
the Shares as provided herein and the power to effect the Use of Proceeds
as described in the Prospectus.
(j) This Agreement has been duly and validly authorized,
executed and delivered by the Company and is the legal, valid and binding
agreement of the Company, enforceable against the Company in accordance
with its terms.
(k) Neither the Company nor any of its subsidiaries is, nor
after giving effect to the Offering will be, (i) in violation of its
charter or bylaws, (ii) in default in the performance of any bond,
debenture, note, indenture, mortgage, deed of trust or other agreement or
instrument to which it is a party or by which it is bound or to which any
of its properties is subject, or (iii) in violation of any local, state or
federal law, statute, ordinance, rule, regulation, requirement, judgment or
court decree (including, without limitation, the Communications Act of 1934
(the "Communications Act") and the rules and regulations of the Federal
Communications Commission (the "FCC"), and environmental laws, statutes,
ordinances, rules, regulations, judgments, or court decrees) applicable to
the Company or any of its subsidiaries or any of their assets or properties
(whether owned or leased) other than, in the case of clauses (ii) and
(iii), any default or violation that (A) could not reasonably be expected
to have a Material Adverse Effect or (B) which is disclosed in the
Prospectus. There exists no condition that, with notice, the passage of
time or otherwise, would constitute a default under any such document or
instrument, except as disclosed in the Prospectus.
(l) None of (i) the execution, delivery or performance by the
Company of this Agreement, (ii) the issuance and sale of the Shares and
(iii) consummation by the Company of the transactions contemplated hereby
and in the Prospectus violate, conflict with or constitute a breach of any
of the terms or provisions of, or a default under (or an event that with
notice or the lapse of time, or both, would constitute a default), or
require consent under, or result in the imposition of a lien on any
properties of the Company or any of its subsidiaries, or an acceleration of
any indebtedness of the Company or any of its subsidiaries pursuant to, (A)
the charter or bylaws of the Company or any of its subsidiaries, (B) any
bond, debenture, note, indenture, mortgage, deed of trust, contract or
other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or its subsidiaries or
their properties is or may be bound, (C) any statute, rule or regulation
applicable to the Company or any of its subsidiaries or any of their assets
or properties or (D) any judgment, order or decree of any court or
governmental agency or authority having jurisdiction over the Company or
any of its subsidiaries or any of their assets or properties. No consent,
approval, authorization or order of, or filing, registration,
qualification, license or permit of or with, (i) any court or governmental
agency, body or administrative agency or (ii) any other person is required
for (A) the execution, delivery and performance by the Company of this
Agreement, (B) the issuance and sale of the Shares and the transactions
contemplated hereby and thereby, except such as have been obtained
4
<PAGE>
and made under the Securities Act and state securities or Blue Sky laws and
regulations or such as may be required by the National Association of
Securities Dealers, Inc. (the "NASD").
----
(m) There is (i) no action, suit or proceeding before or by any
court, arbitrator or governmental agency, body or official, domestic or
foreign, now pending or, to the best knowledge of the Company or any of its
subsidiaries, threatened or contemplated to which the Company or any of its
subsidiaries is a party or to which the business or property of the Company
or any of its subsidiaries is subject, (ii) no statute, rule, regulation or
order that has been enacted, adopted or issued by any governmental agency
or that has been proposed by any governmental body or (iii) no injunction,
restraining order or order of any nature by a federal or state court or
foreign court of competent jurisdiction to which the Company or any of its
subsidiaries is or may be subject or to which the business, assets, or
property of the Company or any of its subsidiaries are or may be subject,
that, in the case of clauses (i), (ii) and (iii) above, (x) is required to
be disclosed in the Prospectus and that is not so disclosed, or (y) could
reasonably be expected to, individually or in the aggregate, result in a
Material Adverse Effect.
(n) No action has been taken and no statute, rule, regulation or
order has been enacted, adopted or issued by any governmental agency that
prevents the issuance of the Shares or prevents or suspends the use of the
Prospectus; no injunction, restraining order or order of any kind by a
federal or state court of competent jurisdiction has been issued that
prevents the issuance of the Shares, prevents or suspends the sale of the
Shares in any jurisdiction referred to in Section 1(c) hereof or that could
adversely affect the consummation of the transactions contemplated by this
Agreement or the Prospectus; and every request of any securities authority
or agency of any jurisdiction for additional information has been complied
with in all material respects.
(o) There is (i) no significant unfair labor practice complaint
pending against the Company or any of its subsidiaries nor, to the best
knowledge of the Company, threatened against any of them, before the
National Labor Relations Board, any state or local labor relations board or
any foreign labor relations board, and no significant grievance or
significant arbitration proceeding arising out of or under any collective
bargaining agreement is so pending against the Company or any of its
subsidiaries nor, to the best knowledge of the Company, threatened against
any of them, (ii) no significant strike, labor dispute, slowdown or
stoppage pending against the Company or any of its subsidiaries nor, to the
best knowledge of the Company, threatened against the Company or any of its
subsidiaries and (iii) to the best knowledge of the Company, no union
representation question existing with respect to the employees of the
Company or any of its subsidiaries that, in the case of clauses (i), (ii)
or (iii) above, could reasonably be expected to result in a Material
Adverse Effect. To the best knowledge of the Company, no collective
bargaining organizing activities are taking place with respect to the
Company or any of its subsidiaries. None of the Company or any of its
subsidiaries has violated (A) any federal, state or local law or foreign
law relating to discrimination in hiring, promotion or pay of employees,
(B) any applicable wage or hour laws or (C) any provision of the Employee
Retirement Income Security Act of 1974, as amended, and the regulations and
published interpretations thereunder (collectively, "ERISA"), which in the
-----
case of clause (A), (B) or (C) above could reasonably be expected to result
in a Material Adverse Effect.
(p) None of the Company or any of its subsidiaries has violated
any environmental, safety or similar law or regulation applicable to it or
its business or property relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), lacks any permit,
------------------
license or other approval required of it under applicable Environmental
Laws or is violating any
5
<PAGE>
term or condition of such permit, license or approval, which could
reasonably be expected to, either individually or in the aggregate, have a
Material Adverse Effect.
(q) Each of the Company and its subsidiaries has (i) good and
marketable title to all of the properties and assets described in the
Prospectus as owned by it, free and clear of all liens, charges,
encumbrances and restrictions, except such as are described in the
Prospectus or as would not have a Material Adverse Effect, (ii) peaceful
and undisturbed possession of its properties under all material leases to
which it is a party as lessee, (iii) all licenses (including all FCC,
state, local or other regulatory licenses), certificates, permits,
authorizations, approvals, franchises and other rights from, and has made
all declarations and filings with, all federal, state and local
authorities, all self-regulatory authorities and all courts and other
tribunals (each an "Authorization") necessary to engage in the business
-------------
conducted by it in the manner described in the Prospectus, except as
described in the Prospectus or where failure to hold such Authorizations
would not, individually or in the aggregate, have a Material Adverse Effect
and (iv) no reason to believe that any governmental body or agency is
considering limiting, suspending or revoking any such Authorization.
Except where the failure to be in full force and effect would not have a
Material Adverse Effect, all such Authorizations are valid and in full
force and effect, and each of the Company and its subsidiaries is in
compliance in all material respects with the terms and conditions of all
such Authorizations and with the rules and regulations of the regulatory
authorities having jurisdiction with respect thereto. All material leases
to which the Company or any of its subsidiaries is a party are valid and
binding, and no default by the Company or any subsidiary has occurred and
is continuing thereunder and, to the best knowledge of the Company and its
subsidiaries, no material defaults by the landlord are existing under any
such lease that could reasonably be expected to result in a Material
Adverse Effect.
(r) Each of the Company and its subsidiaries owns, possesses or
has the right to employ all patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, software, systems or
procedures), trademarks, service marks and trade names, inventions,
computer programs, technical data and information (collectively, the
"Intellectual Property") presently employed by it in connection with the
----------------------
businesses now operated by it or which are proposed to be operated by it or
its subsidiaries free and clear of and without violating any right, claimed
right, charge, encumbrance, pledge, security interest, restriction or lien
of any kind of any other person and none of the Company or any of its
subsidiaries has received any notice of infringement of or conflict with
asserted rights of others with respect to any of the foregoing, except as
could not reasonably be expected to have a Material Adverse Effect. The
use of the Intellectual Property in connection with the business and
operations of the Company and its subsidiaries does not infringe on the
rights of any person, except as could not reasonably be expected to have a
Material Adverse Effect.
(s) None of the Company or any of its subsidiaries or, to the
best knowledge of the Company, any of their respective officers, directors,
partners, employees, agents or affiliates or any other person acting on
behalf of the Company or any of its subsidiaries has, directly or
indirectly, given or agreed to give any money, gift or similar benefit
(other than legal price concessions to customers in the ordinary course of
business) to any customer, supplier, employee or agent of a customer or
supplier, official or employee of any governmental agency (domestic or
foreign), instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other
person who was, is or may be in a position to help or hinder the business
of the Company or any of its subsidiaries (or assist the Company or any of
its subsidiaries in connection with any actual or proposed transaction),
which (i) might subject the Company or any of its subsidiaries, or any
other individual or entity, to any
6
<PAGE>
damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign), (ii) if not given in the past, might have
had a material adverse effect on the assets, business or operations of the
Company or any of its subsidiaries or (iii) if not continued in the future,
might have a Material Adverse Effect.
(t) All material tax returns required to be filed by the Company
and each of its subsidiaries in all jurisdictions have been so filed. All
taxes, including withholding taxes, penalties and interest, assessments,
fees and other charges due or claimed to be due from such entities or that
are due and payable have been paid, other than those being contested in
good faith and for which adequate reserves have been provided or those
currently payable without penalty or interest. To the knowledge of the
Company, there are no material proposed additional tax assessments against
the Company, the assets or property of the Company or any of its
subsidiaries. The Company has made adequate charges, accruals and reserves
in the applicable financial statements included in the Prospectus in
respect of all federal, state and foreign income and franchise taxes for
all periods as to which the tax liability of the Company or any of its
consolidated subsidiaries has not been finally determined.
(u) None of the Company or any of its subsidiaries is (i) an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), or (ii) a "holding company" or a "subsidiary
company" or an "affiliate" of a holding company within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
(v) Except as disclosed in the Prospectus, there are no holders
of securities of the Company or any of its subsidiaries who, by reason of
the execution by the Company of this Agreement or the consummation by the
Company or any of its subsidiaries of the transactions contemplated hereby,
have the right to request or demand that the Company or any of its
subsidiaries register under the Securities Act or analogous foreign laws
and regulations securities held by them, other than such that have been
duly waived or other than such securities as to which the right to enforce
such request or demand shall not be enforceable for a period of 180 days
after the Closing Date.
(w) Each of the Company and its subsidiaries maintains a system
of internal accounting controls sufficient to provide reasonable assurance
that: (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences thereto.
(x) Each of the Company and its subsidiaries maintains insurance
covering its properties, operations, personnel and businesses. Such
insurance insures against such losses and risks as are adequate in
accordance with customary industry practice to protect the Company and its
subsidiaries and their respective businesses. None of the Company or any
of its subsidiaries has received notice from any insurer or agent of such
insurer that substantial capital improvements or other expenditures will
have to be made in order to continue such insurance. All such insurance is
outstanding and duly in force on the date hereof, subject only to changes
made in the ordinary course of business, consistent with past practice,
which do not, singly or in the aggregate, materially alter the coverage
thereunder or the risks covered thereby. The Company has no reason to
believe that it or any subsidiary will not be able (a) to renew its
7
<PAGE>
existing insurance coverage as and when such policies expire or (b) to
obtain comparable coverage from similar institutions as may be necessary or
appropriate to conduct its business as now conducted or as presently
contemplated and at a cost that would not result in a Material Adverse
Effect.
(y) The Company has not (a) taken, directly or indirectly, any
action designed to, or that might reasonably be expected to, cause or
result in stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares or (b) since the
date of the Preliminary Prospectus (1) sold, bid for, purchased or paid any
person any compensation for soliciting purchases of, the Shares or (2) paid
or agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.
(z) The Company and its subsidiaries and any "employee benefit
plan" (as defined under ERISA) established or maintained by the Company,
its subsidiaries or their "ERISA Affiliates" (as defined below) are in
compliance in all material respects with ERISA. "ERISA Affiliate" means,
---------------
with respect to the Company or a subsidiary, any member of any group of
organizations described in Sections 414(b), (c), (m) or (o) of the Internal
Revenue Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company or such
----
subsidiary is a member. No "reportable event" (as defined under ERISA) has
occurred or is reasonably expected to occur with respect to any "employee
benefit plan" established or maintained by the Company, its subsidiaries or
any of their ERISA Affiliates. No "employee benefit plan" established or
maintained by the Company, its subsidiaries or any of their ERISA
Affiliates, if such "employee benefit plan" were terminated, would have any
"amount of unfunded benefit liabilities" (as defined under ERISA). Neither
the Company, its subsidiaries nor any of their ERISA Affiliates has
incurred or reasonably expects to incur any liability under (i) Title IV of
ERISA with respect to termination of, or withdrawal from, any "employee
benefit plan" or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each
"employee benefit plan" established or maintained by the Company, its
subsidiaries or any of their ERISA Affiliates that is intended to be
qualified under Section 401(a) of the Code is so qualified and nothing has
occurred, whether by action or failure to act, which would cause the loss
of such qualification.
(aa) Subsequent to the respective dates as of which information
is given in the Prospectus and up to the Closing Date, except as set forth
in the Prospectus, (i) none of the Company or any of its subsidiaries has
incurred any liabilities or obligations, direct or contingent, that are
material, individually or in the aggregate, to the Company and its
subsidiaries taken as a whole, nor entered into any transaction not in the
ordinary course of business, (ii) none of the Company or any of its
subsidiaries has incurred any liabilities or obligations, direct or
contingent, that will be material to the Company and its subsidiaries taken
as a whole, (iii) there has not been, singly or in the aggregate, any
change or development that could reasonably be expected to result in a
Material Adverse Effect; (iv) there has been no dividend or distribution of
any kind declared, paid or made by the Company or any of its subsidiaries
on any class of its capital stock; (v) there has been no change in
accounting methods or practices (including any change in depreciation or
amortization policies or rates) by the Company or any of its subsidiaries;
(vi) there has been no revaluation by the Company or any of its
subsidiaries of any of their assets; (vii) there has been no increase in
the salary or other compensation payable or to become payable by the
Company or any of its subsidiaries to any of their officers, directors,
employees or advisors, nor any declaration, payment or commitment or
obligation of any kind for the payment by the Company or any of its
subsidiaries of a bonus or other additional salary or compensation to any
such person; (viii) there has been no amendment or termination of any
material contract, agreement or
8
<PAGE>
license to which the Company or any subsidiary is a party or by which it is
bound; (ix) there has been no waiver or release of any material right or
claim of the Company or any subsidiary, including any write-off or other
compromise of any material account receivable of the Company or any
subsidiary; and (x) there has been no material change in pricing or
royalties set or charged by the Company or any subsidiary to their
respective customers or licensees or in pricing or royalties set or charged
by persons who have licensed Intellectual Property Rights to the Company or
any of its subsidiaries.
(bb) Arthur Andersen LLP, who have expressed their opinion with
respect to the financial statements (which term as used in this Agreement
includes the related notes thereto) and supporting schedules included in
the Prospectus, are independent public or certified public accountants
within the meaning of Regulation S-X under the Securities Act and the
Exchange Act.
(cc) The financial statements, together with the related notes,
included in the Prospectus present fairly in all material respects the
consolidated financial position of the Company and its subsidiaries as of
and at the dates indicated and the results of their operations and cash
flows for the periods specified. Such financial statements have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved, except as
may be expressly stated in the related notes thereto. The financial data
set forth in the Prospectus under the captions "Prospectus Summary--Summary
and Other Financial Data", "Selected Financial Data" and "Capitalization"
fairly present the information set forth therein on a basis consistent with
that of the audited financial statements contained in the Prospectus.
(dd) Except pursuant to this Agreement, there are no contracts,
agreements or understandings between the Company and any other person that
would give rise to a valid claim against the Company or any of the
Underwriters for a brokerage commission, finder's fee or like payment in
connection with the issuance, purchase and sale of the Shares.
(ff) Each of the Company and its subsidiaries has implemented
Year 2000 compliance programs designed to ensure that its computer systems
and applications will function properly beyond 1999. The Company believes
that adequate resources have been allocated for this purpose and expects
the Company's and its subsidiaries' Year 2000 date conversion programs to
be completed on a timely basis.
(gg) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters pursuant to
this Agreement shall be deemed to be a representation and warranty by the
Company to the Underwriters as to the matters covered thereby.
The Company acknowledges that each of the Underwriters and, for
purposes of the opinions to be delivered to the Underwriters pursuant to Section
6 hereof, counsel to the Company and counsel to the Underwriters, will rely upon
the accuracy and truth of the foregoing representations and hereby consents to
such reliance.
2. Purchase, Sale and Delivery of the Shares.
-----------------------------------------
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions
herein set forth, the Company agrees to sell to the Underwriters and the
Underwriters, severally and not jointly, agree
9
<PAGE>
to purchase from the Company, at a purchase price per share of $__, the
number of Firm Shares set forth opposite the respective names of the
Underwriters in Schedule I hereto plus any additional number of Shares
which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 9 hereof.
(b) Payment of the purchase price for, and delivery of
certificates for, the Firm Shares shall be made at the office of Latham &
Watkins, 885 Third Avenue, Suite 1000, New York, New York, 10022, or at
such other place as shall be agreed upon by the Underwriters and the
Company, at 10:00 A.M. on February ___, 2000 (unless postponed in
accordance with the provisions of Section 9 hereof), after the
determination of the public offering price of the Firm Shares, or such
other time not later than ten business days after such date as shall be
agreed upon by the Underwriters and the Company (such time and date of
payment and delivery being herein called the "Closing Date"). Payment
shall be made to the Company by wire transfer in same day funds, against
delivery to the Underwriters of certificates for the Shares to be purchased
by them. Certificates for the Firm Shares shall be registered in such name
or names and in such authorized denominations as the Underwriters may
request in writing at least two full business days prior to the Closing
Date. The Company will permit the Underwriters to examine and package such
certificates for delivery at least one full business day prior to the
Closing Date.
(c) In addition, the Company hereby grants to the Underwriters
the option to purchase up to 1,500,000 Additional Shares at the same
purchase price per share to be paid by the Underwriters to the Company for
the Firm Shares as set forth in this Section 2, for the sole purpose of
covering over-allotments in the sale of Firm Shares by the Underwriters.
This option may be exercised at any time and from time to time, in whole or
in part, on or before the thirtieth day following the date of the
Prospectus, by written notice by the Underwriters to the Company. Such
notice shall set forth the aggregate number of Additional Shares as to
which the option is being exercised and the date and time, as reasonably
determined by the Underwriters, when the Additional Shares are to be
delivered (each such date and time being herein sometimes referred to as an
"Additional Closing Date"); provided, however, that such Additional Closing
-----------------------
Date shall not be earlier than the Closing Date or earlier than the second
full business day after the date on which the option shall have been
exercised nor later than the eighth full business day after the date on
which the option shall have been exercised (unless such time and date are
postponed in accordance with the provisions of Section 9 hereof).
Certificates for the Additional Shares shall be registered in such name or
names and in such authorized denominations as the Underwriters may request
in writing at least two full business days prior to such Additional Closing
Date. The Company will permit the Underwriters to examine and package such
certificates for delivery at least one full business day prior to such
Additional Closing Date.
(d) The number of Additional Shares to be sold to each
Underwriter shall be the number which bears the same ratio to the aggregate
number of Additional Shares being purchased as the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule I hereto (or
such number increased as set forth in Section 9 hereof) bears to the total
number of Firm Shares being purchased from the Company, subject, however,
to such adjustments to eliminate any fractional shares as the Underwriters
in their sole discretion shall make.
(e) Payment for the Additional Shares shall be made by wire
transfer in same day funds each payable to the order of the Company at the
office of Latham & Watkins, 885 Third Avenue, Suite 1000, New York, New
York, 10022, or such other location as may be mutually acceptable, upon
delivery of the certificates for the Additional Shares to the Underwriters.
10
<PAGE>
(f) The Company and the Underwriters agree that up to 5% of the
Firm Shares to be purchased by the Underwriters (the "Reserved Shares")
---------------
shall be reserved for sale by the Underwriters to certain individuals and
entities having relationships with the Company and officers, directors and
employees of the Company (the "Reserved Shares Purchasers"), as part of the
--------------------------
distribution of the Shares by the Underwriters, subject to the terms of
this Agreement, the applicable rules, regulations and interpretations of
the NASD and all other applicable laws, rules and regulations; provided,
however that under no circumstances will Bear, Stearns & Co. Inc. ("Bear
Stearns") or any other Underwriter be liable to the Company or any of the
Reserved Shares Purchasers for any action taken or omitted in good faith in
connection with transactions effected with regard to the Reserved Shares
Purchasers. To the extent that oral confirmations for the purchase of any
Reserved Shares are not received from any such individuals and entities
having business relationships with the Company at the close of business on
the first business day after the date of this Agreement, such Reserved
Shares may be offered to the public as part of the Offering.
3. Offering. Upon the Underwriters' authorization of the release of
--------
the Firm Shares, the Underwriters propose to offer the Shares for sale to the
public upon the terms set forth in the Prospectus.
4. Covenants of the Company. The Company covenants and agrees with
------------------------
each of the Underwriters that:
(a) The Company will notify the Underwriters immediately (and, if
requested by the Underwriters, will confirm such notice in writing) (i)
when any post-effective amendment to the Registration Statement becomes
effective, (ii) of any request by the Commission for any amendment of or
supplement to the Registration Statement or the Prospectus or for any
additional information, (iii) of the mailing or the delivery to the
Commission for filing of the Prospectus or any amendment of or supplement
to the Registration Statement or the Prospectus or any document to be filed
pursuant to the Exchange Act during any period when the Prospectus is
required to be delivered under the Securities Act, (iv) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto or of the
initiation, or the threatening, of any proceedings therefor, (v) of the
receipt of any comments or inquiries from the Commission, and (vi) of the
receipt by the Company of any notification with respect to the suspension
of the qualification of the Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for that purpose. If the
Commission shall propose or enter a stop order at any time, the Company
will make every reasonable effort to prevent the issuance of any such stop
order and, if issued, to obtain the lifting of such order as soon as
possible. The Company will not file any post-effective amendment to the
Registration Statement or any amendment of or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Shares which differs
from the prospectus filed with the Commission pursuant to Rule 424(b) of
the Securities Act Regulations, whether or not such revised prospectus is
required to be filed pursuant to Rule 424(b) of the Securities Act
Regulations) to which the Underwriters or Underwriters' Counsel (as
hereinafter defined) shall reasonably object, will furnish the Underwriters
with copies of any such amendment or supplement a reasonable amount of time
prior to such proposed filing or use, as the case may be.
(b) If any event shall occur as a result of which the Prospectus
would, in the judgment of the Underwriters or the Company, include an
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
11
<PAGE>
therein, in the light of the circumstances under which they were made, not
misleading, or if it shall be necessary at any time to amend or supplement
the Prospectus or the Registration Statement to comply with the Securities
Act or the Securities Act Regulations, the Company will notify the
Underwriters promptly and prepare and file with the Commission an
appropriate amendment or supplement (in form and substance satisfactory to
the Underwriters) which will correct such statement or omission or which
will effect such compliance.
(c) The Company has delivered to the Underwriters five signed
copies of the Registration Statement as originally filed, including
exhibits, and all amendments thereto, and the Company will promptly deliver
to each of the Underwriters, from time to time during the period that the
Prospectus is required to be delivered under the Securities Act, such
number of copies of the Prospectus and the Registration Statement, and all
amendments of and supplements to such documents, if any, as the
Underwriters may reasonably request.
(d) The Company will endeavor in good faith, in cooperation with
the Underwriters, to qualify the Shares for offering and sale under the
securities laws relating to the offering or sale of the Shares of such
jurisdictions as the Underwriters may designate and to maintain such
qualification in effect for so long as required for the distribution
thereof; except that in no event shall the Company be obligated in
connection therewith to qualify as a foreign corporation or to execute a
general consent to service of process.
(e) The Company will make generally available (within the
meaning of Section 11(a) of the Securities Act) to its security holders and
to the Underwriters as soon as practicable, but not later than 45 days
after the end of its fiscal quarter in which the first anniversary date of
the effective date of the Registration Statement occurs (or if such fiscal
quarter is the Company's fourth fiscal quarter, not later than 90 days
after the end of such quarter), an earnings statement (in form complying
with the provisions of Rule 158 of the Securities Act Regulations) covering
a period of at least twelve consecutive months beginning after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Securities Act).
(f) During the period of 180 days from the date of the
Prospectus, the Company will not, directly or indirectly, without the prior
written consent of Bear, Stearns, offer, sell, contract to sell, grant any
option to purchase, pledge or otherwise dispose (or announce any offer,
sale, contract to sell, grant of an option to purchase, pledge or other
disposition) of any shares of Common Stock of the Company or any securities
convertible into or exercisable or exchangeable for such Common Stock,
except that the Company may issue (i) shares of Common Stock and options to
purchase Common Stock under its 1997 Management Option Plan , 2000 Stock
Option and Incentive Plan and 2000 Employee Stock Purchase Plan, (ii) an
aggregate number of shares of Common Stock equal to 20% of the number of
shares of Common Stock outstanding on the Closing Date in connection with
the execution of licensing agreements with real estate owners and operators
and to pay for possible acquisitions of businesses complementary to those
of the Company, so long as the recipients of such shares agree to be bound
by a lock-up agreement substantially in the form of Exhibit B hereto (which
shall provide that any transferees and assigns of such recipients shall be
bound by the lock-up agreement) for the remainder of the 180-day lock-up
period.
(g) During a period of three years from the date of the
Prospectus, the Company will furnish to the Underwriters copies of (i) all
reports to its stockholders; and (ii) all reports, financial statements and
proxy or information statements filed by the Company with the Commission or
any national securities exchange.
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<PAGE>
(h) The Company will apply the proceeds from the sale of the
Shares as set forth under "Use of Proceeds" in the Prospectus.
(i) If the Company elects to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 P.M.,
New York City time, on the date of this Agreement, no stop order suspending
the effectiveness of the Registration Statement or any part thereof shall
have been issued and no proceeding for that purpose shall have been
initiated or threatened by the Commission, and all requests for additional
information on the part of the Commission shall have been complied with to
the Underwriters' reasonable satisfaction.
(j) The Company, during the period when the Prospectus is
required to be delivered under the Securities Act or the Exchange Act, will
file all documents required to be filed with the Commission pursuant to
Sections 13, 14 or 15 of the Exchange Act within the time periods required
by the Exchange Act and the rules and regulations thereunder.
(k) The Company hereby agrees that it will ensure that the
Reserved Shares are restricted to the extent required by the NASD or the
NASD rules from sale, transfer, assignment, pledge or hypothecation for a
period of three (3) months following the Closing Date. The Underwriters
will notify the Company as to which persons will need to be so restricted.
At the request of the Underwriters, the Company will direct the transfer
agent to place a stop transfer restriction upon such securities for such a
period of time. Should the Company release, or seek to release, from such
restrictions any of the Reserved Shares, the Company agrees to reimburse
the Underwriters for any reasonable expenses (including, without
limitation, legal expenses) they incur in connection with such release.
5. Payment of Expenses. Whether or not the transactions
-------------------
contemplated in this Agreement are consummated or this Agreement is terminated,
the Company hereby agrees to pay all costs and expenses incident to the
performance of the obligations of the Company hereunder, including those in
connection with (a) preparing, printing, duplicating, filing and distributing
the Registration Statement, as originally filed and all amendments thereto
(including all exhibits thereto), any Preliminary Prospectus, the Prospectus and
any amendments or supplements thereto (including, without limitation, fees and
expenses of the Company's accountants and counsel), the underwriting documents
(including this Agreement, the Agreement Among Underwriters and the Selling
Agreement) and all other documents related to the public offering of the Shares
(including those supplied to the Underwriters in quantities as hereinabove
stated), (b) the issuance, transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon, (c) the
qualification of the Shares under state or foreign securities or Blue Sky laws,
including the costs of printing and mailing a preliminary and final "Blue Sky
Memorandum" and the fees of counsel in connection therewith and such counsel's
disbursements in relation thereto, (d) listing of the Shares for quotation on
the Nasdaq, (e) filing fees of the Commission and the NASD, (f) the cost of
printing certificates representing the Shares, (g) the cost and charges of any
transfer agent or registrar and (h) all costs and expenses of the Underwriters,
including the fees and disbursements of counsel for the Underwriters, in
connection with matters related to the Reserved Shares.
6. Conditions of Underwriters' Obligations. The obligations of the
---------------------------------------
Underwriters to purchase and pay for the Firm Shares and the Additional Shares,
as provided herein, shall be subject to the accuracy of the representations and
warranties of the Company herein contained, as of the date hereof and as of the
Closing Date (for purposes of this Section 6, "Closing Date" shall refer to the
------------
Closing Date for the Firm Shares and any Additional Closing Date, if different,
for the Additional Shares), to the absence from any certificates, opinions,
written statements or letters furnished to the Underwriters or to Latham &
Watkins ("Underwriters' Counsel") pursuant to this Section 6 of any material
---------------------
misstatement or
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<PAGE>
omission, to the performance by the Company of its obligations hereunder, and to
the following additional conditions:
(a) Prior to the Closing Date the Registration Statement shall
have become effective, and on the Closing Date, no stop order suspending
the effectiveness of the Registration Statement shall have been issued
under the Securities Act or proceedings therefor initiated or, to the
Company's knowledge, threatened by the Commission. If required by the
Securities Act Regulations, the Prospectus shall have been filed or
transmitted for filing with the Commission pursuant to Rule 424(b) of the
Securities Act Regulations within the prescribed time period, and prior to
Closing Date the Company shall have provided evidence satisfactory to the
Underwriters of such timely filing or transmittal.
(b) All of the representations and warranties of the Company
contained in this Agreement shall be true and correct on the date hereof
and on the Closing Date with the same force and effect as if made on and as
of the date hereof and the Closing Date, respectively. The Company shall
have performed or complied with all of the agreements herein contained and
required to be performed or complied with by it at or prior to the Closing
Date.
(c) The Prospectus shall have been printed and copies
distributed to the Underwriters not later than 10:00 a.m., New York City
time, on the second business day following the date of this Agreement or at
such later date and time as to which the Underwriters may agree, and no
stop order suspending the qualification or exemption from qualification of
the Shares in any jurisdiction referred to in Section 4(d) shall have been
issued and no proceeding for that purpose shall have been commenced or
shall be pending or threatened.
(d) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency which would, as of the Closing Date, prevent the
issuance of the Shares; no action, suit or proceeding shall have been
commenced and be pending against or affecting or, to the best knowledge of
the Company, threatened against, the Company or any of its subsidiaries
before any court or arbitrator or any governmental body, agency or official
that (i) could reasonably be expected to result in a Material Adverse
Effect or (ii) has not been disclosed in the Prospectus.
(e) Since the dates as of which information is given in the
Prospectus, (i) there shall not have been any material adverse change, or
any development that is reasonably likely to result in a material adverse
change, in the capital stock or the long-term debt, or material increase in
the short-term debt, of the Company or any of its subsidiaries from that
set forth in the Prospectus, (ii) no dividend or distribution of any kind
shall have been declared, paid or made by the Company or any of its
subsidiaries on any class of its capital stock, (iii) neither the Company
nor any of its subsidiaries shall have incurred any liabilities or
obligations, direct or contingent, that are material, individually or in
the aggregate, to the Company and its subsidiaries, taken as a whole, and
that are required to be disclosed on a balance sheet or notes thereto in
accordance with generally accepted accounting principles and are not
disclosed on the latest balance sheet or notes thereto included in the
Prospectus. Since the date hereof and since the dates as of which
information is given in the Prospectus, there shall not have occurred any
Material Adverse Effect.
(f) The Underwriters shall have received (1) a certificate,
dated the Closing Date, signed on behalf of the Company by each of the
Company's Chief Executive Officer and Chief Financial Officer in form and
substance reasonably satisfactory to the Underwriters, confirming, as of
the Closing Date, the matters set forth in paragraphs (a) through (c) of
this Section 6 and that, as of the Closing Date, the obligations of the
Company to be performed
14
<PAGE>
hereunder on or prior thereto have been duly performed in all material
respects and (2) a certificate dated the Closing Date, signed by the
Company's Secretary, in form and substance reasonably satisfactory to the
Underwriters.
(g) The Underwriters shall have received on the Closing Date an
opinion, dated the Closing Date, in form and substance satisfactory to the
Underwriters and counsel to the Underwriters, of Goodwin, Procter & Hoar
LLP, counsel for the Company, to the effect set forth in Exhibit A hereto.
(h) The Underwriters shall have received on the Closing Date an
opinion, dated the Closing Date, in form and substance satisfactory to the
Underwriters and counsel to the Underwriters, of Arent Fox Kintner Plotkin
& Kahn, PLLC, special communications counsel for the Company, to the effect
set forth in Exhibit B hereto.
(i) The Underwriters shall have received an opinion, dated the
Closing Date, in form and substance reasonably satisfactory to the
Underwriters, of Latham & Watkins, counsel to the Underwriters, covering
such matters as are customarily covered in such opinions.
(j) Latham & Watkins shall have been furnished with such
documents, in addition to those set forth above, as they may reasonably
require for the purpose of enabling them to review or pass upon the matters
referred to in this Section 6 and in order to evidence the accuracy,
completeness or satisfaction in all material respects of any of the
representations, warranties or conditions herein contained.
(k) At the time this Agreement is executed and at the Closing
Date the Underwriters shall have received from Arthur Andersen LLP,
independent public accountants for the Company and its subsidiaries, dated
as of the date of this Agreement and as of the Closing Date, customary
comfort letters addressed to the Underwriters in form and substance
satisfactory to the Underwriters and counsel to the Underwriters with
respect to the financial statements and certain financial information of
the Company and its subsidiaries contained in the Prospectus.
(l) At the time this Agreement is executed, the Underwriters
shall have received a "lock-up" agreement, substantially in the form
attached as Exhibit C hereto, from each of the officers, directors and
stockholders of the Company identified on Exhibit D hereto.
(m) At the Closing Date, the Shares shall have been approved for
quotation on the Nasdaq.
(n) At the time this Agreement is executed and at the Closing
Time, the NASD shall not have withdrawn, or given notice of an intention to
withdraw, its approval of the fairness of the underwriting terms and
arrangements of the offering of the Shares by the Underwriters.
(o) Each of the [Material Agreements: Third Amended and Restated
Stockholders Agreement; First Amendment to the Third Amended and Restated
Stockholders Agreement, Second Amendment to the Third Amended and Restated
Stockholders Agreement; MTS Communications Acquisition; AEW Capital
Management; Boston Properties; Brookfield; Cornerstone; Shorenstein; Tower
Realty, Transwestern; Vornado] shall be in full force and effect, and no
party to any such agreement shall have given any notice of termination or
amendment of any material provision thereof, or of any intention to
terminate or amend any material provision
15
<PAGE>
thereof, to any other party, and no event shall have occurred which would
prevent either party from substantially performing its obligations under
such agreements.
(r) All opinions, certificates, letters and other documents
required by this Section 6 to be delivered by the Company will be in
compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to the Underwriters. The Company will
furnish the Underwriters with such conformed copies of such opinions,
certificates, letters and other documents as Bear Stearns shall reasonably
request. Prior to the Closing Date, the Company shall have furnished to
the Underwriters such further information, certificates and documents as
the Underwriters may reasonably request.
If any of the conditions specified in this Section 6 shall not have been
fulfilled when and as required by this Agreement, or if any of the certificates,
opinions, written statements or letters furnished to the Underwriters or to
Underwriters' Counsel pursuant to this Section 6 shall not be in all material
respects reasonably satisfactory in form and substance to the Underwriters and
to Underwriters' Counsel, all obligations of the Underwriters hereunder may be
canceled by the Underwriters at, or at any time prior to, the Closing Date and
the obligations of the Underwriters to purchase the Additional Shares may be
canceled by the Underwriters at, or at any time prior to, any Additional Closing
Date. Notice of such cancellation shall be given to the Company in writing, or
by telephone, telecopy, telex or telegraph, confirmed in writing.
7. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act against any and all losses, liabilities, claims, damages and
expenses whatsoever as incurred (including but not limited to attorneys'
fees and any and all expenses whatsoever incurred in investigating,
preparing for or defending against any litigation, commenced or threatened,
or any claim whatsoever, and any and all amounts paid in settlement of any
claim or litigation), joint or several, to which they or any of them may
become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon (I) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, as originally filed or any amendment thereof, or
any related Preliminary Prospectus or the Prospectus, or in any supplement
thereto or amendment thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading or (II) any untrue statement or alleged untrue statement of a
material fact included in the supplement or prospectus wrapper material
distributed in connection with the reservation and sale of the Reserved
Shares to eligible employees and certain persons designated by the Company
or the omission or alleged omission therefrom of a material fact necessary
to make the statements therein, when considered in conjunction with the
Prospectus or Preliminary Prospectus, not misleading; provided, however,
that the Company will not be liable in any such case to the extent but only
to the extent that any such loss, liability, claim, damage or expense
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and
in conformity with written information furnished to the Company by or on
behalf of any Underwriter expressly for use therein. This indemnity
agreement will be in addition to any liability which the Company may
otherwise have including under this Agreement.
(b) Each Underwriter severally, and not jointly, agrees to
indemnify and hold harmless the Company and each other person, if any, who
controls the Company within the
16
<PAGE>
meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act, against any and all losses, liabilities, claims, damages and
expenses whatsoever as incurred (including but not limited to attorneys'
fees and any and all expenses whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or
any claim whatsoever, and any and all amounts paid in settlement of any
claim or litigation), joint or several, to which they or any of them may
become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, as originally filed or any amendment thereof, or
any related preliminary prospectus, preliminary prospectus supplement or
prospectus, or in any amendment thereof or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to
the extent, that any such loss, liability, claim, damage or expense arises
out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and
in conformity with written information furnished to the Company by or on
behalf of any Underwriter expressly for use therein; provided, however,
that in no case shall any Underwriter be liable or responsible for any
amount in excess of the underwriting discount applicable to the Shares
purchased by such Underwriter hereunder. This indemnity will be in addition
to any liability which any Underwriter may otherwise have, including under
this Agreement.
(c) In connection with the offer and sale of the Reserved
Shares, the Company agrees, promptly upon a request in writing, to
indemnify and hold harmless the Underwriters from and against any and all
losses, liabilities, claims, damages and reasonable expenses incurred by
them as a result of (i) the failure of the Reserved Shares Purchasers to
pay for and accept delivery of the Reserved Shares which, by the end of the
day following the date of this Agreement, were subject to a properly
confirmed agreement to purchase such Reserved Shares, or (ii) the refusal
by any Reserved Shares Purchasers that are also officers, directors or
employees of the Company to properly confirm their respective agreements to
purchase Reserved Shares.
(d) Promptly after receipt by an indemnified party under
subsection (a), (b) or (c) above of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is to
be made against the indemnifying party under such subsection, notify each
party against whom indemnification is to be sought in writing of the
commencement thereof (but the failure so to notify an indemnifying party
shall not relieve it from any liability which it may have under this
Section 7 except to the extent that it has been prejudiced in any material
respect by such failure or from any liability which it may otherwise have).
In case any such action is brought against any indemnified party, and it
notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to the
extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of
such indemnified party or parties unless (i) the employment of such counsel
shall have been authorized in writing by the indemnifying parties in
connection with the defense of such action, (ii) the indemnifying parties
shall not have employed counsel to take charge of the defense of such
action within a reasonable time after notice of commencement of the action,
or (iii) such indemnified party or parties shall have reasonably concluded
that there may be defenses available to it or them which are different from
or additional to those available to one or all of the indemnifying parties
(in which case the
17
<PAGE>
indemnifying party or parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in
any of which events such fees and expenses shall be borne by the
indemnifying parties. Anything in this subsection to the contrary
notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its prior written
consent; provided, however, that such consent was not unreasonably
withheld.
8. Contribution. In order to provide for contribution in
------------
circumstances in which the indemnification provided for in Section 7 hereof is
for any reason held to be unavailable from any indemnifying party or is
insufficient to hold harmless a party indemnified thereunder, the Company and
the Underwriters shall contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by such indemnification
provision (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting in the case of losses,
claims, damages, liabilities and expenses suffered by the Company any
contribution received by the Company from persons, other than the Underwriters,
who may also be liable for contribution, including persons who control the
Company within the meaning of Section 15 of the Securities Act or Section 20(a)
of the Exchange Act, officers of the Company who signed the Registration
Statement and directors of the Company) as incurred to which the Company and one
or more of the Underwriters may be subject, in such proportions as is
appropriate to reflect the relative benefits received by the Company and the
Underwriters from the offering of the Shares or, if such allocation is not
permitted by applicable law or indemnification is not available as a result of
the indemnifying party not having received notice as provided in Section 7
hereof, in such proportion as is appropriate to reflect not only the relative
benefits referred to above but also the relative fault of the Company and the
Underwriters in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other hand shall be deemed
to be in the same proportion as (x) the total proceeds from the offering (net of
underwriting discounts but before deducting expenses) received by the Company
and (y) the underwriting discounts received by the Underwriters, respectively,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault of the Company and the Underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 8 were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this Section 8, (i) in no case shall any
Underwriter be liable or responsible for any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter
hereunder, and (ii) no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Notwithstanding the provisions of this Section 8 and the
preceding sentence, no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages that such Underwriter has otherwise been required to pay
by reason of such untrue statement or alleged untrue statement or omission or
alleged omission. For purposes of this Section 8, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act shall have the same rights to contribution
as such Underwriter, and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same
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<PAGE>
rights to contribution as the Company, subject in each case to clauses (i) and
(ii) of this Section 8. Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made against another
party or parties, notify each party or parties from whom contribution may be
sought, but the omission to so notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have under this Section 8 or otherwise. No party shall be liable for
contribution with respect to any action or claim settled without its consent;
provided, however, that such consent was not unreasonably withheld.
9. Default by an Underwriter.
-------------------------
(a) If any Underwriter or Underwriters shall default in its or
their obligation to purchase Firm Shares or Additional Shares hereunder,
and if the Firm Shares or Additional Shares with respect to which such
default relates do not (after giving effect to arrangements, if any, made
by the Underwriters pursuant to Subsection (b) below) exceed in the
aggregate 10% of the number of Firm Shares or Additional Shares, the Firm
Shares or Additional Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase shall be purchased by
the non-defaulting Underwriters in proportion to the respective proportions
which the numbers of Firm Shares set forth opposite their respective names
in Schedule I hereto bear to the aggregate number of Firm Shares set forth
opposite the names of the non-defaulting Underwriters.
(b) In the event that such default relates to more than 10% of
the Firm Shares or Additional Shares, as the case may be, the Underwriters
may in their discretion arrange for themselves or for another party or
parties (including any non-defaulting Underwriter or Underwriters who so
agree) to purchase such Firm Shares or Additional Shares, as the case may
be, to which such default relates on the terms contained herein. In the
event that within five calendar days after such a default the Underwriters
do not arrange for the purchase of the Firm Shares or Additional Shares, as
the case may be, to which such default relates as provided in this Section
9, this Agreement, or in the case of a default with respect to the
Additional Shares, the obligations of the Underwriters to purchase and of
the Company to sell the Additional Shares, shall thereupon terminate,
without liability on the part of the Company with respect thereto (except
in each case as provided in Section 5, 7(a) and 8 hereof) or the
Underwriters, but nothing in this Agreement shall relieve a defaulting
Underwriter or Underwriters of its or their liability, if any, to the other
Underwriters and the Company for damages occasioned by its or their default
hereunder.
(c) In the event that the Firm Shares or Additional Shares to
which the default relates are to be purchased by the non-defaulting
Underwriters, or are to be purchased by another party or parties as
aforesaid, the Underwriters or the Company shall have the right to postpone
the Closing Date or Additional Closing Date, as the case may be, for a
period not exceeding five business days, in order to effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus or in any other documents and arrangements, and the Company
agrees to file promptly any amendment or supplement to the Registration
Statement or the Prospectus which, in the opinion of Underwriters' Counsel,
may thereby be made necessary or advisable. The term "Underwriter" as used
in this Agreement shall include any party substituted under this Section 9
with like effect as if it had originally been a party to this Agreement
with respect to such Firm Shares or Additional Shares.
10. Survival of Representations and Agreements. All representations
------------------------------------------
and warranties, covenants and agreements of the Underwriters and the Company
contained in this Agreement, including
19
<PAGE>
the agreements contained in Section 5, the indemnity agreements contained in
Section 7 and the contribution agreements contained in Section 8, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Underwriter or any controlling person thereof or by or on
behalf of the Company, any of its officers and directors, or any controlling
person of the Company, and shall survive delivery of and payment for the Shares
to and by the Underwriters. The representations contained in Section 1 and the
agreements contained in Sections 5, 7, 8, 11(d) and 12 hereof shall survive the
termination of this Agreement, including termination pursuant to Section 9 or 11
hereof.
11. Effective Date of Agreement; Termination.
----------------------------------------
(a) This Agreement shall become effective upon the execution and
delivery of a counterpart hereof by each of the parties hereto.
(b) The Underwriters shall have the right to terminate this
Agreement at any time prior to the Closing Date or the obligations of the
Underwriters to purchase any Additional Shares at any time prior to any
Additional Closing Date, as the case may be, if on or prior to such date,
(i) the Company shall have failed, refused or been unable to perform in any
material respect any agreement on its part to be performed hereunder, (ii)
any other condition to the obligations of the Underwriters hereunder as
provided in Section 6 is not fulfilled when and as required in any material
respect, (iii) in the judgment of the Underwriters any changes of
circumstance shall have occurred since the respective dates as of which
information is given in the Prospectus which could have a Material Adverse
Effect, other than as set forth in the Prospectus, or (iv) (A) any domestic
or international event or act or occurrence has materially adversely
effected, or in the opinion of the Underwriters will in the immediate
future materially adversely effect, the market for the Company's securities
or for securities in general; or (B) trading in securities generally on the
New York Stock Exchange ("NYSE") or quotations on the Nasdaq shall have
----
been suspended or materially limited, or minimum or maximum prices for
trading shall have been established, or maximum ranges for prices for
securities shall have been required, on such exchange, or by such exchange
or other regulatory body or governmental authority having jurisdiction; or
(C) a banking moratorium shall have been declared by federal or state
authorities, or a moratorium in foreign exchange trading by major
international banks or persons shall have been declared; or (D) there is an
outbreak or escalation of armed hostilities involving the United States on
or after the date hereof, or if there has been a declaration by the United
States of a national emergency or war, the effect of which shall be, in the
Underwriters' judgment, to make it inadvisable or impracticable to proceed
with the offering, sale and delivery of the Firm Shares or the Additional
Shares, as the case may be, on the terms and in the manner contemplated by
the Prospectus; or (E) there shall have been such a material adverse change
in general economic, political or financial conditions or if the effect of
international conditions on the financial markets in the United States
shall be such as, in the Underwriters' judgment, makes it inadvisable or
impracticable to proceed with the offering, sale and delivery of the Firm
Shares or the Additional Shares, as the case may be, on the terms and in
the manner contemplated by the Prospectus.
(c) Any notice of termination pursuant to this Section 11 shall
be by telephone, telecopy, telex, or telegraph, confirmed in writing by
letter.
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (other than pursuant to Section 9(b) or 11(b) hereof), or
if the sale of the Shares provided for herein is not consummated because
any condition to the obligations of the Underwriters set forth herein is
not satisfied or because of any refusal, inability or failure on the part
of the Company to perform any agreement herein or comply with any provision
hereof, the Company
20
<PAGE>
will, subject to demand by the Underwriters, reimburse the Underwriters for
all out-of-pocket expenses (including the reasonable fees and expenses of
their counsel), incurred by the Underwriters in connection herewith.
12. Underwriters' Information. The Company and the Underwriters
-------------------------
severally acknowledge that the statements set forth in (i) the last paragraph of
the outside front cover of the Prospectus concerning the delivery of the shares
of Common Stock to the Underwriters and the offering of such shares by the
Underwriters; (ii) the fourth paragraph under the caption "Underwriting" in the
Prospectus concerning the proposed public offering price, discount and
concession; and (iii) the seventh paragraph under the caption "Underwriting" in
the Prospectus concerning transactions that stabilize, maintain, or otherwise
affect the price of the Common Stock, constitute the only information furnished
in writing by or on behalf of any Underwriter expressly for use in the
Registration Statement, as originally filed or in any amendment thereof, any
related Preliminary Prospectus or preliminary prospectus supplement or the
Prospectus or in any amendment thereof or supplement thereto, as the case may
be.
13. Notices. All communications hereunder, except as may be otherwise
-------
specifically provided herein, shall be in writing and, if sent to the
Underwriters shall be mailed, delivered, telegraphed or telecopied and confirmed
in writing to the Underwriters, c/o Bear, Stearns & Co. Inc., 245 Park Avenue,
New York, New York 10167, Attention: Corporate Finance Department, telecopy
number: (212) 272-3092, and if sent to the Company, shall be mailed, delivered
or telexed, telegraphed or telecopied and confirmed in writing to Cypress
Communications, Inc., Fifteen Piedmont Center, Suite 710, Atlanta, Georgia,
30305, Attention: Chief Financial Officer, telecopy number: (404) 869-2525,
with a copy to Goodwin, Procter & Hoar LLP, Exchange Place, Boston, MA, 02109,
Attention: Gilbert G. Menna, P.C., telecopy number: (617) 523-1231; provided,
however, that any notice pursuant to Sections 7 or 8 shall be mailed, delivered,
telegraphed or telecopied and confirmed in writing.
14. Parties. This Agreement shall inure solely to the benefit of,
-------
and shall be binding upon, the Underwriters, the Company and the controlling
persons, directors, officers, employees and agents referred to in Section 7 and
8, and their respective successors and assigns, and no other person shall have
or be construed to have any legal or equitable right, remedy or claim under or
in respect of or by virtue of this Agreement or any provision herein contained.
The term "successors and assigns" shall not include a purchaser, in its capacity
as such, of Shares from any of the Underwriters.
15. Construction. This Agreement shall be construed in accordance
------------
with the internal laws of the State of New York applicable to agreements made
and to be performed within New York, without giving any effect to any provisions
thereof relating to conflicts of law. TIME IS OF THE ESSENCE IN THIS AGREEMENT.
16. Captions. The captions included in this Agreement are included
--------
solely for convenience of reference and are not to be considered a part of this
Agreement.
17. Counterparts. This Agreement may be executed in various
------------
counterparts which together shall constitute one and the same instrument.
21
<PAGE>
EXHIBIT 3.6
Form of
FIFTH CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CYPRESS COMMUNICATIONS, INC.
CYPRESS COMMUNICATIONS, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
FIRST: This Fifth Certificate of Amendment amends the Amended and
-----
Restated Certificate of Incorporation of the Corporation, as amended (the
"Amended and Restated Certificate"), and was duly adopted in accordance with the
provisions of Sections 242 of the Delaware General Corporation Law (the "DGCL").
SECOND: Article III of the Amended and Restated Certificate is hereby
------
deleted in its entirety and replaced with the following Article:
"ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law (the "DGCL")."
THIRD: Article IV of the Amended and Restated Certificate is hereby
-----
deleted in its entirety and replaced with the following Article:
"ARTICLE IV
Capital Stock
-------------
The total number of shares of capital stock which the Corporation shall
have authority to issue is One Hundred Seventy-Eight Million Nine Hundred Twenty
Thousand Four Hundred Sixty-Seven and 32/100 (178,920,467.32) shares, of which
(i) One Hundred Fifty Million (150,000,000) shares shall be a class designated
as common stock, par value $.001 per share (the "Common Stock"), (ii) One
Million Two Hundred Eleven Thousand One Hundred Forty (1,211,140) shares shall
be a class designated as Series A Preferred Stock, par value $.001 per share
(the "Series A Preferred"), (iii) One Million Nine Hundred Nineteen Thousand One
Hundred Eighty-Eight (1,919,188) shares shall be a class designated as Series B
Preferred Stock, par value $.001 per share (the "Series B Preferred"), (iv) Five
Hundred Seventy-Nine Thousand Six Hundred Thirteen (579,613) shares shall be a
class designated as Series B-1 Preferred Stock, par value $.001 per share (the
"Series B-1 Preferred"), (v) Four Million Two Hundred Ten Thousand Five Hundred
Twenty-Six and 32/100 (4,210,526.32) shares shall be a class designated as
Series C Preferred Stock, par value $.001 per share (the "Series C Preferred"),
(vi) zero (0) shares shall be a class designated as Series C-1 Preferred
<PAGE>
Stock, par value $.001 per share (the "Series C-1 Preferred"), (vii)
One Million (1,000,000) shares shall be a class designated as Series Z Junior
Participating Cumulative Preferred Stock, par value $.001 per share (the "Series
Z Preferred Stock"), and (viii) Twenty Million (20,000,000) shares shall be a
class designated as undesignated preferred stock, par value $.001 per share (the
"Undesignated Preferred Stock"). The Series A Preferred, the Series B Preferred,
the Series B-1 Preferred, the Series C Preferred and the Series C-1 Preferred
are sometimes collectively referred to herein as the "Senior Preferred." The
Senior Preferred, the Series Z Preferred Stock and the Undesignated Preferred
Stock are sometimes collectively referred to herein as the "Preferred Stock."
The number of authorized shares of the class of Undesignated Preferred
Stock may from time to time be increased or decreased (but not below the number
of shares outstanding) by the affirmative vote of the holders of a majority of
the outstanding shares of Common Stock entitled to vote, without a vote of the
holders of the Preferred Stock (subject to the terms of the Senior Preferred and
the Series Z Preferred Stock and except as otherwise provided in any certificate
of designation of any series of Undesignated Preferred Stock).
The powers, preferences and rights of, and the qualifications, limitations
and restrictions upon, each class or series of stock shall be determined in
accordance with, or as set forth below in, this Article IV.
A. Common Stock
------------
Subject to all the rights, powers and preferences of the Preferred Stock
and except as provided by law or in this Article IV (or in any certificate of
designations of any series of Undesignated Preferred Stock):
(a) the holders of the Common Stock shall have the exclusive right to
vote for the election of directors of the Corporation ("Directors") and on all
other matters requiring stockholder action, each outstanding share entitling the
holder thereof to one vote on each matter properly submitted to the stockholders
of the Corporation for their vote; provided, however, that, except as otherwise
-------- -------
required by law, holders of Common Stock, as such, shall not be entitled to vote
on any amendment to this Certificate (or on any amendment to a certificate of
designations of any series of Undesignated Preferred Stock) that alters or
changes the powers, preferences, rights or other terms of one or more
outstanding series or class of Preferred Stock if the holders of such affected
series or class are entitled to vote, either separately or together with the
holders of one or more other such series or classes, on such amendment pursuant
to this Certificate (or pursuant to a certificate of designations of any series
of Undesignated Preferred Stock) or pursuant to the DGCL;
(b) dividends may be declared and paid or set apart for payment upon
the Common Stock out of any assets or funds of the Corporation legally available
for the payment of dividends, but only when and as declared by the Board of
Directors or any authorized committee thereof; and
2
<PAGE>
(c) upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock.
B. Senior Preferred
----------------
The shares of Senior Preferred shall have the respective rights and
preferences set forth in the Second Amended Certificate of Designation of Series
A Preferred Stock, Amended Certificate of Designation of Series B Preferred
Stock and Series B-1 Preferred Stock, and Certificate of Designation of Series C
Preferred Stock and Series C-1 Preferred Stock, as amended, attached hereto as
Exhibit A and incorporated herein by reference.
- ---------
C. Series Z Preferred Stock
------------------------
1. Designation and Amount. The total number of shares of Series Z
----------------------
Preferred Stock which the Corporation shall have authority to issue is One
Million (1,000,000) shares.
2. Dividends and Distributions.
---------------------------
(a) (i) Subject to the rights of the holders of any shares of any
series of Undesignated Preferred Stock (or any similar stock) ranking prior and
superior to the Series Z Preferred Stock with respect to dividends, the holders
of shares of Series Z Preferred Stock, in preference to the holders of shares of
Common Stock and of any other junior stock, shall be entitled to receive, when,
as and if declared by the Board of Directors out of funds legally available for
the purpose, quarterly dividends payable in cash on the first day of March,
June, September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series Z Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provisions
for adjustment hereinafter set forth, 1,000 times the aggregate per share amount
of all cash dividends, and 1,000 times the aggregate per share amount (payable
in kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series Z Preferred Stock. The multiple of
cash and non-cash dividends declared on the Common Stock to which holders of the
Series Z Preferred Stock are entitled, which shall be 1,000 initially but which
shall be adjusted from time to time as hereinafter provided, is hereinafter
referred to as the "Dividend Multiple." In the event the Corporation shall at
any time after February __, 2000 (the "Rights Declaration Date") (i) declare or
pay any dividend on Common Stock payable in shares of Common Stock, or (ii)
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the Dividend Multiple thereafter applicable to the
determination of the amount of
3
<PAGE>
dividends which holders of shares of Series Z Preferred Stock shall be entitled
to receive shall be the Dividend Multiple applicable immediately prior to such
event multiplied by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(ii) Notwithstanding anything else contained in this paragraph
(a), the Corporation shall, out of funds legally available for that purpose,
declare a dividend or distribution on the Series Z Preferred Stock as provided
in this paragraph (a) immediately after it declares a dividend or distribution
on the Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been declared
on the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$1.00 per share on the Series Z Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(b) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series Z Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series Z Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series Z Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series Z Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix in
accordance with applicable law a record date for the determination of holders of
shares of Series Z Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than such
number of days prior to the date fixed for the payment thereof as may be allowed
by applicable law.
3. Voting Rights. In addition to any other voting rights required by
-------------
law, the holders of shares of Series Z Preferred Stock shall have the following
voting rights:
(a) Subject to the provision for adjustment hereinafter set forth,
each share of Series Z Preferred Stock shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the stockholders of the Corporation.
The number of votes which a holder of a share of Series Z Preferred Stock is
entitled to cast, which shall initially be 1,000 but which may be adjusted from
time to time as hereinafter provided, is hereinafter referred to as the "Vote
Multiple." In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare or pay any dividend on Common Stock payable in
shares of Common Stock, or (ii) effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in
4
<PAGE>
shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the Vote Multiple thereafter applicable to the
determination of the number of votes per share to which holders of shares of
Series Z Preferred Stock shall be entitled shall be the Vote Multiple
immediately prior to such event multiplied by a fraction, the numerator of which
is the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) Except as otherwise provided herein or by law, the holders of
shares of Series Z Preferred Stock and the holders of shares of Common Stock and
the holders of shares of any other capital stock of this Corporation having
general voting rights, shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(c) Except as otherwise required by applicable law or as set forth
herein, holders of Series Z Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
4. Certain Restrictions.
--------------------
(a) Whenever dividends or distributions payable on the Series Z
Preferred Stock as provided in Section C.2 are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether or not declared, on
shares of Series Z Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding up)
to the Series Z Preferred Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up)
with the Series Z Preferred Stock, except dividends paid
ratably on the Series Z Preferred Stock and all such parity
stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) except as permitted in subsection C.4(a)(iv) below, redeem,
purchase or otherwise acquire for consideration shares of
any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series
Z Preferred Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any
such parity stock in exchange for shares of any stock of the
Corporation
5
<PAGE>
ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series Z
Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series Z Preferred Stock, or any shares of any stock
ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series Z
Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by
the Board of Directors) to all holders of such shares upon
such terms as the Board of Directors, after consideration
of the respective annual dividend rates and other relative
rights and preferences of the respective series and
classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or
classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under subsection (a) of
this Section C.4, purchase or otherwise acquire such shares at such time and in
such manner.
5. Reacquired Shares. Any shares of Series Z Preferred Stock purchased
-----------------
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof.
6. Liquidation, Dissolution or Winding Up. Upon any liquidation
--------------------------------------
(voluntary or otherwise), dissolution or winding up of the Corporation, no
distribution shall be made (x) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series Z Preferred Stock unless, prior thereto, the holders of shares of Series
Z Preferred Stock shall have received an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, plus an amount equal to the greater of (1) $1,000.00 per share or
(2) an aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount to be
distributed per share to holders of Common Stock, or (y) to the holders of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series Z Preferred Stock, except distributions made ratably
on the Series Z Preferred Stock and all other such parity stock in proportion to
the total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall at
any time after the Rights Declaration Date (i) declare or pay any dividend on
Common Stock payable in shares of Common Stock, or (ii) effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount per share to which holders of shares of Series Z
Preferred Stock were entitled immediately prior to such event under clause (x)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of
6
<PAGE>
Common Stock outstanding immediately after such event the Corporation shall at
any time after the Rights Declaration Date (i) declare or pay any dividend on
Common Stock payable in shares of Common Stock, or (ii) effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount per share to which holders of shares of Series Z
Preferred Stock were entitled immediately prior to such event under clause (x)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Neither the consolidation of nor merging of the Corporation with or into
any other corporation or corporations, nor the sale or other transfer of all or
substantially all of the assets of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this Section C.6.
7. Consolidation, Merger, etc. In case the Corporation shall enter into
--------------------------
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case the shares of Series Z
Preferred Stock shall at the same time be similarly exchanged or changed in an
amount per share (subject to the provision for adjustment hereinafter set forth)
equal to 1,000 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged, plus accrued and unpaid
dividends, if any, payable with respect to the Series Z Preferred Stock. In the
event the Corporation shall at any time after the Rights Declaration Date (i)
declare or pay any dividend on Common Stock payable in shares of Common Stock,
or (ii) effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series Z Preferred
Stock shall be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
8. Redemption. The shares of Series Z Preferred Stock shall not be
----------
redeemable; provided, however, that the foregoing shall not limit the ability of
the Corporation to purchase or otherwise deal in such shares to the extent
otherwise permitted hereby and by law.
9. Ranking. Unless otherwise expressly provided in this Certificate or a
-------
certificate of designations relating to any other series of Undesignated
Preferred Stock, the Series Z Preferred Stock shall rank junior to every other
series of Preferred Stock previously or hereafter authorized, as to the payment
of dividends and the distribution of assets on liquidation, dissolution or
winding up and shall rank senior to the Common Stock.
10. Amendment. This Certificate shall not be amended in any manner which
---------
would materially alter or change the powers, preferences or special rights of
the Series Z Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of two-thirds or more of the outstanding shares
of Series Z Preferred Stock, voting separately as a class.
11. Fractional Shares. Series Z Preferred Stock may be issued in whole
-----------------
shares or in any fraction of a share that is one one-thousandth (1/1,000th) of a
share or any integral multiple of such fraction, which shall entitle the holder,
in proportion to such holder's
7
<PAGE>
fractional shares, to exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of holders of Series Z
Preferred Stock. In lieu of fractional shares, the Corporation may elect to make
a cash payment as provided in the Shareholder Rights Agreement, dated February
__, 2000, between the Corporation and State Street Bank & Trust Company, for
fractions of a share other than one one-thousandth (1/1,000th) of a share or any
integral multiple thereof.
D. Undesignated Preferred Stock
----------------------------
The Board of Directors or any authorized committee thereof is expressly
authorized, to the fullest extent permitted by law, to provide for the issuance
of the shares of Undesignated Preferred Stock in one or more series of such
stock, and by filing a certificate pursuant to applicable law of the State of
Delaware, to establish or change from time to time the number of shares of each
such series, and to fix the designations, powers, including voting powers, full
or limited, or no voting powers, preferences and the relative, participating,
optional or other special rights of the shares of each series and any
qualifications, limitations and restrictions thereof.
FOURTH: Article V, Article VI, Article VII, Article VIII, Article IX,
------
Article X and Article XI are deleted in their entirety and replaced with the
following Articles:
"ARTICLE V
Stockholder Action
------------------
1. Action without Meeting. Except as otherwise provided herein, any
----------------------
action required or permitted to be taken by the stockholders of the Corporation
at any annual or special meeting of stockholders of the Corporation must be
effected at a duly called annual or special meeting of stockholders and may not
be taken or effected by a written consent of stockholders in lieu thereof.
2. Special Meetings. Except as otherwise required by statute and subject
----------------
to the rights, if any, of the holders of any series or class of Preferred Stock,
special meetings of the stockholders of the Corporation may be called only by
the Board of Directors acting pursuant to a resolution approved by the
affirmative vote of a majority of the Directors then in office. Only those
matters set forth in the notice of the special meeting may be considered or
acted upon at a special meeting of stockholders of the Corporation.
ARTICLE VI
Directors
---------
1. General. The business and affairs of the Corporation shall be managed
-------
by or under the direction of the Board of Directors except as otherwise provided
herein or required by law.
8
<PAGE>
2. Election of Directors. Election of Directors need not be by written
---------------------
ballot unless the By-laws of the Corporation (the "By-laws") shall so provide.
3. Number of Directors; Term of Office. The number of Directors of the
-----------------------------------
Corporation shall be fixed solely by resolution duly adopted from time to time
by the Board of Directors. The Directors, other than those who may be elected by
the holders of any series or class of Preferred Stock, shall be classified, with
respect to the term for which they severally hold office, into three classes, as
nearly equal in number as reasonably possible. The initial Class I Directors of
the Corporation shall be Ward C. Bourdeaux, Jr., William P. Egan and Jeffrey H.
Schutz; the initial Class II Directors of the Corporation shall be Laurence S.
Grafstein, Randall A. Hack and P. Eric Yopes; and the initial Class III
Directors of the Corporation shall be R. Stanley Allen and John C. Halsted. The
initial Class I Directors shall serve for a term expiring at the annual meeting
of stockholders to be held in 2000, the initial Class II Directors shall serve
for a term expiring at the annual meeting of stockholders to be held in 2001,
and the initial Class III Directors shall serve for a term expiring at the
annual meeting of stockholders to be held in 2002. At each annual meeting of
stockholders, Directors elected to succeed those Directors whose terms expire
shall be elected for a term of office to expire at the third succeeding annual
meeting of stockholders after their election. Notwithstanding the foregoing, the
Directors elected to each class shall hold office until their successors are
duly elected and qualified or until their earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Certificate, the holders of any one or more series or classes
of Preferred Stock shall have the right, voting separately as a series or class
or together with holders of other such series or classes, to elect Directors at
an annual or special meeting of stockholders, the election, term of office,
filling of vacancies and other features of such directorships shall be governed
by the terms of this Certificate and any certificate of designations applicable
thereto.
4. Vacancies. Subject to the rights, if any, of the holders of any
---------
series or class of Preferred Stock to elect Directors and to fill vacancies in
the Board of Directors relating thereto, any and all vacancies in the Board of
Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a Director, shall be filled solely and
exclusively by the affirmativevote of a majority of the remaining Directors then
in office, even if less than a quorum of the Board of Directors, and not by the
stockholders. Any Director appointed in accordance with the preceding sentence
shall hold office for the remainder of the full term of the class of Directors
in which the new directorship was created or the vacancy occurred and until such
Director's successor shall have been duly elected and qualified or until his or
her earlier resignation or removal. Subject to the rights, if any, of the
holders of any series or class of Preferred Stock to elect Directors, when the
number of Directors is increased or decreased, the Board of Directors shall,
subject to Article VI.3 hereof, determine the class or classes to which the
increased or decreased number of Directors shall be apportioned; provided,
--------
however, that no decrease in the number of Directors shall shorten the term of
- -------
any incumbent Director. In the event of a vacancy in the Board of Directors, the
remaining Directors, except as otherwise provided by law, shall exercise the
powers of the full Board of Directors until the vacancy is filled.
9
<PAGE>
5. Removal. Subject to the rights, if any, of any series or class of
-------
Preferred Stock to elect Directors and to remove any Director whom the holders
of any such stock have the right to elect, any Director (including persons
elected by Directors to fill vacancies in the Board of Directors) may be removed
from office (i) only with cause and (ii) only by the affirmative vote of the
holders of 75% or more of the shares then entitled to vote at an election of
Directors. At least forty-five (45) days prior to any meeting of stockholders at
which it is proposed that any Director be removed from office, written notice of
such proposed removal and the alleged grounds thereof shall be sent to the
Director whose removal will be considered at the meeting.
ARTICLE VII
Limitation of Liability
-----------------------
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (a) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the DGCL or (d) for any transaction
from which the Director derived an improper personal benefit. If the DGCL is
amended after the effective date of this Certificate to authorize corporate
action further eliminating or limiting the personal liability of Directors, then
the liability of a Director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the DGCL, as so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a Director at the time of such repeal or
modification.
ARTICLE VIII
Amendment of By-Laws
- --------------------
1. Amendment by Directors. Except as otherwise provided by law, the
----------------------
By-laws of the Corporation may be amended or repealed by the Board of Directors
by the affirmative vote of a majority of the Directors then in office.
2. Amendment by Stockholders. The By-laws of the Corporation may be
-------------------------
amended or repealed at any annual meeting of stockholders, or special meeting of
stockholders called for such purpose as provided in the By-Laws, by the
affirmative vote of at least 75% of the shares present in person or represented
by proxy at such meeting and entitled to vote on such amendment or repeal,
voting together as a single class; provided, however, that if the Board of
-----------------
Directors recommends that stockholders approve such amendment or repeal at such
meeting of
10
<PAGE>
stockholders, such amendment or repeal shall only require the affirmative vote
of the majority of the shares present in person or represented by proxy at such
meeting and entitled to vote on such amendment or repeal, voting together as a
single class.
ARTICLE IX
Amendment of Certificate of Incorporation
-----------------------------------------
The Corporation reserves the right to amend or repeal this Certificate in
the manner now or hereafter prescribed by statute and this Certificate, and all
rights conferred upon stockholders herein are granted subject to this
reservation. Whenever any vote of the holders of voting stock is required to
amend or repeal any provision of this Certificate, and in addition to any other
vote of holders of voting stock that is required by this Certificate or by law,
such amendment or repeal shall require the affirmative vote of the majority of
the outstanding shares entitled to vote on such amendment or repeal, and the
affirmative vote of the majority of the outstanding shares of each class
entitled to vote thereon as a class, at a duly constituted meeting of
stockholders called expressly for such purpose; provided, however, that the
-------- -------
affirmative vote of not less than 75% of the outstanding shares entitled to vote
on such amendment or repeal, and the affirmative vote of not less than 75% of
the outstanding shares of each class entitled to vote thereon as a class, shall
be required to amend or repeal any provision of Article V, Article VI, Article
VII, Article IX or Article X of this Certificate.
ARTICLE X
Business Combinations
---------------------
The Corporation elects to be governed by the provisions of Section 203 of
the DGCL."
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
11
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Fifth Certificate of
Amendment to the Amended and Restated Certificate of Incorporation to be signed
by R. Stanley Allen, its Chief Executive Officer, this ____ day of February,
2000, which signature constitutes the affirmation or acknowledgment of such
officer, under penalties of perjury, that this instrument is the act and deed of
the Corporation, and that the facts stated therein are true.
CYPRESS COMMUNICATIONS, INC.
By:_________________________________________
R. Stanley Allen
Chief Executive Officer
<PAGE>
EXHIBIT 3.7
Form of
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CYPRESS COMMUNICATIONS, INC.
CYPRESS COMMUNICATIONS, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. The name of the Corporation is Cypress Communications, Inc. The date of
the filing of its original Certificate of Incorporation with the Secretary of
State of the State of Delaware was July 15, 1997.
2. This Second Amended and Restated Certificate of Incorporation (the
"Certificate") amends, restates and integrates the provisions of the Amended and
Restated Certificate of Incorporation that was filed with the Secretary of State
of the State of Delaware on September 30, 1998, as heretofore amended (the
"Amended and Restated Certificate"), and was duly adopted in accordance with the
provisions of Sections 242 and 245 of the Delaware General Corporation Law (the
"DGCL").
3. The text of the Amended and Restated Certificate is hereby amended and
restated in its entirety to provide as herein set forth in full.
ARTICLE I
The name of the Corporation is Cypress Communications, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is c/o The Corporation Trust Company, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the DGCL.
ARTICLE IV
CAPITAL STOCK
-------------
The total number of shares of capital stock which the Corporation shall
have authority to issue is One Hundred Seventy-One Million (171,000,000) shares,
of which (i) One Hundred
<PAGE>
Fifty Million (150,000,000) shares shall be a class designated as common stock,
par value $.001 per share (the "Common Stock"), (ii) One Million (1,000,000)
shares shall be a class designated as Series Z Junior Participating Cumulative
Preferred Stock, par value $.001 per share (the "Series Z Preferred Stock"), and
(iii) Twenty Million (20,000,000) shares shall be a class designated as
undesignated preferred stock, par value $.001 per share (the "Undesignated
Preferred Stock"). The Series Z Preferred Stock and the Undesignated Preferred
Stock are sometimes collectively referred to herein as the "Preferred Stock."
The number of authorized shares of the class of Undesignated Preferred
Stock may from time to time be increased or decreased (but not below the number
of shares outstanding) by the affirmative vote of the holders of a majority of
the outstanding shares of Common Stock entitled to vote, without a vote of the
holders of the Preferred Stock (subject to the terms of the Series Z Preferred
Stock and except as otherwise provided in any certificate of designations of any
series of Undesignated Preferred Stock).
The powers, preferences and rights of, and the qualifications, limitations
and restrictions upon, each class or series of stock shall be determined in
accordance with, or as set forth below in, this Article IV.
A. COMMON STOCK
------------
Subject to all the rights, powers and preferences of the Preferred
Stock and except as provided by law or in this Article IV (or in any certificate
of designations of any series of Undesignated Preferred Stock):
(a) the holders of the Common Stock shall have the exclusive right to
vote for the election of directors of the Corporation ("Directors") and on all
other matters requiring stockholder action, each outstanding share entitling the
holder thereof to one vote on each matter properly submitted to the stockholders
of the Corporation for their vote; provided, however, that, except as otherwise
-------- -------
required by law, holders of Common Stock, as such, shall not be entitled to vote
on any amendment to this Certificate (or on any amendment to a certificate of
designations of any series of Undesignated Preferred Stock) that alters or
changes the powers, preferences, rights or other terms of one or more
outstanding series or class of Preferred Stock if the holders of such affected
series or class are entitled to vote, either separately or together with the
holders of one or more other such series or classes, on such amendment pursuant
to this Certificate (or pursuant to a certificate of designations of any series
of Undesignated Preferred Stock) or pursuant to the DGCL;
(b) dividends may be declared and paid or set apart for payment upon
the Common Stock out of any assets or funds of the Corporation legally available
for the payment of dividends, but only when and as declared by the Board of
Directors or any authorized committee thereof; and
2
<PAGE>
(c) upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock.
B. SERIES Z PREFERRED STOCK
------------------------
1. Designation and Amount. The total number of shares of Series Z
----------------------
Preferred Stock which the Corporation shall have authority to issue is One
Million (1,000,000) shares.
2. Dividends and Distributions.
---------------------------
(a) (i) Subject to the rights of the holders of any shares of any
series of Undesignated Preferred Stock (or any similar stock) ranking prior and
superior to the Series Z Preferred Stock with respect to dividends, the holders
of shares of Series Z Preferred Stock, in preference to the holders of shares of
Common Stock and of any other junior stock, shall be entitled to receive, when,
as and if declared by the Board of Directors out of funds legally available for
the purpose, quarterly dividends payable in cash on the first day of March,
June, September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series Z Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provisions
for adjustment hereinafter set forth, 1,000 times the aggregate per share amount
of all cash dividends, and 1,000 times the aggregate per share amount (payable
in kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series Z Preferred Stock. The multiple of
cash and non-cash dividends declared on the Common Stock to which holders of the
Series Z Preferred Stock are entitled, which shall be 1,000 initially but which
shall be adjusted from time to time as hereinafter provided, is hereinafter
referred to as the "Dividend Multiple." In the event the Corporation shall at
any time after February __, 2000 (the "Rights Declaration Date") (i) declare or
pay any dividend on Common Stock payable in shares of Common Stock, or (ii)
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the Dividend Multiple thereafter applicable to the
determination of the amount of dividends which holders of shares of Series Z
Preferred Stock shall be entitled to receive shall be the Dividend Multiple
applicable immediately prior to such event multiplied by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
3
<PAGE>
(ii) Notwithstanding anything else contained in this paragraph
(a), the Corporation shall, out of funds legally available for that purpose,
declare a dividend or distribution on the Series Z Preferred Stock as provided
in this paragraph (a) immediately after it declares a dividend or distribution
on the Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been declared
on the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$1.00 per share on the Series Z Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(b) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series Z Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series Z Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series Z Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series Z Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix in
accordance with applicable law a record date for the determination of holders of
shares of Series Z Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than such
number of days prior to the date fixed for the payment thereof as may be allowed
by applicable law.
3. Voting Rights. In addition to any other voting rights required by,
-------------
law the holders of shares of Series Z Preferred Stock shall have the following
voting rights:
(a) Subject to the provision for adjustment hereinafter set forth,
each share of Series Z Preferred Stock shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the stockholders of the Corporation.
The number of votes which a holder of a share of Series Z Preferred Stock is
entitled to cast, which shall initially be 1,000 but which may be adjusted from
time to time as hereinafter provided, is hereinafter referred to as the "Vote
Multiple." In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare or pay any dividend on Common Stock payable in
shares of Common Stock, or (ii) effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
Vote Multiple thereafter applicable to the determination of the number of votes
per share to which holders of shares of Series Z Preferred Stock shall be
entitled shall be the Vote Multiple immediately prior to such event multiplied
by a fraction, the numerator of
4
<PAGE>
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(b) Except as otherwise provided herein or by law, the holders of
shares of Series Z Preferred Stock and the holders of shares of Common Stock and
the holders of shares of any other capital stock of this Corporation having
general voting rights, shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(c) Except as otherwise required by applicable law or as set forth
herein, holders of Series Z Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
4. Certain Restrictions.
--------------------
(a) Whenever dividends or distributions payable on the Series Z
Preferred Stock as provided in Section B.2 are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether or not declared, on
shares of Series Z Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding
up) to the Series Z Preferred Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up)
with the Series Z Preferred Stock, except dividends paid
ratably on the Series Z Preferred Stock and all such parity
stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) except as permitted in subsection B.4(a)(iv) below,
redeem, purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up)
with the Series Z Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for
shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or
winding up) to the Series Z Preferred Stock; or
5
<PAGE>
(iv) purchase or otherwise acquire for consideration any shares
of Series Z Preferred Stock, or any shares of any stock
ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series Z
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under subsection (a) of
this Section B.4, purchase or otherwise acquire such shares at such time and in
such manner.
5. Reacquired Shares. Any shares of Series Z Preferred Stock purchased
-----------------
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof.
6. Liquidation, Dissolution or Winding Up. Upon any liquidation
--------------------------------------
(voluntary or otherwise), dissolution or winding up of the Corporation, no
distribution shall be made (x) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series Z Preferred Stock unless, prior thereto, the holders of shares of Series
Z Preferred Stock shall have received an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, plus an amount equal to the greater of (1) $1,000.00 per share or
(2) an aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount to be
distributed per share to holders of Common Stock, or (y) to the holders of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series Z Preferred Stock, except distributions made ratably
on the Series Z Preferred Stock and all other such parity stock in proportion to
the total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall at
any time after the Rights Declaration Date (i) declare or pay any dividend on
Common Stock payable in shares of Common Stock, or (ii) effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount per share to which holders of shares of Series Z
Preferred Stock were entitled immediately prior to such event under clause (x)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
6
<PAGE>
Neither the consolidation of nor merging of the Corporation with or into
any other corporation or corporations, nor the sale or other transfer of all or
substantially all of the assets of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this Section B.6.
7. Consolidation, Merger, etc. In case the Corporation shall enter into
--------------------------
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case the shares of Series Z
Preferred Stock shall at the same time be similarly exchanged or changed in an
amount per share (subject to the provision for adjustment hereinafter set forth)
equal to 1,000 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged, plus accrued and unpaid
dividends, if any, payable with respect to the Series Z Preferred Stock. In the
event the Corporation shall at any time after the Rights Declaration Date (i)
declare or pay any dividend on Common Stock payable in shares of Common Stock,
or (ii) effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series Z Preferred
Stock shall be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
8. Redemption. The shares of Series Z Preferred Stock shall not be
----------
redeemable; provided, however, that the foregoing shall not limit the ability of
the Corporation to purchase or otherwise deal in such shares to the extent
otherwise permitted hereby and by law.
9. Ranking. Unless otherwise expressly provided in this Certificate or a
-------
certificate of designations relating to any other series of Undesignated
Preferred Stock, the Series Z Preferred Stock shall rank junior to every other
series of Undesignated Preferred Stock hereafter authorized, as to the payment
of dividends and the distribution of assets on liquidation, dissolution or
winding up and shall rank senior to the Common Stock.
10. Amendment. This Certificate shall not be amended in any manner which
---------
would materially alter or change the powers, preferences or special rights of
the Series Z Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of two-thirds or more of the outstanding shares
of Series Z Preferred Stock, voting separately as a class.
11. Fractional Shares. Series Z Preferred Stock may be issued in whole
-----------------
shares or in any fraction of a share that is one one-thousandth (1/1,000th) of a
share or any integral multiple of such fraction, which shall entitle the holder,
in proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series Z Preferred Stock. In lieu of fractional
7
<PAGE>
shares, the Corporation may elect to make a cash payment as provided in the
Shareholder Rights Agreement, dated February __, 2000, between the Corporation
and State Street Bank & Trust Company, for fractions of a share other than one
one-thousandth (1/1,000th) of a share or any integral multiple thereof.
C. UNDESIGNATED PREFERRED STOCK
----------------------------
The Board of Directors or any authorized committee thereof is expressly
authorized, to the fullest extent permitted by law, to provide for the issuance
of the shares of Undesignated Preferred Stock in one or more series of such
stock, and by filing a certificate pursuant to applicable law of the State of
Delaware, to establish or change from time to time the number of shares of each
such series, and to fix the designations, powers, including voting powers, full
or limited, or no voting powers, preferences and the relative, participating,
optional or other special rights of the shares of each series and any
qualifications, limitations and restrictions thereof.
ARTICLE V
STOCKHOLDER ACTION
------------------
1. Action without Meeting. Except as otherwise provided herein, any
----------------------
action required or permitted to be taken by the stockholders of the Corporation
at any annual or special meeting of stockholders of the Corporation must be
effected at a duly called annual or special meeting of stockholders and may not
be taken or effected by a written consent of stockholders in lieu thereof.
2. Special Meetings. Except as otherwise required by statute and subject
----------------
to the rights, if any, of the holders of any series or class of Preferred Stock,
special meetings of the stockholders of the Corporation may be called only by
the Board of Directors acting pursuant to a resolution approved by the
affirmative vote of a majority of the Directors then in office. Only those
matters set forth in the notice of the special meeting may be considered or
acted upon at a special meeting of stockholders of the Corporation.
ARTICLE VI
DIRECTORS
---------
1. General. The business and affairs of the Corporation shall be managed
-------
by or under the direction of the Board of Directors except as otherwise provided
herein or required by law.
2. Election of Directors. Election of Directors need not be by written
---------------------
ballot unless the By-laws of the Corporation (the "By-laws") shall so provide.
8
<PAGE>
3. Number of Directors; Term of Office. The number of Directors of the
-----------------------------------
Corporation shall be fixed solely and exclusively by resolution duly adopted
from time to time by the Board of Directors. The Directors, other than those
who may be elected by the holders of any series or class of Preferred Stock,
shall be classified, with respect to the term for which they severally hold
office, into three classes, as nearly equal in number as reasonably possible.
The initial Class I Directors of the Corporation shall be Ward C. Bourdeaux,
Jr., William P. Egan and Jeffrey H. Schutz; the initial Class II Directors of
the Corporation shall be Laurence S. Grafstein, Randall A. Hack and P. Eric
Yopes; and the initial Class III Directors of the Corporation shall be R.
Stanley Allen and John C. Halsted. The initial Class I Directors shall serve for
a term expiring at the annual meeting of stockholders to be held in 2000, the
initial Class II Directors shall serve for a term expiring at the annual meeting
of stockholders to be held in 2001, and the initial Class III Directors shall
serve for a term expiring at the annual meeting of stockholders to be held in
2002. At each annual meeting of stockholders, Directors elected to succeed
those Directors whose terms expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election. Notwithstanding the foregoing, the Directors elected to each class
shall hold office until their successors are duly elected and qualified or until
their earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Certificate, the holders of any one or more series or classes
of Preferred Stock shall have the right, voting separately as a series or class
or together with holders of other such series or classes, to elect Directors at
an annual or special meeting of stockholders, the election, term of office,
filling of vacancies and other features of such directorships shall be governed
by the terms of this Certificate and any certificate of designations applicable
thereto.
4. Vacancies. Subject to the rights, if any, of the holders of any series
---------
or class of Preferred Stock to elect Directors and to fill vacancies in the
Board of Directors relating thereto, any and all vacancies in the Board of
Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a Director, shall be filled solely and
exclusively by the affirmative vote of a majority of the remaining Directors
then in office, even if less than a quorum of the Board of Directors, and not by
the stockholders. Any Director appointed in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class of
Directors in which the new directorship was created or the vacancy occurred and
until such Director=s successor shall have been duly elected and qualified or
until his or her earlier resignation or removal. Subject to the rights, if any,
of the holders of any series or class of Preferred Stock to elect Directors,
when the number of Directors is increased or decreased, the Board of Directors
shall, subject to Article VI.3 hereof, determine the class or classes to which
the increased or decreased number of Directors shall be apportioned; provided,
--------
however, that no decrease in the number of Directors shall shorten the term of
- -------
any incumbent Director. In the event of a vacancy in the Board of Directors,
the remaining Directors, except as otherwise provided by law, shall exercise the
powers of the full Board of Directors until the vacancy is filled.
9
<PAGE>
5. Removal. Subject to the rights, if any, of any series or class of
-------
Preferred Stock to elect Directors and to remove any Director whom the holders
of any such stock have the right to elect, any Director (including persons
elected by Directors to fill vacancies in the Board of Directors) may be removed
from office (i) only with cause and (ii) only by the affirmative vote of the
holders of 75% or more of the shares then entitled to vote at an election of
Directors. At least forty-five (45) days prior to any meeting of stockholders
at which it is proposed that any Director be removed from office, written notice
of such proposed removal and the alleged grounds thereof shall be sent to the
Director whose removal will be considered at the meeting.
ARTICLE VII
LIMITATION OF LIABILITY
-----------------------
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (a) for any breach of the Director=s
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the DGCL or (d) for any transaction
from which the Director derived an improper personal benefit. If the DGCL is
amended after the effective date of this Certificate to authorize corporate
action further eliminating or limiting the personal liability of Directors, then
the liability of a Director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the DGCL, as so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a Director at the time of such repeal or
modification.
ARTICLE VIII
AMENDMENT OF BY-LAWS
--------------------
1. Amendment by Directors. Except as otherwise provided by law, the
----------------------
By-laws of the Corporation may be amended or repealed by the Board of Directors
by the affirmative vote of a majority of the Directors then in office.
2. Amendment by Stockholders. The By-laws of the Corporation may be
-------------------------
amended or repealed at any annual meeting of stockholders, or special meeting of
stockholders called for such purpose as provided in the By-laws, by the
affirmative vote of at least 75% of the shares present in person or represented
by proxy at such meeting and entitled to vote on such amendment or repeal,
voting together as a single class; provided, however, that if the Board of
-------- -------
10
<PAGE>
Directors recommends that stockholders approve such amendment or repeal at such
meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of the majority of the shares present in person or represented
by proxy at such meeting and entitled to vote on such amendment or repeal,
voting together as a single class.
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
-----------------------------------------
The Corporation reserves the right to amend or repeal this Certificate in
the manner now or hereafter prescribed by statute and this Certificate, and all
rights conferred upon stockholders herein are granted subject to this
reservation. Whenever any vote of the holders of voting stock is required to
amend or repeal any provision of this Certificate, and in addition to any other
vote of holders of voting stock that is required by this Certificate or by law,
such amendment or repeal shall require the affirmative vote of the majority of
the outstanding shares entitled to vote on such amendment or repeal, and the
affirmative vote of the majority of the outstanding shares of each class
entitled to vote thereon as a class, at a duly constituted meeting of
stockholders called expressly for such purpose; provided, however, that the
-------- -------
affirmative vote of not less than 75% of the outstanding shares entitled to vote
on such amendment or repeal, and the affirmative vote of not less than 75% of
the outstanding shares of each class entitled to vote thereon as a class, shall
be required to amend or repeal any provision of Article V, Article VI, Article
VII, Article IX or Article X of this Certificate.
ARTICLE X
BUSINESS COMBINATIONS
---------------------
The Corporation elects to be governed by the provisions of Section 203 of
the DGCL.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
11
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Second Amended and
Restated Certificate of Incorporation to be signed by R. Stanley Allen, its
Chief Executive Officer, this ____ day of February, 2000, which signature
constitutes the affirmation or acknowledgment of such officer, under penalties
of perjury, that this instrument is the act and deed of the Corporation, and
that the facts stated therein are true.
CYPRESS COMMUNICATIONS, INC.
By:__________________________
R. Stanley Allen
Chief Executive Officer
12
<PAGE>
EXHIBIT 3.8
Form of
AMENDED AND RESTATED
BY-LAWS
OF
CYPRESS COMMUNICATIONS, INC.
(the "Corporation")
ARTICLE I
---------
Stockholders
------------
SECTION 1. Annual Meeting. The annual meeting of stockholders (any such
--------------
meeting being referred to in these By-laws as an "Annual Meeting") shall be held
at the hour, date and place within or without the United States which is fixed
by the Board of Directors, which time, date and place may subsequently be
changed at any time by vote of the Board of Directors. If no Annual Meeting has
been held for a period of thirteen months after the Corporation's last Annual
Meeting, a special meeting in lieu thereof may be held, and such special meeting
shall have, for the purposes of these By-laws or otherwise, all the force and
effect of an Annual Meeting. Any and all references hereafter in these By-laws
to an Annual Meeting or Annual Meetings also shall be deemed to refer to any
special meeting(s) in lieu thereof.
SECTION 2. Notice of Stockholder Business and Nominations.
----------------------------------------------
(a) Annual Meetings of Stockholders.
-------------------------------
(1) Nominations of persons for election to the Board of Directors of
the Corporation and the proposal of business to be considered by the
stockholders may be made at an Annual Meeting (a) pursuant to the
Corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the Corporation who was a
stockholder of record at the time of giving of notice provided for in this
By-law, who is entitled to vote at the meeting, who is present (in person
or by proxy) at the meeting and who complies with the notice procedures set
forth in this By-law. In addition to the other requirements set forth in
this By-law, for any proposal of business to be considered at an Annual
Meeting, it must be a proper subject for action by stockholders of the
Corporation under Delaware law.
(2) For nominations or other business to be properly brought before
an Annual Meeting by a stockholder pursuant to clause (c) of paragraph
(a)(1) of this By-law, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business
on the 90th day nor earlier than the close of business on the 120th day
prior to
<PAGE>
the first anniversary of the preceding year's Annual Meeting; provided,
however, that in the event that the date of the Annual Meeting is advanced
by more than 30 days before or delayed by more than 60 days after such
anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the 120th day prior to
such Annual Meeting and not later than the close of business on the later
of the 90th day prior to such Annual Meeting or the 10th day following the
day on which public announcement of the date of such meeting is first made.
Notwithstanding anything to the contrary provided herein, for the first
Annual Meeting following the initial public offering of common stock of the
Corporation, a stockholder's notice shall be timely if delivered to the
Secretary at the principal executive offices of the Corporation not later
than the close of business on the later of the 90th day prior to the
scheduled date of such Annual Meeting or the 10th day following the day on
which public announcement of the date of such Annual Meeting is first made
or sent by the Corporation. Such stockholder's notice shall set forth (a)
as to each person whom the stockholder proposes to nominate for election or
reelection as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder (including such
person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); (b) as to any other business that
the stockholder proposes to bring before the meeting, a brief description
of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting, any material interest in such
business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made, and the names and addresses of other
stockholders known by the stockholder proposing such business to support
such proposal, and the class and number of shares of the Corporation's
capital stock beneficially owned by such other stockholders; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made (i) the name and address of
such stockholder, as they appear on the Corporation's books, and of such
beneficial owner, and (ii) the class and number of shares of the
Corporation which are owned beneficially and of record by such stockholder
and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(a)(2) of this By-law to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement naming all of the nominees
for director or specifying the size of the increased Board of Directors
made by the Corporation at least 85 days prior to the first anniversary of
the preceding year's Annual Meeting, a stockholder's notice required by
this By-law shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal
2
<PAGE>
executive offices of the Corporation not later than the close of business
on the 10th day following the day on which such public announcement is
first made by the Corporation.
(b) General.
-------
(1) Only such persons who are nominated in accordance with the
provisions of this By-law shall be eligible for election and to serve as
directors and only such business shall be conducted at an Annual Meeting as
shall have been brought before the meeting in accordance with the
provisions of this By-law. The Board of Directors or a designated committee
thereof shall have the power to determine whether a nomination or any
business proposed to be brought before the meeting was made in accordance
with the provisions of this By-law. If neither the Board of Directors nor
such designated committee makes a determination as to whether any
stockholder proposal or nomination was made in accordance with the
provisions of this By-law, the presiding officer of the Annual Meeting
shall have the power and duty to determine whether the stockholder proposal
or nomination was made in accordance with the provisions of this By-law. If
the Board of Directors or a designated committee thereof or the presiding
officer, as applicable, determines that any stockholder proposal or
nomination was not made in accordance with the provisions of this By-law,
such proposal or nomination shall be disregarded and shall not be presented
for action at the Annual Meeting.
(2) For purposes of this By-law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-law, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this By-law. Nothing in this By-law shall be deemed to
affect any rights of (i) stockholders to request inclusion of proposals in
the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange
Act or (ii) the holders of any series or class of Preferred Stock to elect
directors under specified circumstances.
SECTION 3. Special Meetings. Except as otherwise required by statute and
----------------
subject to the rights, if any, of the holders of any series or class of
Preferred Stock, special meetings of the stockholders of the Corporation may be
called only by the Board of Directors acting pursuant to a resolution approved
by the affirmative vote of a majority of the Directors then in office. Only
those matters set forth in the notice of the special meeting may be considered
or acted upon at a special meeting of stockholders of the Corporation.
3
<PAGE>
SECTION 4. Notice of Meetings; Adjournments. A written notice of each
--------------------------------
Annual Meeting stating the hour, date and place of such Annual Meeting shall be
given not less than 10 days nor more than 60 days before the Annual Meeting, to
each stockholder entitled to vote thereat, by delivering such notice to such
stockholder or by mailing it, postage prepaid, addressed to such stockholder at
the address of such stockholder as it appears on the Corporation's stock
transfer books. Such notice shall be deemed to be given when hand delivered to
such address or deposited in the mail so addressed, with postage prepaid.
Notice of all special meetings of stockholders shall be given in the same
manner as provided for Annual Meetings, except that the written notice of all
special meetings shall state the purpose or purposes for which the meeting has
been called.
Notice of an Annual Meeting or special meeting of stockholders need not be
given to a stockholder if a written waiver of notice is signed before or after
such meeting by such stockholder or if such stockholder attends such meeting,
unless such attendance was for the express purpose of objecting at the beginning
of the meeting to the transaction of any business because the meeting was not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any Annual Meeting or special meeting of stockholders need be
specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously scheduled
Annual Meeting or special meeting of stockholders and any record date with
respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to Section 2 of this
Article I of these By-laws or otherwise. In no event shall the public
announcement of an adjournment, postponement or rescheduling of any previously
scheduled meeting of stockholders commence a new time period for the giving of a
stockholder's notice under Section 2 of this Article I of these By-laws.
When any meeting is convened, the presiding officer may adjourn the meeting
if (a) no quorum is present for the transaction of business, (b) the Board of
Directors determines that adjournment is necessary or appropriate to enable the
stockholders to consider fully information which the Board of Directors
determines has not been made sufficiently or timely available to stockholders,
or (c) the Board of Directors determines that adjournment is otherwise in the
best interests of the Corporation. When any Annual Meeting or special meeting of
stockholders is adjourned to another hour, date or place, notice need not be
given of the adjourned meeting other than an announcement at the meeting at
which the adjournment is taken of the hour, date and place to which the meeting
is adjourned; provided, however, that if the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote thereat and each stockholder who, by law or under the
Certificate of Incorporation of the Corporation (as the same may hereafter be
amended and/or restated, the "Certificate") or these By-laws, is entitled to
such notice.
4
<PAGE>
SECTION 5. Quorum. A majority of the shares entitled to vote, present in
------
person or represented by proxy, shall constitute a quorum at any meeting of
stockholders. If less than a quorum is present at a meeting, the holders of
voting stock representing a majority of the voting power present at the meeting
or the presiding officer may adjourn the meeting from time to time, and the
meeting may be held as adjourned without further notice, except as provided in
Section 5 of this Article I. At such adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally noticed. The stockholders present at a duly constituted
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
SECTION 6. Voting and Proxies. Stockholders shall have one vote for each
------------------
share of stock entitled to vote owned by them of record according to the stock
ledger of the Corporation, unless otherwise provided by law or by the
Certificate. Stockholders may vote either (i) in person, (ii) by written proxy
or (iii) by a transmission permitted by (S)212(c) of the Delaware General
Corporation Law ("DGCL"). Any copy, facsimile telecommunication or other
reliable reproduction of the writing or transmission permitted by (S)212(c) of
the DGCL may be substituted for or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission. Proxies shall be filed in accordance with the
procedures established for the meeting of stockholders. Except as otherwise
limited therein or as otherwise provided by law, proxies authorizing a person to
vote at a specific meeting shall entitle the persons authorized thereby to vote
at any adjournment of such meeting, but they shall not be valid after final
adjournment of such meeting. A proxy with respect to stock held in the name of
two or more persons shall be valid if executed by or on behalf of any one of
them unless at or prior to the exercise of the proxy the Corporation receives a
specific written notice to the contrary from any one of them.
SECTION 7. Action at Meeting. When a quorum is present at any meeting of
-----------------
stockholders, any matter before any such meeting (other than an election of a
director or directors) shall be decided by a majority of the votes properly cast
for or against such matter, except where a larger vote is required by law, by
the Certificate or by these By-laws. Any election of directors by stockholders
shall be determined by a plurality of the votes properly cast on the election of
directors. The Corporation shall not directly or indirectly vote any shares of
its own stock; provided, however, that the Corporation may vote shares which it
holds in a fiduciary capacity to the extent permitted by law.
SECTION 8. Stockholder Lists. The Secretary or an Assistant Secretary (or
-----------------
the Corporation's transfer agent or other person authorized by these By-laws or
by law) shall prepare and make, at least 10 days before every Annual Meeting or
special meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares
5
<PAGE>
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least 10 days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the hour, date and place of the meeting during the whole time thereof, and
may be inspected by any stockholder who is present.
SECTION 9. Presiding Officer. The Chairman of the Board, if one is
-----------------
elected, or if not elected or in his or her absence, the Chief Executive
Officer, or, in the absence of the Chairman of the Board and the Chief Executive
Officer, the President, shall preside at all Annual Meetings or special meetings
of stockholders and shall have the power, among other things, to adjourn such
meeting at any time and from time to time, subject to Sections 5 and 6 of this
Article I. The order of business and all other matters of procedure at any
meeting of the stockholders shall be determined by the presiding officer.
SECTION 10. Inspectors of Elections. The Corporation shall, in advance of
-----------------------
any meeting of stockholders, appoint one or more inspectors to act at the
meeting and make a written report thereof. The Corporation may designate one or
more persons as alternate inspectors to replace any inspector who fails to act.
If no inspector or alternate is able to act at a meeting of stockholders, the
presiding officer shall appoint one or more inspectors to act at the meeting.
Any inspector may, but need not, be an officer, employee or agent of the
Corporation. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall perform such duties as are required by the DGCL,
including the counting of all votes and ballots. The inspectors may appoint or
retain other persons or entities to assist the inspectors in the performance of
the duties of the inspectors. The presiding officer may review all
determinations made by the inspectors, and in so doing the presiding officer
shall be entitled to exercise his or her sole judgment and discretion and he or
she shall not be bound by any determinations made by the inspectors. All
determinations by the inspectors and, if applicable, the presiding officer,
shall be subject to further review by any court of competent jurisdiction.
ARTICLE II
----------
Directors
---------
SECTION 1. Powers. The business and affairs of the Corporation shall be
------
managed by or under the direction of the Board of Directors except as otherwise
provided by the Certificate or required by law.
6
<PAGE>
SECTION 2. Number and Terms. The number of directors of the Corporation
----------------
shall be fixed solely and exclusively by resolution duly adopted from time to
time by the Board of Directors. The directors shall hold office in the manner
provided in the Certificate.
SECTION 3. Qualification. No director need be a stockholder of the
-------------
Corporation.
SECTION 4. Vacancies. Vacancies in the Board of Directors shall be filled
---------
in the manner provided in the Certificate.
SECTION 5. Removal. Directors may be removed from office in the manner
-------
provided in the Certificate.
SECTION 6. Resignation. A director may resign at any time by giving
-----------
written notice to the Chairman of the Board, if one is elected, the Chief
Executive Officer, the President or the Secretary. A resignation shall be
effective upon receipt, unless the resignation otherwise provides.
SECTION 7. Regular Meetings. The regular annual meeting of the Board of
----------------
Directors shall be held, without notice other than this Section 7, on the same
date and at the same place as the Annual Meeting following the close of such
meeting of stockholders. Other regular meetings of the Board of Directors may be
held at such hour, date and place as the Board of Directors may by resolution
from time to time determine and publicize by means of reasonable notice given to
any director who is not present at the meeting at which such resolution is
adopted.
SECTION 8. Special Meetings. Special meetings of the Board of Directors
----------------
may be called, orally or in writing, by or at the request of a majority of the
directors, the Chairman of the Board, if one is elected, or the Chief Executive
Officer. The person calling any such special meeting of the Board of Directors
may fix the hour, date and place thereof.
SECTION 9. Notice of Meetings. Notice of the hour, date and place of all
------------------
special meetings of the Board of Directors shall be given to each director by
the Secretary or an Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by the Chairman of the Board, if one is
elected, the Chief Executive Officer or the President or such other officer
designated by the Chairman of the Board, if one is elected, the Chief Executive
Officer or the President. Notice of any special meeting of the Board of
Directors shall be given to each director in person, by telephone, or by
facsimile, electronic mail or other form of electronic communication, sent to
his or her business or home address, at least 24 hours in advance of the
meeting, or by written notice mailed to his or her business or home address, at
least 48 hours in advance of the meeting. Such notice shall be deemed to be
delivered when hand delivered to such address, read to such director by
telephone, deposited in the mail so addressed, with postage thereon prepaid if
mailed, dispatched or transmitted if faxed, telexed or telecopied, or when
delivered to the telegraph company if sent by telegram.
7
<PAGE>
A written waiver of notice signed before or after a meeting by a director
and filed with the records of the meeting shall be deemed to be equivalent to
notice of the meeting. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because such meeting is not lawfully called or
convened. Except as otherwise required by law, by the Certificate or by these
By-laws, neither the business to be transacted at, nor the purpose of, any
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
SECTION 10. Quorum. At any meeting of the Board of Directors, a majority
------
of the total number of directors shall constitute a quorum for the transaction
of business, but if less than a quorum is present at a meeting, a majority of
the directors present may adjourn the meeting from time to time, and the meeting
may be held as adjourned without further notice, except as provided in Section 9
of this Article II. Any business which might have been transacted at the meeting
as originally noticed may be transacted at such adjourned meeting at which a
quorum is present. For purposes of this section, the total number of directors
includes any unfilled vacancies on the Board of Directors.
SECTION 11. Action at Meeting. At any meeting of the Board of Directors
-----------------
at which a quorum is present, the vote of a majority of the directors present
shall constitute action by the Board of Directors, unless otherwise required by
law, by the Certificate or by these By-laws.
SECTION 12. Action by Consent. Any action required or permitted to be
-----------------
taken at any meeting of the Board of Directors may be taken without a meeting if
all members of the Board of Directors consent thereto in writing. Such written
consent shall be filed with the records of the meetings of the Board of
Directors and shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
SECTION 13. Manner of Participation. Directors may participate in meetings
-----------------------
of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these By-laws.
SECTION 14. Committees. The Board of Directors, by vote of a majority of
----------
the directors then in office, may elect from its number one or more committees,
including, without limitation, an Executive Committee, a Compensation Committee,
a Stock Option Committee and an Audit Committee, and may delegate thereto some
or all of its powers except those which by law, by the Certificate or by these
By-laws may not be delegated. Except as the Board of Directors may otherwise
determine, any such committee may make rules for the conduct of its business,
but unless otherwise provided by the Board of Directors or in such rules, its
business shall be conducted so far as possible in the same manner as is provided
by
8
<PAGE>
these By-laws for the Board of Directors. All members of such committees shall
hold such offices at the pleasure of the Board of Directors. The Board of
Directors may abolish any such committee at any time. Any committee to which the
Board of Directors delegates any of its powers or duties shall keep records of
its meetings and shall report its action to the Board of Directors.
SECTION 15. Compensation of Directors. Directors shall receive such
-------------------------
compensation for their services as shall be determined by a majority of the
Board of Directors, or a designated committee thereof, provided that directors
who are serving the Corporation as employees and who receive compensation for
their services as such, shall not receive any salary or other compensation for
their services as directors of the Corporation.
ARTICLE III
-----------
Officers
--------
SECTION 1. Enumeration. The officers of the Corporation shall consist of
-----------
a Chief Executive Officer, a President, a Treasurer, a Secretary and such other
officers, including, without limitation, a Chairman of the Board of Directors
and one or more Vice Presidents (including Executive Vice Presidents or Senior
Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant
Secretaries, as the Board of Directors may determine.
SECTION 2. Election. At the regular annual meeting of the Board of
--------
Directors following the Annual Meeting, the Board of Directors shall elect the
Chief Executive Officer, the President, the Treasurer and the Secretary. Other
officers may be elected by the Board of Directors at such regular annual meeting
of the Board of Directors or at any other regular or special meeting.
SECTION 3. Qualification. No officer need be a stockholder or a director.
-------------
Any person may occupy more than one office of the Corporation at any time. Any
officer may be required by the Board of Directors to give bond for the faithful
performance of his or her duties in such amount and with such sureties as the
Board of Directors may determine.
SECTION 4. Tenure. Except as otherwise provided by the Certificate or by
------
these By-laws, each of the officers of the Corporation shall hold office until
the regular annual meeting of the Board of Directors following the next Annual
Meeting and until his or her successor is elected and qualified or until his or
her earlier resignation or removal.
SECTION 5. Resignation. Any officer may resign by delivering his or her
-----------
written resignation to the Corporation addressed to the Chief Executive Officer,
the President or the Secretary, and such resignation shall be effective upon
receipt unless it is specified to be effective at some other time or upon the
happening of some other event.
9
<PAGE>
SECTION 6. Removal. Except as otherwise provided by law, the Board of
-------
Directors may remove any officer with or without cause by the affirmative vote
of a majority of the directors then in office.
SECTION 7. Absence or Disability. In the event of the absence or
---------------------
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
SECTION 8. Vacancies. Any vacancy in any office may be filled for the
---------
unexpired portion of the term by the Board of Directors.
SECTION 9. Chief Executive Officer. The Chief Executive Officer shall,
-----------------------
subject to the direction of the Board of Directors, have general supervision and
control of the Corporation's business. If there is no Chairman of the Board or
if he or she is absent, the Chief Executive Officer shall preside, when present,
at all meetings of stockholders and of the Board of Directors. The Chief
Executive Officer shall have such other powers and perform such other duties as
the Board of Directors may from time to time designate.
SECTION 10. Chairman of the Board. The Chairman of the Board, if one is
---------------------
elected, shall preside, when present, at all meetings of the stockholders and of
the Board of Directors. The Chairman of the Board shall have such other powers
and shall perform such other duties as the Board of Directors may from time to
time designate.
SECTION 11. President. The President shall have such powers and shall
---------
perform such duties as the Board of Directors or the Chief Executive Officer may
from time to time designate.
SECTION 12. Vice Presidents and Assistant Vice Presidents. Any Vice
---------------------------------------------
President (including any Executive Vice President or Senior Vice President) and
any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
SECTION 13. Treasurer and Assistant Treasurers. The Treasurer shall,
----------------------------------
subject to the direction of the Board of Directors and except as the Board of
Directors or the Chief Executive Officer may otherwise provide, have general
charge of the financial affairs of the Corporation and shall cause to be kept
accurate books of account. The Treasurer shall have custody of all funds,
securities, and valuable documents of the Corporation. He or she shall have such
other duties and powers as may be designated from time to time by the Board of
Directors or the Chief Executive Officer.
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
10
<PAGE>
SECTION 14. Secretary and Assistant Secretaries. The Secretary shall
-----------------------------------
record all the proceedings of the meetings of the stockholders and the Board of
Directors (including committees of the Board) in books kept for that purpose. In
his or her absence from any such meeting, a temporary secretary chosen at the
meeting shall record the proceedings thereof. The Secretary shall have charge of
the stock ledger (which may, however, be kept by any transfer or other agent of
the Corporation). The Secretary shall have custody of the seal of the
Corporation, and the Secretary, or an Assistant Secretary, shall have authority
to affix it to any instrument requiring it, and, when so affixed, the seal may
be attested by his or her signature or that of an Assistant Secretary. The
Secretary shall have such other duties and powers as may be designated from time
to time by the Board of Directors or the Chief Executive Officer. In the absence
of the Secretary, any Assistant Secretary may perform his or her duties and
responsibilities.
Any Assistant Secretary shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 15. Other Powers and Duties. Subject to these By-laws and to such
-----------------------
limitations as the Board of Directors may from time to time prescribe, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the Board of Directors or the Chief Executive
Officer.
ARTICLE IV
----------
Capital Stock
-------------
SECTION 1. Certificates of Stock. Each stockholder shall be entitled to a
---------------------
certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the Chairman of the Board of Directors, the President or a Vice
President and by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary. The Corporation seal and the signatures by the
Corporation's officers, the transfer agent or the registrar may be facsimiles.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on such certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the time of its issue. Every certificate
for shares of stock which are subject to any restriction on transfer and every
certificate issued when the Corporation is authorized to issue more than one
class or series of stock shall contain such legend with respect thereto as is
required by law.
SECTION 2. Transfers. Subject to any restrictions on transfer and unless
---------
otherwise provided by the Board of Directors, shares of stock may be transferred
only on the books of
11
<PAGE>
the Corporation by the surrender to the Corporation or its transfer agent of the
certificate theretofore properly endorsed or accompanied by a written assignment
or power of attorney properly executed, with transfer stamps (if necessary)
affixed, and with such proof of the authenticity of signature as the Corporation
or its transfer agent may reasonably require.
SECTION 3. Record Holders. Except as may otherwise be required by law, by
--------------
the Certificate or by these By-laws, the Corporation shall be entitled to treat
the record holder of stock as shown on its books as the owner of such stock for
all purposes, including the payment of dividends and the right to vote with
respect thereto, regardless of any transfer, pledge or other disposition of such
stock, until the shares have been transferred on the books of the Corporation in
accordance with the requirements of these By-laws.
SECTION 4. Record Date. In order that the Corporation may determine the
-----------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date: (a) in the case of
determination of stockholders entitled to vote at any meeting of stockholders,
shall, unless otherwise required by law, not be more than 60 nor less than 10
days before the date of such meeting and (b) in the case of any other action,
shall not be more than 60 days prior to such other action. If no record date is
fixed: (i) the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held and (ii) the record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
SECTION 5. Replacement of Certificates. In case of the alleged loss,
---------------------------
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
ARTICLE V
---------
Indemnification
---------------
SECTION 1. Definitions. For purposes of this Article:
-----------
(a) "Corporate Status" describes the status of a person who is serving or
has served (i) as a Director of the Corporation, (ii) as an Officer of the
Corporation, or (iii) as a director, partner, trustee, officer, employee or
agent of any other corporation, partnership, joint
12
<PAGE>
venture, trust, employee benefit plan or other enterprise which such person is
or was serving at the request of the Corporation. For purposes of this Section
1(a), an Officer or Director of the Corporation who is serving or has served as
a director, partner, trustee, officer, employee or agent of a Subsidiary shall
be deemed to be serving at the request of the Corporation;
(b) "Director" means any person who serves or has served the Corporation
as a director on the Board of Directors of the Corporation;
(c) "Disinterested Director" means, with respect to each Proceeding in
respect of which indemnification is sought hereunder, a Director of the
Corporation who is not and was not a party to such Proceeding;
(d) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of expert witnesses, private investigators and
professional advisors (including, without limitation, accountants and investment
bankers), travel expenses, duplicating costs, printing and binding costs, costs
of preparation of demonstrative evidence and other courtroom presentation aids
and devices, costs incurred in connection with document review, organization,
imaging and computerization, telephone charges, postage, delivery service fees,
and all other disbursements, costs or expenses of the type customarily incurred
in connection with prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, settling or otherwise
participating in, a Proceeding;
(e) "Non-Officer Employee" means any person who serves or has served as an
employee or agent of the Corporation, but who is not or was not a Director or
Officer;
(f) "Officer" means any person who serves or has served the Corporation as
an officer appointed by the Board of Directors of the Corporation;
(g) "Proceeding" means any threatened, pending or completed action, suit,
arbitration, alternate dispute resolution mechanism, inquiry, investigation,
administrative hearing or other proceeding, whether civil, criminal,
administrative, arbitrative or investigative; and
(h) "Subsidiary" shall mean any corporation, partnership, limited
liability company, joint venture, trust or other entity of which the Corporation
owns (either directly or through or together with another Subsidiary of the
Corporation) either (i) a general partner, managing member or other similar
interest or (ii) (A) 50% or more of the voting power of the voting capital
equity interests of such corporation, partnership, limited liability company,
joint venture or other entity, or (B) 50% or more of the outstanding voting
capital stock or other voting equity interests of such corporation, partnership,
limited liability company, joint venture or other entity.
13
<PAGE>
SECTION 2. Indemnification of Directors and Officers. Subject to the
-----------------------------------------
operation of Section 4 of this Article V of these By-laws, each Director and
Officer shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the DGCL, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment) against any and
all Expenses, judgments, penalties, fines and amounts reasonably paid in
settlement that are incurred by such Director or Officer or on such Director's
or Officer's behalf in connection with any threatened, pending or completed
Proceeding or any claim, issue or matter therein, which such Director or Officer
is, or is threatened to be made, a party to or participant in by reason of such
Director's or Officer's Corporate Status, if such Director or Officer acted in
good faith and in a manner such Director or Officer reasonably believed to be in
or not opposed to the best interests of the Corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The rights of indemnification provided by this Section 2 shall
continue as to a Director or Officer after he or she has ceased to be a Director
or Officer and shall inure to the benefit of his or her heirs, executors,
administrators and personal representatives. Notwithstanding the foregoing, the
Corporation shall indemnify any Director or Officer seeking indemnification in
connection with a Proceeding initiated by such Director or Officer only if such
Proceeding was authorized by the Board of Directors of the Corporation, unless
such Proceeding was brought to enforce an Officer or Director's rights to
Indemnification or, in the case of Directors, advance of Expenses under these
By-laws in accordance with the provisions set forth herein.
SECTION 3. Indemnification of Non-Officer Employees. Subject to the
----------------------------------------
operation of Section 4 of this Article V of these By-laws, each Non-Officer
Employee may, in the discretion of the Board of Directors of the Corporation, be
indemnified by the Corporation to the fullest extent authorized by the DGCL, as
the same exists or may hereafter be amended, against any or all Expenses,
judgments, penalties, fines and amounts reasonably paid in settlement that are
incurred by such Non-Officer Employee or on such Non-Officer Employee's behalf
in connection with any threatened, pending or completed Proceeding, or any
claim, issue or matter therein, which such Non-Officer Employee is, or is
threatened to be made, a party to or participant in by reason of such Non-
Officer Employee's Corporate Status, if such Non-Officer Employee acted in good
faith and in a manner such Non-Officer Employee reasonably believed to be in or
not opposed to the best interests of the Corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The rights of indemnification provided by this Section 3 shall exist
as to a Non-Officer Employee after he or she has ceased to be a Non-Officer
Employee and shall inure to the benefit of his or her heirs, personal
representatives, executors and administrators. Notwithstanding the foregoing,
the Corporation may indemnify any Non-Officer Employee seeking indemnification
in connection with a Proceeding initiated by such Non-Officer Employee only if
such Proceeding was authorized by the Board of Directors of the Corporation.
14
<PAGE>
SECTION 4. Good Faith. Unless ordered by a court, no indemnification
----------
shall be provided pursuant to this Article V to a Director, to an Officer or to
a Non-Officer Employee unless a determination shall have been made that such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect to
any criminal Proceeding, such person had no reasonable cause to believe his or
her conduct was unlawful. Such determination shall be made by (a) a majority
vote of the Disinterested Directors, even though less than a quorum of the Board
of Directors, (b) a committee comprised of Disinterested Directors, such
committee having been designated by a majority vote of the Disinterested
Directors (even though less than a quorum), (c) if there are no such
Disinterested Directors, or if a majority of Disinterested Directors so directs,
by independent legal counsel in a written opinion, or (d) by the stockholders of
the Corporation.
SECTION 5. Advancement of Expenses to Directors Prior to Final
---------------------------------------------------
Disposition.
- -----------
(a) The Corporation shall advance all Expenses incurred by or on behalf of
any Director in connection with any Proceeding in which such Director is
involved by reason of such Director's Corporate Status within 10 days after the
receipt by the Corporation of a written statement from such Director requesting
such advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by such Director and shall be preceded or
accompanied by an undertaking by or on behalf of such Director to repay any
Expenses so advanced if it shall ultimately be determined that such Director is
not entitled to be indemnified against such Expenses.
(b) If a claim for advancement of Expenses hereunder by a Director is not
paid in full by the Corporation within 10 days after receipt by the Corporation
of documentation of Expenses and the required undertaking, such Director may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and if successful in whole or in part, such Director shall
also be entitled to be paid the expenses of prosecuting such claim. The failure
of the Corporation (including its Board of Directors or any committee thereof,
independent legal counsel, or stockholders) to make a determination concerning
the permissibility of such advancement of Expenses under this Article V shall
not be a defense to the action and shall not create a presumption that such
advancement is not permissible. The burden of proving that a Director is not
entitled to an advancement of expenses shall be on the Corporation.
(c) In any suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the Corporation shall be
entitled to recover such expenses upon a final adjudication that the Director
has not met any applicable standard for indemnification set forth in the DGCL.
15
<PAGE>
SECTION 6. Advancement of Expenses to Officers and Non-Officer Employees
-------------------------------------------------------------
Prior to Final Disposition.
- --------------------------
(a) The Corporation may, at the discretion of the Board of Directors of
the Corporation, advance any or all Expenses incurred by or on behalf of any
Officer and Non-Officer Employee in connection with any Proceeding in which such
is involved by reason of the Corporate Status of such Officer or Non-Officer
Employee upon the receipt by the Corporation of a statement or statements from
such Officer or Non-Officer Employee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
such Officer and Non-Officer Employee and shall be preceded or accompanied by an
undertaking by or on behalf of such to repay any Expenses so advanced if it
shall ultimately be determined that such Officer or Non-Officer Employee is not
entitled to be indemnified against such Expenses.
(b) In any suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the Corporation shall be
entitled to recover such expenses upon a final adjudication that the Officer or
Non-Officer Employee has not met any applicable standard for indemnification set
forth in the DGCL.
SECTION 7. Contractual Nature of Rights.
----------------------------
(a) The foregoing provisions of this Article V shall be deemed to be a
contract between the Corporation and each Director and Officer entitled to the
benefits hereof at any time while this Article V is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any
Proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
(b) If a claim for indemnification of Expenses hereunder by a Director or
Officer is not paid in full by the Corporation within 60 days after receipt by
the Corporation of a written claim for indemnification, such Director or Officer
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim, and if successful in whole or in part, such Director
or Officer shall also be entitled to be paid the expenses of prosecuting such
claim. The failure of the Corporation (including its Board of Directors or any
committee thereof, independent legal counsel, or stockholders) to make a
determination concerning the permissibility of such indemnification under this
Article V shall not be a defense to the action and shall not create a
presumption that such indemnification is not permissible. The burden of proving
that a Director or Officer is not entitled to indemnification shall be on the
Corporation.
(c) In any suit brought by a Director or Officer to enforce a right to
indemnification hereunder, it shall be a defense that such Director or Officer
has not met any applicable standard for indemnification set forth in the DGCL.
16
<PAGE>
SECTION 8. Non-Exclusivity of Rights. The rights to indemnification and
-------------------------
advancement of Expenses set forth in this Article V shall not be exclusive of
any other right which any Director, Officer, or Non-Officer Employee may have or
hereafter acquire under any statute, provision of the Certificate or these By-
laws, agreement, vote of stockholders or Disinterested Directors or otherwise.
SECTION 9. Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any Director, Officer or Non-Officer Employee
against any liability of any character asserted against or incurred by the
Corporation or any such Director, Officer or Non-Officer Employee, or arising
out of any such person's Corporate Status, whether or not the Corporation would
have the power to indemnify such person against such liability under the DGCL or
the provisions of this Article V.
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
SECTION 1. Fiscal Year. The fiscal year of the Corporation shall be
-----------
determined by the Board of Directors.
SECTION 2. Seal. The Board of Directors shall have power to adopt and
----
alter the seal of the Corporation.
SECTION 3. Execution of Instruments. All deeds, leases, transfers,
------------------------
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without director action may
be executed on behalf of the Corporation by the Chairman of the Board, if one is
elected, the Chief Executive Officer, the President or the Treasurer or any
other officer, employee or agent of the Corporation as the Board of Directors or
Executive Committee may authorize.
SECTION 4. Voting of Securities. Unless the Board of Directors otherwise
--------------------
provides, the Chairman of the Board, if one is elected, the Chief Executive
Officer, the President or the Treasurer may waive notice of and act on behalf of
this Corporation, or appoint another person or persons to act as proxy or
attorney in fact for this Corporation with or without discretionary power and/or
power of substitution, at any meeting of stockholders or shareholders of any
other corporation or organization, any of whose securities are held by this
Corporation.
SECTION 5. Resident Agent. The Board of Directors may appoint a resident
--------------
agent upon whom legal process may be served in any action or proceeding against
the Corporation.
SECTION 6. Corporate Records. The original or attested copies of the
-----------------
Certificate, By-laws and records of all meetings of the incorporators,
stockholders and the Board of
17
<PAGE>
Directors and the stock transfer books, which shall contain the names of all
stockholders, their record addresses and the amount of stock held by each, may
be kept outside the State of Delaware and shall be kept at the principal office
of the Corporation, at the office of its counsel or at an office of its transfer
agent or at such other place or places as may be designated from time to time by
the Board of Directors.
SECTION 7. Certificate. All references in these By-laws to the
-----------
Certificate shall be deemed to refer to the Amended and Restated Certificate of
Incorporation of the Corporation, as amended and/or restated and in effect from
time to time.
SECTION 8. Amendment of By-laws.
--------------------
(a) Amendment by Directors. Except as provided otherwise by law, these
----------------------
By-laws may be amended or repealed by the Board of Directors by the affirmative
vote of a majority of the directors then in office.
(b) Amendment by Stockholders. These By-laws may be amended or repealed
-------------------------
at any Annual Meeting, or special meeting of stockholders called for such
purpose, by the affirmative vote of at least 75% of the shares present in person
or represented by proxy at such meeting and entitled to vote on such amendment
or repeal, voting together as a single class; provided, however, that if the
Board of Directors recommends that stockholders approve such amendment or repeal
at such meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of the majority of the shares present in person or represented
by proxy at such meeting and entitled to vote on such amendment or repeal,
voting together as a single class. Notwithstanding the foregoing, stockholder
approval shall not be required unless mandated by the Certificate, these By-
laws, or other applicable law.
Adopted ___________, ____ and effective as of February __, 2000.
18
<PAGE>
Exhibit 4.1
CYPRESS COMMUNICATIONS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
NUMBER SHARES
CCI - __________ __________
COMMON STOCK
THIS CERTIFICATE IS TRANSFERABLE COMMON STOCK
IN BOSTON, MA OR NEW YORK, NY CUSIP 232743 10 4
THIS IS TO CERTIFY THAT __________ is the owner of __________.
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE$.001, of
CYPRESS COMMUNICATIONS, INC., transferable on the books of the Corporation by
the holder hereof in person or by duly authorized attorney, upon surrender of
this certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to the laws of the State of Delaware
and the Certificate of Incorporation and the By-Laws of the Corporation, as the
same may be from time to time amended, to all of which the holder by acceptance
hereof assents. This certificate is not valid unless countersigned by the
Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ Mark A. Graves [Cypress Corporate Seal] /s/ Mark A. Graves
President Secretary
SEE REVERSE
FOR RESTRICTIONS
ON TRANSFER
COUNTERSIGNED AND REGISTERED:
STATE STREET BANK AND TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY:
AUTHORIZED SIGNATURE
<PAGE>
CYPRESS COMMUNICATIONS, INC.
The Corporation has more than one class of stock authorized to be issued.
The Corporation will furnish without charge to each stockholder upon request a
copy of the full text of the powers, designations, preferences and relative,
participating, optional or other rights of the shares of each class of stock
(and any series thereof) authorized to be issued by the Corporation and the
qualifications, limitations or restrictions of such preferences and/or rights,
all as set forth in the Certificate of Incorporation and amendments thereto
filed with the Secretary of State of the State of Delaware.
This certificate also evidences and entitles the holder hereof to certain
Rights as set forth in a Shareholder Rights Agreement between the Corporation
and State Street Bank and Trust Company, as Rights Agent, as amended, restated,
renewed or extended from time to time (the "Rights Agreement"), the terms of
which are hereby incorporated herein by reference and a copy of which is on file
at the principal offices of the Corporation and the stock transfer
administration office of the Rights Agent. Under certain circumstances, as set
forth in the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. The
Corporation may redeem the Rights at a redemption price of $0.01 per Right,
subject to adjustment, under the terms of the Rights Agreement. The Corporation
will mail to the holder of this certificate a copy of the Rights Agreement, as
in effect on the date of mailing, without charge promptly after receipt of a
written request therefor. As set forth in the Rights Agreement, Rights issued to
or held by Acquiring Persons or any Affiliates or Associates thereof (as defined
in the Rights Agreement), and any subsequent holder of such Rights, become null
and void. The Rights shall not be exercisable, and shall be void so long as
held, by a holder in any jurisdiction where the requisite qualification, if any,
to the issuance to such holder, or the exercise by such holder, of the Rights in
such jurisdiction shall not have been obtained or be obtainable.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- __________ Custodian
TEN ENT -- as tenants by the entireties (Cust)
JT TEN -- as joint tenants with right of __________ under Uniform Gifts to Minors
survivorship and not as tenants (Minor)
in common Act __________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, __________ hereby sell, assign and transfer unto
__________, __________ Shares of the Common Stock represented by the within
Certificate, and do hereby irrevocably constitute and appoint __________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated, __________ ____________________
(The signature to this assignment must correspond
with the name as written upon the face of this
Certificate in every particular, without
alteration or enlargement or any change whatever.)
SIGNATURE(S) GUARANTEED: ____________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 5.1
[Letterhead of Goodwin, Procter & Hoar LLP]
February 4, 2000
Cypress Communications, Inc.
Fifteen Piedmont Center, Suite 710
Atlanta, GA 30305
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
This opinion is furnished in connection with the filing by Cypress
Communications, Inc., a Delaware corporation (the "Company"), with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
of a Registration Statement on Form S-1 (File No. 333-92011), as amended (the
"Registration Statement"), relating to 11,500,000 shares of common stock, par
value $.001 per share (the "Common Stock"), of the Company (the "Registered
Shares"), including 1,500,000 shares which the Underwriters (as defined below)
have an option to purchase solely for the purpose of covering over-allotments.
All of the Registered Shares are to be sold by the Company to the several
underwriters (the "Underwriters") for whom Bear, Stearns & Co. Inc., Donaldson,
Lufkin & Jenrette Securities Corporation, and J.C. Bradford & Co. are acting as
representatives pursuant to an underwriting agreement to be entered into between
the Company and the Underwriters (the "Underwriting Agreement").
In connection with rendering this opinion, we have examined the form of the
proposed Underwriting Agreement; the Certificate of Incorporation and By-laws of
the Company, each as amended to date; such records of the corporate proceedings
of the Company as we deemed material; and such other certificates, receipts,
records and documents as we considered necessary for the purposes of this
opinion. In our examination, we have assumed the genuineness of all documents
submitted to us as certified, photostatic or facsimile copies, the authenticity
of the originals of such copies and the authenticity of telephonic confirmations
of public officials and others. As to facts material to our opinion, we have
relied upon certificates or telephonic confirmations of public officials and
certificates, documents, statements and other information of the Company or
representatives or officers thereof.
We are attorneys admitted to practice in The Commonwealth of Massachusetts.
We express no opinion concerning the laws of any jurisdictions other than the
laws of the United
<PAGE>
Cypress Communications, Inc.
February 4, 2000
Page 2
States of America and The Commonwealth of Massachusetts and the Delaware General
Corporation Law.
Based upon the foregoing, we are of the opinion that when (i) the
Underwriting Agreement is completed (including the insertion therein of pricing
terms) and executed by the Company and the Underwriters, and (ii) Registered
Shares are sold to the Underwriters and paid for pursuant to the terms of the
Underwriting Agreement, such Registered Shares will be duly authorized, validly
issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Matters" in the Prospectus which is a part of such Registration Statement.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
Goodwin, Procter & Hoar LLP
<PAGE>
Exhibit 10.7
SCHEDULE
TO
FORM OF MASTER COMMUNICATIONS LICENSE TRANSACTION AGREEMENT
The following information sets forth the material details of our master
communications license transaction agreements which are not set forth in the
form of such agreement which immediately follows this schedule:
<TABLE>
<CAPTION>
Term of License Fee
Total Square Property-Specific under Property-
Total Number of Footage of License Specific License
Party Buildings Buildings Agreements Agreements
----- --------- --------- ---------- ----------
<S> <C> <C> <C> <C>
AEW Capital Management LP 15 4,000,376 10 years approximately 6%
Allegis Realty Investors, LLC 27 6,734,369 5 years with two approximately 6%
5 year renewals
Boston Properties Limited Partnership 32 15,322,759 5 years with one approximately 6%
5 year renewal
Brookfield Properties Inc. 10 11,610,520 5 years with one approximately 6%
5 year renewal
Cornerstone Properties Limited Partnership 71 18,001,501 5 years with one approximately 6%
5 year renewal
Cousins Properties Incorporated 19 7,352,795 5 years with one approximately 6%
5 year renewal
Lend Lease Real Estate Investments, Inc. 123 46,561,496 5 years with one approximately 6%
5 year renewal
McCord Development, Inc. 8 1,011,077 10 years approximately 6%
Mezzanine Investors Partners 41 6,858,926 5 years with one approximately 6%
5 year renewal
Principal Office Investers 11 1,445,669 5 years with one approximately 6%
5 year renewal
Shorenstein Company, L.P. 33 15,094,609 5 years with one approximately 6%
5 year renewal
SJ Plaza, LLC 2 347,570 5 years with one approximately 6%
5 year renewal
Tower Realty Management Corporation 29 14,157,235 5 years with one approximately 6%
5 year renewal
Transwestern Investment Company, L.L.C. 33 5,389,318 5 years with one approximately 6%
5 year renewal
TrizecHahn Office Properties, Inc. 35 6,377,000 5 years with one approximately 6%
5 year renewal
Vornado Communications, L.L.C. 62 28,893,619 5 years with one approximately 6%
5 year renewal
Westbrook Fund III Acquisitions, L.L.C. 48 8,O68,069 5 years with one approximately 6%
5 year renewal
101 Park, LLC 1 161,058 5 years with one approximately 6%
5 year renewal
</TABLE>
<PAGE>
FORM OF
MASTER COMMUNICATIONS LICENSE TRANSACTION AGREEMENT
THIS MASTER COMMUNICATIONS LICENSE TRANSACTION AGREEMENT (this "Agreement")
is made this _____ day of __________________, 1999 (the "Date of this
Agreement"), by and between CYPRESS COMMUNICATIONS, INC., a Delaware corporation
having offices at Fifteen Piedmont Center, Suite 710, Atlanta, Georgia 30305
("Cypress"), and ___________________________________________, a
______________________________, having an address at
___________________________________________________________ (collectively,
"Company"). Cypress and Company are sometimes referred to in this Agreement
individually as a "Party" and collectively as the "Parties."
WHEREAS, the Parties desire to execute definitive agreements by which: (a)
Company would grant licenses to Cypress to permit Cypress to install, manage,
and operate communications infrastructures within certain commercial office
buildings owned, operated, or managed by Company or various affiliated entities,
and to provide enhanced communications services within those buildings to
tenants and other occupants thereof (the "Master Agreement"); and (b) Cypress
would grant rights and options to Company to purchase shares of outstanding
voting common stock in Cypress (the "Warrant Agreement"); and
WHEREAS, the Parties agree that, in reliance upon each of the
representations and warranties set forth in this Agreement, they will enter
into, or use reasonable efforts to cause an affiliated entity as appropriate to
enter into, a Communications License Agreement in the form of the attached
Exhibit A, or a lease on substantially identical terms as such License
- ---------
Agreement, at Company's election (said License Agreement and lease being
hereinafter referred to as the "License Agreement") with respect to each of the
office buildings or office building complexes the Parties identify in the
attached Exhibit B as amended from time to time in accordance with this
---------
Agreement ("Buildings List");
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the receipt and sufficiency of which the Parties hereby acknowledge,
Cypress and Company hereby covenant and agree as follows:
1. DEFINITIONS.
Terms used herein that are defined in the form License Agreement attached as
Exhibit A hereto shall have the meanings given such terms unless a different
- ---------
meaning is expressly provided herein. In addition, the following terms shall
have the following meanings for purposes of this Agreement:
(a) "Affiliate" shall mean and include any person or entity (i) that directly
or indirectly, through one or more intermediaries, controls, is controlled
by, or is under common control with, a Party; (ii) that beneficially owns
or holds, directly or indirectly by attribution, more than fifty percent
(50%) of any class of the outstanding voting stock or other voting
ownership interests of a Party; or (iii) more than fifty percent (50%) of
the outstanding voting stock or other voting ownership interests (or in the
case of a person or entity that is not a corporation, more
<PAGE>
than fifty percent (50%) of the equity interest) of which is beneficially
owned or held, directly or indirectly by attribution, by a Party.
(b) "Building" or "Buildings" shall mean the applicable building(s) described
in, and that are the subject of, a License Agreement.
(c) "Diligence Period" shall mean the period commencing upon the Date of this
Agreement and ending at 5:00 p.m. on the sixtieth (60th) day thereafter.
(d) "GLA" shall mean, with respect to any Building, the gross leasable area
within such Building, as stipulated in the License Agreement with respect
to such Building.
(e) "Owner" shall mean, with respect to any Building, the person or entity
holding record or beneficial title to such Building.
(f) "Total GLA" shall mean the aggregate GLA of all Buildings.
2. REPRESENTATIONS AND WARRANTIES.
Each Party hereby represents and warrants to the other the following:
(a) Such Party has full corporate power and authority to execute and
deliver each License Agreement to which it is a party, and perform each of its
obligations related thereto; and
(b) As of the end of the Diligence Period, all consents,
authorizations, orders and approvals of (or filings or registrations with) any
governmental commission, board or other regulatory body required in connection
with the execution, delivery, and performance of each License Agreement to which
such Party is a party and the performance of the obligations related thereto
have been obtained or made.
3. BUILDINGS LIST; OPERATIONS ROLLOUT SCHEDULE.
(a) The list of commercial office buildings and commercial office
building complexes attached to this Agreement as Exhibit B sets forth (i) the
---------
buildings that are eligible to become the subject of one or more License
Agreements executed by Cypress and either Company or the Owner thereof and (ii)
the GLA for purposes of this Agreement or any License Agreement of each such
building. The Parties may amend Exhibit B from time to time to reflect the
---------
then-current identity of the Owner of such identified buildings, but no change
in GLA will be permitted without Cypress's consent, which will not be
unreasonably withheld. During the Diligence Period, Company shall have the right
and option to remove certain building(s) that are not identified by an asterisk
(*) on Exhibit B attached hereto from this Agreement and the Warrant Agreement,
---------
in accordance with Section 3(e) below, by notice to Cypress in accordance with
Section 6 below.
(b) Before the expiration of the Diligence Period, Cypress and Company
will negotiate diligently and in good faith to establish a schedule for Cypress
to install Cypress's cable, electronics, and other equipment and facilities
required to commence Cypress's operations
2
<PAGE>
pursuant to the respective License Agreements within each of the buildings
remaining on Exhibit B after the Diligence Period. The mutually agreed schedule
---------
resulting from such negotiation shall be consistent with the schedules Cypress
agrees upon with other commercial office building owners and managers entering
into similar arrangements with Cypress during the Diligence Period and the
Parties shall thereupon amend this Agreement and cause such schedule to be
attached to this Agreement by such amendment as Exhibit C. Cypress shall not
---------
discriminate among any such commercial office building owners and managers in
the offering or completion of the terms, conditions, or operations rollout
schedules of such arrangements.
(c) From time to time in accordance with the rollout schedule attached
hereto as Exhibit C, Cypress may request of Company in writing that Cypress and
---------
Company, or, as applicable, the Affiliate or other third party Owner of the
applicable buildings, execute a License Agreement with respect to one or more
buildings listed in the then-current Exhibit B. Within thirty (30) days after
---------
Cypress makes any such written request, Cypress and Company or the Affiliate or
other third party Owner shall (i) negotiate diligently and in good faith to
establish the location of the Licensed Area in such Building(s) and (ii) execute
a separate License Agreement for each such Building or complex of Buildings in
accordance with the terms of this Agreement. Each such License Agreement shall
be substantially in the form of Exhibit A attached hereto and shall (x) identify
---------
and describe the Building and Licensed Area with respect to such License
Agreement, and (y) identify any Building-specific access or construction issues
with respect to such Building.
(d) On Exhibit B attached hereto, Company has designated the nature of the
---------
license to be granted to Cypress, on a per building basis, for each of the
buildings on Exhibit B, i.e., Exclusive, Semi-Exclusive or Non-Exclusive (as
---------
those terms are defined in the form License Agreement attached as Exhibit A).
---------
Company represents that at least 75% of Total GLA represented on Exhibit B has
---------
received the same type of designation by Company (that is, Exclusive, Semi-
Exclusive or Non-Exclusive).
(e) With respect to each building identified with an asterisk (*) on
Exhibit B attached to this Agreement on the Date of this Agreement, Company
- ---------
represents and warrants to Cypress that: (i) either Company or an Owner or
Affiliate designated by Company to be the licensor with respect thereto is duly
authorized to enter into a License Agreement and to grant to Cypress the rights
described therein, and (ii) for each building as to which Company designates an
Owner (other than Company) or Affiliate as the proper licensor under a License
Agreement, Company has obtained the agreement of such Owner or Affiliate that it
will enter into a License Agreement with Cypress pertaining to such building.
With respect to each building that is not identified with an asterisk, as
aforesaid, Company represents and warrants that, as of the Date of this
Agreement, Company has commenced discussions with, and solicited the approval
of, Company's partners, joint venturers, investors and Affiliates having an
interest in such building (collectively, "Partners"), or the Owners of such
building, as applicable, with respect to the proposed grant of license
contemplated in this Agreement. Moreover, during the Diligence Period, Company
covenants and agrees to undertake commercially reasonable efforts to obtain from
such Partners and Owners, as necessary, (y) written authority to execute License
Agreements for and on behalf of such Partners and Owners or (z) written
agreements with respect to such buildings which convey to Cypress the rights
described in this Agreement.
3
<PAGE>
Company shall have the right and option to remove any building(s) from Exhibit B
---------
on or before the expiration of the Diligence Period only if such buildings are
not identified by an asterisk on Exhibit B as of the date of this Agreement and,
---------
despite Company's diligent good faith efforts, (1) the Owners or Company's
Partners having an interest in such building(s) refuse to participate in the
program contemplated in this Agreement or (2) such Owners or Partners are
prohibited from participating in such program as a matter of law or contract, or
pursuant to such Owner's or Partner's organization, authorization or governing
documents. Within fifteen (15) days after the expiration of the Diligence
Period, the Parties shall attach a finalized Exhibit B to this Agreement in
---------
accordance with any permitted withdrawal(s) by Company or Cypress during the
Diligence Period, as described above. By attaching the finalized Exhibit B to
---------
this Agreement, Company shall be deemed to have restated and reaffirmed the
foregoing representations and warranties with respect to all buildings set forth
on such finalized Exhibit B, except with respect to any building(s) for which
---------
the appropriate Owner or Partner of Company has delivered such representation
and warranty to Cypress in writing within fifteen (15) days after the expiration
of the Diligence Period.
(f) With respect to any other buildings that may be owned, managed or
controlled by Company or its Affiliates at any time during the term of this
Agreement, but which do not appear on Exhibit B, Company, Company's Affiliates
---------
and Cypress may by mutual agreement enter into License Agreements for such other
buildings; provided, however, that any such subsequent License Agreement shall
not affect the number of warrants conveyed to Company under the Warrant
Agreement (except to substitute buildings for previously-designated buildings
sold by an Owner or affiliate, to the extent and as provided in the Warrant
Agreement) or extend to Company the right to make additional purchases under the
Warrant Agreement.
4. CORPORATE SERVICES.
Subject to available space and other technical conditions, Cypress shall
provide, at no charge to Company and so long as any License Agreement between
the parties is in effect, high speed data and Internet connections (with T1 or
equivalent or greater capacity) between the Internet backbone and one (1)
corporate office of Company provided, however, that Company shall be
responsible for payment of any taxes, tariffs, user fees, or other charges that
may be imposed by any government entity or utility provider on account of
Company's access, use, or connection therewith. Subject to the foregoing, such
Services shall be provided to Company subject to and in accordance with the
terms, conditions and limitations of the mutually agreed subscription agreement
attached as Exhibit D.
---------
5. ASSIGNMENT.
Except as hereinafter expressly provided, neither this Agreement, nor the
rights, obligations or duties of either Party under this Agreement may be
assigned or delegated to any other party, person, or entity without the prior
written consent of the other Party hereto, and any attempted assignment or
delegation without such consent shall be void. Notwithstanding the foregoing,
Cypress has the right, without the consent of Company, to assign its rights,
obligations or duties under this Agreement to an Affiliate of Cypress or to any
entity in connection with a merger or
4
<PAGE>
consolidation of Cypress under another entity or the sale of all or
substantially all of the assets of Cypress to another entity.
6. NOTICE.
All notices which may be given by either Party to the other shall be in writing
and shall be deemed to have been duly given (a) on the date of dispatch when
delivered in person, (b) one day after dispatch when sent by overnight courier,
maintaining records of receipt, and (c) on the date of dispatch when sent by
facsimile during normal business hours with telephone confirmation of receipt
(and with confirmation notice given by one of the other approved methods of
delivery within three (3) days after such facsimile transmission) and addressed
as follows:
If to Company:
Attention:
Facsimile No.:
If to Cypress:
Cypress Communications, Inc.
Fifteen Piedmont Center, Suite 710
Atlanta, Georgia 30305
Attention: Mr. Ward C. Bourdeaux, Jr.
Fax No.: (404) 869-2525
7. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon the Parties and their respective successors
and permitted assigns and all references herein to a Party shall include such
successors and permitted assigns of such party.
8. AMENDMENTS.
This Agreement may be amended only by written agreement signed by authorized
representatives of the Parties. No waiver of any provisions of this Agreement
and no consent to any default under this Agreement shall be effective unless the
same shall be in writing and signed by on or on behalf of the Party against whom
such waiver or consent is claimed.
9. WAIVER.
No failure of either Party to strictly enforce any term, right, or condition of
this Agreement shall be construed as a waiver of such term, right or condition.
5
<PAGE>
10. ANNOUNCEMENTS.
Neither Company nor Cypress shall use the name, logo, or trademarks of the other
party in any advertising, promotional material, or trade display, or for any
other commercial purpose, or issue any press release or make any written public
announcement relating to this Agreement, except where required by law or allowed
by the prior written consent of the other party; provided, that any such consent
--------
shall not be unreasonably withheld. Without limiting the generality of the
foregoing, (a) Company may in any case withhold its consent to any such press
release or public announcement relating to this Agreement if it determines that
any such press release or public announcement is likely to damage its public
reputation, goodwill, or relationships with its tenants and (b) Cypress may in
any case withhold its consent to any such press release or public announcement
relating to this Agreement if it determines that any such press release or
public announcement is likely to damage its public reputation, goodwill, or
relationships with its customers. Notwithstanding the foregoing, Cypress may
provide a copy of this Agreement to any other licensor-participant in any
program comparable to the stock warrant program contemplated hereunder (in which
Cypress has granted stock warrants in consideration for license rights),
provided that all such persons shall maintain the disclosed information in
confidence at all times thereafter.
11. SEVERABILITY.
If a court or other lawful authority of competent jurisdiction declares that any
one or more of the provisions contained in this Agreement is invalid, illegal or
unenforceable in any respect, such declaration shall not affect the validity or
enforceability of any other provision of this Agreement, but this Agreement
shall be construed as if such invalid, illegal or unenforceable provision or
provisions had never been contained in this Agreement.
12. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Delaware, without regard to its principles of conflicts of law.
The Parties hereby submit to the non-exclusive jurisdiction of the federal and
state courts of the State of Delaware with respect to any action or proceeding
that may be instituted in connection with this Agreement.
13. HEADINGS.
The headings and numbering of articles, sections and paragraphs in the Agreement
are for convenience only and shall not be construed to define or limit any of
the terms or conditions in this Agreement or affect the meaning or
interpretation of this Agreement.
14. ENTIRE AGREEMENT.
This Agreement, the Warrant Agreement, the License Agreements and the other
agreements contemplated thereby or affixed thereto, together constitute the
entire agreement between the Parties with respect to the subject matter of this
Agreement, and supersede all prior oral or written agreements, representations,
statements, negotiations, understandings, and proposals
6
<PAGE>
relating to the subject matter of this Agreement. The stock warrants to be
issued under the Warrant Agreement shall be in addition to, and not in lieu of,
License Fees to be paid under the License Agreements.
15. COUNTERPARTS.
For the convenience of the Parties, this Agreement may be executed in several
counterparts, each of which when so executed shall be, and be deemed to be, an
original instrument and such counterparts together shall constitute one and the
same instrument (and notwithstanding their date of execution shall be deemed to
bear a date as of the date of this Agreement). This Agreement may also be
executed by facsimile, with each Party's facsimile signature being as binding on
such Party as an original signature.
[Signatures appear on the following page.]
- ------------------------------------------
7
<PAGE>
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
duly executed for it and on its behalf as of the day and year first above
written.
CYPRESS COMMUNICATIONS, INC.
____________________________
Ward C. Bourdeaux,
Executive Vice President
_____________________________
By: ______________________ Date
Signature
______________________
Printed Name
______________________
Title
__________________________________________________________________________
DATE
----
8
<PAGE>
Exhibit 10.8
SCHEDULE
TO
FORM OF STOCK WARRANT AGREEMENT
The following information sets forth the material details of our stock
warrant agreements, a form of which immediately follows this schedule:
Party Maximum Number of Warrants
----- --------------------------
Aetna Life Insurance Company 7,091.59
Aetna Life Insurance Company 24,103.10
AEW Partners III, L.P. 48,004.51
Alaska State Pension Investment Board 693.765
Boston Properties Limited Partnership 231,681.34
Brookfield Properties, Inc. 232,210.40
Cornerstone Properties Limited Partnership 230,402.29
Cousins Properties Incorporated 88,233.54
Lend Lease Real Estate Investments, Inc. 558,737.96
McCord Development, Inc. 12,132.92
Mezzanine Investors Partners 82,307.11
The Milwaukee Employees' Retirement System 1,783.39
Principal Office Investors, LLC 17,348.03
Shorenstein Company, L.P. 181,135.31
SJ Plaza, LLC 4,170.84
Tower Realty Management Corporation 169,886.82
Transwestern Investment Company LLC 64,671.82
TrizecHahn Office Properties, Inc. 76,524
Vornado Communications, L.L.C. 346,723.43
Westbrook Fund III Acquisitions, L.L.C. 96,816.83
101 Park, LLC 1,932.70
<PAGE>
No. W____ _________, 1999
The securities represented by this Warrant and issuable upon exercise
hereof have not been registered or qualified under the Securities Act of 1933,
as amended (the "1933 Act"), or under the provisions of any applicable state
securities laws, but have been acquired by the registered holder hereof for
purposes of investment and in reliance on statutory exemptions under the 1933
Act and under any applicable state securities laws. These securities and the
securities issued upon exercise hereof may not be sold, pledged, transferred or
assigned, nor may this Warrant be exercised, except in a transaction which is
exempt under provisions of the 1933 Act and any applicable state securities laws
or pursuant to an effective registration statement; and in the case of an
exemption, only if the Company has received an opinion of counsel satisfactory
to the Company that such transaction does not require registration of any such
securities.
FORM OF
STOCK WARRANT AGREEMENT
1. Grant of Warrant.
----------------
(a) Cypress Communications, Inc. (the "Company"), a Delaware
corporation, hereby agrees that ____________________ (the "Holder") is entitled,
subject to the provisions of this Warrant, to purchase from the Company, subject
to the conditions set forth below during the period commencing on the date
hereof and expiring at 5:00 P.M. Atlanta, Georgia, time, on the ______ (____)
anniversary of the date of this Warrant (the "Expiration Date"), up to that
number of fully paid and non-assessable shares of Common Stock as set forth in
Section 2(c) herein, at a price of $19.00 per share (the "Exercise Price").
(b) The term "Common Stock" means the voting Common Stock, $0.001 par
value per share, of the Company as constituted on the date hereof, together with
any other equity securities that may be issued by the Company in substitution
therefor. The number of shares of Common Stock to be received upon the exercise
of this Warrant and the Exercise Price may be adjusted from time to time as
hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter referred to as
"Warrant Stock." The term "Company" means and includes the Company as well as
(i) any successor corporation resulting from the merger or consolidation of such
corporation with another corporation, or (ii) any corporation to which such
corporation has transferred its property or assets as an entirety or
substantially as an entirety. All other capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in that certain Master
Communications License Transaction Agreement between the Company and Holder
dated _________________, 1999, as the same may be amended from time to time (the
"Master Agreement").
2. Exercise of Warrant.
-------------------
(a) Subject to the limitations set forth in Section 5, this Warrant
may be exercised in whole or in part commencing at any time and from time to
time after (i) the completion of the Warrant Calculation and (ii) the earlier of
(A) the date six months following the closing of the IPO (as defined below), or
(B) September 30, 2000, or (C) the occurrence of an event described in Section
2(a)(ii) or Section 2(a)(iii) below, and prior to and including the Expiration
Date (if such day is a day on which banking institutions in Georgia are
authorized by
<PAGE>
law to close, then on the next succeeding day that shall not be such a day), if
any of the following conditions have occurred (each an "Exercise Event"):
(i) the closing of the first sale to the public of the equity
securities of the Company pursuant to a registration statement filed with, and
declared effective by, the Securities and Exchange Commission under the 1933 Act
(the "IPO");
(ii) the consummation of any merger, consolidation, business
combination, reorganization or recapitalization of the Company to which the
Company is a party, except for a merger, consolidation or other corporate
reorganization, in which after giving effect to such event, the holders of the
Company's outstanding capital stock (or their Permitted Transferees, as such
term is described in the Company's Certificate of Incorporation) immediately
prior to such event own directly or indirectly at least 50% of the Company's
voting power under ordinary circumstances;
(iii) a sale, lease or other disposition of all or substantially
all of the assets of the Company;
(iv) the execution by the Company and Holder (or any Affiliate of
Owner) of License Agreements pertaining to 75% or more of the GLA as represented
by the final Buildings List in accordance with the Master Agreement; or
(v) the Company's execution and delivery of License Agreements
to Holder pertaining to Buildings with an aggregate of at least 5,000,000 square
feet of GLA.
(b) The Company shall give written notice to Holder at least 30 days
prior to the date of any Exercise Event described in Section 2(a)(i), (ii) or
(iii). The Company shall promptly notify the Holder in writing following the
occurrence of any other Exercise Event.
(c) Promptly after the end of the Diligence Period, the Company shall
provide Holder a calculation of that number of shares of Warrant Stock (rounded
to the nearest whole number) which the Holder shall be entitled to purchase upon
exercise of this Warrant (the "Calculation Notice"). The number of shares of
Warrant Stock issuable upon exercise of this Warrant shall be the sum of the
following (the "Warrant Calculation"):
(i) GLA of Buildings designated as Exclusive on the Buildings
List shall be divided by 1,000,000, and that result shall be multiplied by ____;
---------- -------------
plus:
----
(ii) GLA of Buildings designated as Semi-Exclusive on the
Buildings List shall be divided by 1,000,000, and that result shall be
----------
multiplied by ________;
- -------------
plus:
----
(iii) GLA of Buildings designated as Non-Exclusive on the
Buildings List shall be divided by 1,000,000, and that result shall be
----------
multiplied by ________;
- -------------
2
<PAGE>
minus:
-----
(iv) The number of shares of Warrant Stock forfeited by Holder
pursuant to Section 9 prior to Holder's exercise of this Warrant.
Upon receipt of the Calculation Notice from the Company, the Holder shall have
twenty (20) days to provide to the Company written notice of any objection with
respect to such Warrant Calculation (the "Protest Notice"). If the Holder fails
to provide Company with such Protest Notice within such twenty-day period, the
Holder shall be deemed to have accepted such calculation, and thereafter shall
be entitled to exercise this Warrant only for the number of shares of Warrant
Stock so calculated (but subject to adjustment as provided in Section 4 below
and forfeiture as provided in Section 9 below). If the Holder provides the
Company with such Protest Notice, such Warrant Calculation shall be submitted to
a nationally recognized accounting firm not affiliated with either the Company
or the Holder, and the Warrant Calculation as determined by such accounting firm
shall be binding upon the parties. The accounting firm shall review the Warrant
Calculation and make any appropriate adjustment thereto within thirty (30) days
after submission to it. The expenses of such accounting firm shall be split
evenly by the parties.
(d) The calculations described in Section 2(c) herein shall be made
irrespective of, and the number of shares of Warrant Stock issuable upon
exercise hereof shall not be affected by, (i) the Company's failure to submit a
Communications License Agreement for a Building prior to the expiration of the
Rollout Period, or (ii) the Company's loss of Exclusive or Semi-Exclusive Rights
as the result of the failure of the Company to complete installation within a
Building or Buildings prior to the expiration of the Rollout Period.
(e) The Holder may exercise this Warrant by presentation and
surrender of this Warrant to the Company at its principal office, or to its
stock transfer agent, if any, with the Warrant Exercise Form attached hereto
duly executed and accompanied by payment (either in cash or by certified or
official bank check, payable to the order of the Company, or by wire transfer of
immediately available funds to an account designated by the Company) of the
Exercise Price for the number of shares of Warrant Stock specified in such form.
(f) Following the IPO, in connection with any requested conversion of
this Warrant, and in lieu of the payment of the Exercise Price in cash, the
Company shall convert this Warrant, in whole or in part and at any time or
times, into Warrant Stock (the "Conversion Right"), as follows: Upon exercise of
the Conversion Right, the Company shall deliver to the Holder (without payment
by the Holder of any Exercise Price) that number of shares of Common Stock equal
to the quotient obtained by dividing (x) the difference of (A) the aggregate
Fair Market Value (as defined in Section 4(b)(viii) below) for all Warrant Stock
issuable upon exercise of the Warrants being converted, less (B) the aggregate
Exercise Price for all such Warrant Stock, by (y) the Fair Market Value of one
share of Warrant Stock.
(g) Upon receipt by the Company of this Warrant, together with the
Warrant Exercise Form and, in connection with any conversion other than under
Section 2(f), the Exercise Price (the "Exercise Time"), at its office, or by the
stock transfer agent of the Company at its office, the Holder shall be deemed to
be the holder of record of the shares of Common
3
<PAGE>
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the Holder.
(h) The Company will deliver to Holder certificates for Warrant Stock
purchased upon exercise of this Warrant within five (5) business days after the
Exercise Time. Unless all of the purchase rights represented by this Warrant
have been exercised, the Company will prepare a new Warrant, substantially
identical hereto, representing the rights formerly represented by this Warrant
which have not expired or been exercised and will within such five-day period,
deliver such new Warrant to the Holder.
(i) The issuance of certificates for Warrant Stock upon exercise of
this Warrant will be made without charge to the Holder for any issuance tax in
respect thereof or other cost incurred by the Company in connection with such
exercise and the related issuance of Warrant Stock. The Holder or its transferee
shall pay any transfer tax payable in respect of a transfer of the Warrant or
the Warrant Stock to a third party.
(j) Notwithstanding any other provisions hereof, if an exercise of
any portion of this Warrant is to be made in connection with a public offering
of Common Stock or a merger or other sale of all or substantially all of the
stock or assets of the Company, the exercise of any portion of this Warrant may,
at the election of the Holder, be conditioned upon the consummation of the
public offering or the sale of the Company in which case such exercise shall not
be deemed to be effective until the consummation of such transaction.
3. Reservation of Shares. The Company shall at all times authorize and
---------------------
reserve for issuance and delivery all shares of Common Stock issuable upon
exercise of this Warrant. All such shares shall be duly authorized and, when
issued upon exercise in compliance with the terms of this Agreement, shall be
validly issued, fully paid and non-assessable. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant, but the Company shall pay the Holder an amount equal to the applicable
Exercise Price multiplied by such fraction in lieu of each fraction of a share
otherwise called for upon any exercise of this Warrant. If at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of this Warrant, the Company will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose. The Company shall take all such actions as may
be necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any securities exchange or inter-dealer quotation system upon
which shares of Common Stock may be listed or traded (except for official notice
of issuance which shall be immediately transmitted by Company upon issuance).
4. Adjustments.
-----------
(a) Capital Adjustments. If the Company at any time or from time to
-------------------
time after the date hereof effects a subdivision of the outstanding Common Stock
(by stock split, stock dividend, recapitalization or otherwise) or a combination
the outstanding shares of Common Stock into a smaller number of shares (by
reverse stock split, recapitalization or otherwise), (i)
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<PAGE>
the Exercise Price in effect immediately before the subdivision or combination
shall be automatically adjusted by multiplying the Exercise Price by a fraction
(the "Capital Adjustment Factor"), (A) the numerator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such subdivision or combination, and (B) the denominator of which is the
total number of shares of Common Stock issued and outstanding immediately after
such subdivision or combination, and (ii) the number of shares of Warrant Stock
issuable upon exercise of this Warrant shall be automatically adjusted by
dividing such number of shares by the Capital Adjustment Factor.
(b) Below Market Issuances.
----------------------
(i) In the event that the Company issues or sells shares of
Common Stock (other than Permitted Issuances, as described below) at a
price per share below the "Fair Market Value" (as defined herein) of such
shares (a "Below Market Transaction"), (A) the number of shares of Warrant
Stock issuable upon exercise of this Warrant shall be adjusted so as to be
equal to the product obtained by multiplying the number of shares of
Warrant Stock issuable pursuant to this Warrant prior to the Below Market
Transaction by a fraction (the "Market Adjustment Factor"), the numerator
of which shall be (i) the number of shares of Common Stock outstanding
immediately prior to consummation of the Below Market Transaction plus (ii)
----
the number of shares of Common Stock issued or sold in the Below Market
Transaction, and the denominator of which shall be (x) the number of shares
of Common Stock outstanding immediately prior to the Below Market
Transaction plus (y) th number of shares of Common Stock that the aggregate
----
consideration received by the Company in the Below Market Transaction would
purchase at Fair Market Value, and (B) the Exercise Price shall be adjusted
so as to be equal to the quotient obtained by dividing the Exercise Price
in effect prior to the Below Market Transaction by the Market Adjustment
Factor. For purposes of this subsection, Common Stock shall be deemed to
include that number of shares of Common Stock that would be obtained
assuming (A) the conversion of any securities of the Company which, by
their terms, are convertible into or exchangeable for Common Stock, and (B)
the exercise of all options to purchase or rights to subscribe for Common
Stock or securities which, by their terms, are convertible into or
exchangeable for Common Stock.
(ii) If the Company in any manner issues or sells any stock or
securities directly or indirectly convertible into or exchangeable for
Common ("Convertible Securities"), other than Convertible Securities that
are Issuances, and the price per share for which Common Stock is issuable
upon conversion or exchange thereof is less than the Fair Market Value of
the Common Stock immediately prior to the time of such issue or sale, then,
for purposes of Section 4(b)(i), the total maximum number of shares of
Common Stock issuable upon conversion or exchange of such Convertible
Securities shall be deemed to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities for such
price per share. For the purposes of this paragraph, the "price per share
for which Common Stock is issuable" shall be determined by dividing (A) the
total amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (B) the total
5
<PAGE>
maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. No further adjustment of the
number of shares of Warrant Stock issuable upon exercise of this Warrant or
the Exercise Price shall be made when Common Stock is actually issued upon
the conversion, exercise or exchange of such Convertible Securities.
(iii) If the Company in any manner grants or sells any rights,
warrants or options to subscribe for or purchase Common Stock or
Convertible Securities ("Options"), other than options that are Permitted
Issuances, and the price per share for which Common Stock is issuable upon
the exercise of such Options, or upon conversion or exchange of any
Convertible Securities issuable upon exercise of such Options, is less than
the Fair Market Value of the Common Stock immediately prior to the time of
the granting or sale of such Options, then, for purposes of Section
4(b)(i), the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the exercise of
such Options shall be deemed to have been issued and sold by the Company at
the time of the granting or sale of such Options for such price per share.
For purposes of this paragraph, the "price per share for which Common Stock
is issuable" shall be determined by dividing (A) the total amount, if any,
received or receivable by the Company as consideration for the granting or
sale of such Options, plus the minimum aggregate amount of additional
consideration payable to the Company upon exercise of all such Options,
plus in the case of such Options which relate to Convertible Securities,
the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the issuance or sale of such Convertible Securities and
the conversion or exchange thereof, by (B) the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
the conversion or exchange of all such Convertible Securities issuable upon
the exercise of such Options. No further adjustment of the number of shares
of Warrant Stock issuable upon exercise of this Warrant or the Exercise
Price shall be made when Convertible Securities are actually issued upon
the exercise of such Options or when Common Stock is actually issued upon
the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(iv) If the purchase price provided for in any Options, the
additional consideration, if any, payable upon the conversion or exchange
of any Convertible Securities or the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock changes at
any time, the number of shares of Warrant Stock issuable upon exercise of
this Warrant and the Exercise Price in effect at the time of such change
shall be immediately adjusted to the applicable number of shares of Warrant
Stock issuable upon exercise of this Warrant and the Exercise Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold.
(v) Upon the expiration of any Option or the termination of any
right to convert or exchange any Convertible Security without the exercise
of any such Option or right, the Exercise Price then in effect hereunder
shall be adjusted immediately to the
6
<PAGE>
applicable number of shares of Warrant Stock issuable upon exercise of this
Warrant and the Exercise Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible Security,
to the extent outstanding immediately prior to such expiration or
termination, never been issued.
(vi) If any Common Stock or Convertible Security is issued or
sold or deemed to have been issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Company
therefor (net of discounts, commissions and related expenses). If any
Common Stock or Convertible Security is issued or sold for a consideration
other than cash, the amount of the consideration other than cash received
by the Company shall be the fair value of such consideration. If any Common
Stock or Convertible Security is issued to the owners of the non-surviving
entity in connection with any merger in which the Company is the surviving
corporation, the amount of consideration therefor shall be deemed to be the
fair value of such portion of the net assets and business of the non-
surviving entity as is attributable to such Common Stock or Convertible
Security, as the case may be. The fair value of any consideration other
than cash and securities shall be determined jointly by the Company and the
Holder. If such parties are unable to reach agreement within a reasonable
period of time, the fair value of such consideration shall be determined by
an independent appraiser experienced in valuing such type of consideration
jointly selected by the Company and the Holder. The determination of such
appraiser shall be final and binding upon the parties, and the reasonable
fees and expenses of such appraiser shall be borne by the Company. In case
any Convertible Security is issued in connection with the issue or sale of
other securities of the Company, together comprising one integrated
transaction, the board of directors of the Company shall make a good faith
determination of the portion of the consideration received therefor
allocable as consideration for which the Company issued the Convertible
Security.
(vii) The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account of
the Company or any subsidiary, and the disposition of any shares so owned
or held shall be considered an issue or sale of Common Stock.
(viii) The term "Permitted Issuances," as used herein, means
issuances to employees pursuant to the Company's management equity plans,
as approved from time to time by the Company's Board of Directors. For
purposes of this Section 4(b) and Section 2(f), if the Common Stock is
traded on the Nasdaq Stock Market or other inter-dealer quotation system or
is listed on any national securities exchange, the "Fair Market Value" of
the Common Stock shall be average of the last reported sales prices of the
Common Stock as reported by Nasdaq or, if the Common Stock is listed on a
national securities exchange, the last reported sales prices of the Common
Stock on such exchange, for the twenty (20) trading days immediately
preceding the date of such sale or issuance of Common Stock. If the Common
Stock is not so listed or traded, the Fair Market Value of the Common Stock
shall be determined jointly by the Company and the Holder. If such parties
are unable to reach agreement within 30 days of the date of such sale or
issuance, the Fair Market Value of the Common Stock shall be determined by
an independent appraiser jointly selected by the Company and the Holder.
The
7
<PAGE>
determination of such appraiser shall be final and binding upon the
parties, and the reasonable fees and expenses of such appraiser shall be
borne by the Company.
(c) Reorganizations, Mergers, Consolidations or Sales of Assets.
-----------------------------------------------------------
If at any time or from time to time after the date hereof, there is a capital
reorganization of the Common Stock (other than a recapitalization, subdivision,
combination, reclassification, exchange or substitution of shares provided for
elsewhere in this Section 4), as a part of such capital reorganization,
provision shall be made so that the Holder shall thereafter be entitled to
receive upon exercise of this Warrant the number of shares of stock or other
securities or property of the Company to which a holder of the number of shares
of Common Stock deliverable upon exercise of this Warrant would have been
entitled in connection with such capital reorganization, subject to adjustment
in respect of such stock or securities by the terms thereof. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the Holder after the capital
reorganization to the end that the provisions of this Section 4 (including
adjustment of the Exercise Price and the number of shares of Warrant Stock
issuable upon exercise of this Warrant then in effect) shall be applicable after
that event and be as nearly equivalent as practicable.
(d) Notice to Warrant Holder of Adjustment. At any time following the
--------------------------------------
delivery to Holder of a Calculation Notice, whenever the number of shares of
Warrant Stock issuable upon exercise of this Warrant or the Exercise Price is
adjusted as herein provided, the Company shall cause to be mailed to the Holder
in accordance with the provisions of this Section 4 a notice (i) stating that an
event giving rise to an adjustment hereunder has occurred, (ii) setting forth
the adjusted number of shares of Warrant Stock and the adjusted Exercise Price
and (iii) showing in reasonable detail the computations and the facts upon which
such adjustments are based. The Holder shall be entitled to review such
calculation (as well as any "Fair Market Value" calculation made by the board of
directors pursuant to Section 4(b)) and render any objections in the manner
provided in Section 4(b)(viii).
5. Restrictions on Transfer.
------------------------
(a) The Holder hereby acknowledges that neither this Warrant nor any
of the securities that may be acquired upon exercise of this Warrant have been
registered or qualified under the 1933 Act or under the securities laws of any
state. The Holder acknowledges that upon exercise of this Warrant the securities
to be issued upon such exercise may be subject to applicable federal and state
securities (or other) laws requiring registration, qualification or approval of
governmental authorities before such securities may be validly issued or
delivered upon notice of such exercise. The Holder agrees that the issuance of
such securities may be deferred until the issuance or sale of such securities
shall be lawful in all respects. The restrictions imposed by this Section 5 upon
the exercise of this Warrant shall cease and terminate as to any particular
shares of Warrant Stock (i) when such securities shall have been effectively
registered and qualified under the 1933 Act and all applicable state securities
laws and disposed of in accordance with the registration statement covering such
securities, or (ii) when, in the opinion of counsel for the Company, such
restrictions are no longer required in order to ensure compliance with the 1933
Act and all applicable state securities laws.
8
<PAGE>
(b) Notwithstanding the provisions of Section 5(a), the Holder may
not offer, sell, contract to sell or otherwise dispose of any Warrant Stock
within one hundred eighty (180) days after the date of any final prospectus
related to the IPO except with the written consent of the Company and managing
underwriter or underwriters for such offering.
(c) Prior to the IPO, and except for the Permitted Transfers
described in Section 15(a), at least 30 days prior to making any sale or
transfer of any of Warrant Stock, the Holder shall deliver a written notice (the
"Offer Notice") to the Company. The Offer Notice shall disclose in reasonable
detail the proposed number of shares of Warrant Stock to be transferred and the
proposed terms and conditions of the transfer. The Company may elect to purchase
all, but not less than all, of the shares of Warrant Stock specified in the
Offer Notice at the price and on the terms specified therein by delivering
written notice of such election to the Holder as soon as practical but in any
event within 30 days after the delivery of the Offer Notice. To the extent that
the Company does not elect to purchase all of the shares of Warrant Stock being
offered, the Holder may, within 90 days after the expiration of the Company's
election period, transfer such shares of Warrant Stock to one or more third
parties at a price no less than the price per share specified in the Offer
Notice and on terms no more favorable to the transferees than offered to the
Company in the Offer Notice. The purchase price specified in the Offer Notice
shall be payable solely in cash at the closing of the transaction.
6. Piggy-Back Registration Rights.
------------------------------
(a) If the Company has registered or has determined to register any
of its securities for its own account or for the account of other security
holders of the Company on any registration form (other than Form S-4 or S-8)
which permits the inclusion of the Warrant Stock (a "Piggyback Registration"),
the Company will give the Holder written notice thereof promptly and, subject to
Section 6(c), shall include in such registration all the Warrant Stock requested
to be included therein pursuant to the written request of the Holder received
within twenty (20) days after delivery of the Company's notice.
(b) If the Piggyback Registration relates to an underwritten public
offering, the Company shall so advise the Holder as a part of the written notice
given pursuant to Section 6(a). In such event, the right of the Holder to
participate in such registration shall be conditioned upon Holder's
participation in such underwriting in accordance with the terms and conditions
thereof. Should the Holder propose to distribute its Warrant Stock through such
underwriting, it shall (together with the Company) enter into an underwriting
agreement in customary form with the representative of the underwriter or
underwriters selected by the Company.
(c) If such proposed Piggyback Registration is an underwritten
offering and the managing underwriter for such offering advises the Company that
the securities requested to be included therein exceeds the amount of securities
that can be sold in such offering, any (i) securities to be sold by the Company
in such offering and (ii) Registrable Securities (as such term is defined in the
Company's Third Amended and Restated Stockholders Agreement dated October 8,
1999) shall have priority over the Holder's Warrant Stock, and the number of
shares to be included by the Holder in such registration shall be reduced pro
rata on the basis of the percentage of the outstanding Warrant Stock held by the
Holder (assuming the exercise of all warrants held by the Holder) and all other
holders exercising equivalent registration rights.
9
<PAGE>
(d) If the Holder requests but is unable to register all shares of
Warrant Stock in a Piggyback Registration within eighteen (18) months following
the IPO, the Holder shall have the option to include such Warrant Stock in a
Demand Registration pursuant to Section 7.
7. Demand Registration Rights.
--------------------------
(a) Should the Holder request but be unable to include in a Piggyback
Registration all shares of Warrant Stock within eighteen (18) months following
the IPO as contemplated in Section 6 herein, the holders of Warrants or Warrant
Stock representing at least 50% of the aggregate shares of Warrant Stock
issuable upon exercise of this Warrant (including any Holders of Warrants or
Warrant Stock issuable as a result of an assignment of all or a portion hereof,
in the aggregate, as adjusted pursuant to Section 4) (the "Initiating Holders")
may, if available to the Company, require that the Company effect as many
registrations as the Initiating Holders may request under the Securities Act
utilizing a Form S-3 or any similar form (a "Demand Registration").
(b) The Company shall file a registration statement with respect to
such Demand Registration requested pursuant to Section 7(a) as soon as
practicable after receipt of the demand of the Initiating Holders; provided,
however, that if in the good faith judgment of the Board of Directors of the
Company, such registration would be seriously detrimental to the Company in that
such registration would interfere with a material corporate transaction and the
Board of Directors concludes, as a result, that it is advisable to defer the
filing of such registration statement at such time (as evidenced by an
appropriate resolution of the Board), then the Company shall have the right to
defer such filing for the period during which such registration would be
seriously detrimental; provided, however, that (i) the Company may not defer the
filing for a period of more than one hundred eighty (180) days after receipt of
any demand of the Initiating Holders and (ii) the Company shall not exercise its
right to defer a Demand Registration more than once.
(c) Notwithstanding any provision to the contrary contained in this
Warrant, a Holder's registration rights under Sections 6 and 7 shall
automatically terminate when all of the Warrant Stock owned by such Holder may
immediately be sold under Rule 144 under the 1933 Act.
8. Registration Procedures.
-----------------------
8.1 In the case of each registration effected by the Company pursuant to
Sections 6 or 7 of this Warrant, the Company will keep the Holder advised in
writing as to the initiation of such registration and as to the completion
thereof. At its expense, the Company will use its best efforts to:
(a) cause such registration to be declared effective by the Securities
and Exchange Commission (the "Commission") and, in the case of a Demand
Registration, keep such registration effective for a period of one hundred
eighty (180) days or until the Holder has completed the distribution described
in the registration statement relating thereto, whichever first occurs;
10
<PAGE>
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement (including post-effective amendments) as may be
necessary to comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration statement;
(c) obtain appropriate qualifications of the securities covered by
such registration under state securities or "blue sky" laws in such
jurisdictions as may be requested by the Holder; provided, however, that the
Company shall not be required to file a general consent to service of process in
any jurisdiction in which it is not otherwise subject to service in order to
obtain any such qualification;
(d) furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as the
Holder from time to time may reasonably request;
(e) notify the Holder, at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act, of the happening of any event as
a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such holder, prepare and
furnish to such holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing;
(f) cause all Warrant Stock covered by such registration to be listed
on each securities exchange or inter-dealer quotation system on which similar
securities issued by the Company are then listed;
(g) provide a transfer agent and registrar for all Warrant Stock
covered by such registration and a CUSIP number for all such securities, in each
case not later than the effective date of such registration;
(h) otherwise comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering a period of at least twelve months,
but not more than eighteen months, beginning with the first month after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the 1933 Act; and
(i) in connection with any underwritten Demand Registration, the
Company will (A) enter into an underwriting agreement reasonably satisfactory to
the Company and the Holder containing customary underwriting provisions,
including indemnification and contribution provisions, and (B) cooperate with
such underwriters and use its reasonable
11
<PAGE>
commercial efforts to assist such underwriters in connection with the offering
and sale of Warrant Stock.
8.2 Other Obligations. With a view to making available the benefits
-----------------
of certain rules and regulations of the Securities and Exchange Commission which
may facilitate the registration of Warrant Stock or permit the sale of Warrant
Stock to the public without registration, the Company agrees to:
(a) after its initial registration under the 1933 Act, exercise
reasonable commercial efforts to cause the Company to be eligible to utilize
Form S-3 (or any similar form) for the registration of Warrant Stock;
(b) at such time as any Warrant Stock is eligible for transfer under
Rule 144(k), upon the request of the holder of such Warrant Stock, remove any
restrictive legend from the certificates evidencing such securities at no cost
to such holder;
(c) make and keep available public information as defined in Rule 144
under the 1933 Act at all times from and after ninety (90) days following its
initial registration under the 1933 Act;
(d) file with the Commission in a timely manner all reports and other
documents required of the Company under the 1933 Act and the Securities Exchange
Act of 1934 (the "1934 Act") at any time after it has become subject to such
reporting requirements; and
(e) furnish any holder of Warrant Stock upon request a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144 (at any time from and after ninety (90) days following the IPO), and of
the 1933 Act and the 1934 Act (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly report of
the Company, and such other reports and documents as a holder of Warrant Stock
may reasonably request in availing itself of any rule or regulation of the
Securities and Exchange Commission (including Rule 144A) allowing a holder of
Warrant Stock to sell any such securities without registration.
9. Forfeiture of Warrants and Return of Proceeds.
---------------------------------------------
(a) If a Building covered by a License Agreement is sold and the
purchaser of the Building fails to assume the License associated with such
Building at the closing of such sale (a "Sale"), at the Company's written
request, the Holder shall forfeit or return to the Company, as applicable,
the right to acquire the Warrant Stock issuable upon exercise of this
Warrant or, if this Warrant has been exercised, the Warrant Stock issued,
which is attributable to the GLA from such Building, together with any
dividends paid on such Warrant Stock, or if Holder has transferred such
Warrant Stock, any proceeds resulting from the transfer of the Warrant
Stock (collectively, the "Warrant Amount"), as set forth below:
(i) If a Sale occurs during the period commencing on the date of
the Master Agreement and ending on the third (3rd) anniversary
thereof, at the Company's written request, the Holder shall forfeit or
return 100% of the Warrant Amount;
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<PAGE>
(ii) If a Sale occurs during the period following the third
(3/rd/) anniversary of the date of the Master Agreement, at the
Company's written request, the Holder shall forfeit or return to the
Company the Warrant Amount as set forth below:
- -------------------------------------------------------------------------------
After the 3/rd/ anniversary but prior to the 4/th/ 80% of Warrant Amount
anniversary of the date of the Master Agreement
- -------------------------------------------------------------------------------
On or after the 4/th/anniversary but prior to 60% of Warrant Amount
the 5/th/ anniversary of the date of the Master
Agreement
- -------------------------------------------------------------------------------
On or after the 5/th/ anniversary but prior to the 40% of Warrant Amount
6/th/ anniversary of the date of the Master
Agreement
- --------------------------------------------------------------------------------
On or after the 6/th/ anniversary but prior to the 20% of Warrant Amount
7/th/ anniversary of the date of the Master
Agreement
- --------------------------------------------------------------------------------
On or after the 7/th/ anniversary of the date of 0% of Warrant Amount
the Master Agreement
- --------------------------------------------------------------------------------
If Warrant Stock has not yet been issued at the time of a Sale, the Warrant
Amount applied to such Building shall be excluded from any calculation of
Warrant Stock to be issued upon any Exercise Event. Upon surrender by Holder of
any Warrant Amount in the form of shares of Warrant Stock, the Company shall
refund to the Holder the Exercise Price paid to the Company attributable to such
surrendered Warrant Amount. Any Warrant Amount payable by Holder hereunder in
the form of proceeds from the sale of Warrant Stock shall be net of the Exercise
Price paid to the Company for such shares of Warrant Stock.
(b) Notwithstanding the provisions of Section 9(a), no portion of the
Warrant Amount with respect to the GLA of a Building shall be returned or
forfeited if and to the extent that, within six (6) months after the Sale of the
Building, Holder enters or has previously entered into a License Agreement with
the Company, upon the terms set forth in the Master Agreement or upon other
terms reasonably satisfactory to the Company, for one or more other buildings
reasonably satisfactory to the Company not covered by the Master Agreement to
the extent of the GLA of such building or buildings.
(c) The provisions of Section 9(a) shall terminate and be of no
further effect upon (i) the expiration or non-renewal of the Master Agreement in
accordance with its terms or (ii) the termination of the Master Agreement as a
result of a breach of the Master Agreement by the Company. The provisions of
Section 9(a) shall apply only with respect to the initial sale of a Building by
Holder; any sale of such Building by a subsequent owner thereof shall have no
effect on the rights of the Holder hereunder.
(d) If Warrant Stock has been issued, and upon a Sale the Holder
fails to deliver to the Company the forfeited Warrant Amount (whether in the
form of a stock certificate or cash proceeds), the Company shall be entitled to
(i) cancel any such certificates registered in the Holder's name representing
the Warrant Stock on the books and records of the Company (at which time such
Warrant Stock shall be deemed canceled without any additional required action
13
<PAGE>
on behalf of the Company or the Holder), and (but only to the extent necessary
after taking the action provided in clause (i) above) (ii) set off against any
amounts which the Company may owe Holder pursuant to the terms of the Master
Agreement the amount of such cash proceeds.
(e) In the event of the transfer or assignment of a portion of this
Warrant in accordance with Section 15 hereof, the Holder will provide written
notice to the Company specifying the particular Building or Buildings (and the
GLA thereof) to which the transferred Warrants relate. Thereafter, if any sale
of such Building or Buildings occurs such that any Warrant Amount becomes
payable to the Company pursuant to the provisions of this Section 9, the entire
amount of such Warrant Amount payable shall be forfeited by the holder (or
holders, pro rata) of the transferred Warrants in accordance with the forfeiture
provisions thereof, and any rights under this Warrant or shares of Warrant Stock
held by the transferor with respect to any other Building or Buildings shall not
be subject to forfeiture upon such sale; provided, however, that in the event
that such transferee has exercised its rights under the transferred Warrant and
sold the shares of Warrant Stock acquired thereupon (and such Warrant Amount is
payable to the Company by such transferee in cash), the transferor of the
Warrant shall remain liable for, and shall pay to the Company, such Warrant
Amount to the extent the Company is unable within 20 days after written demand
to the transferee, with a copy to the transferor, to collect such Warrant Amount
from the transferee.
10. Additional Offers of Warrant Rights. Subject to the provisions of
-----------------------------------
Section 4 of this Warrant, the Company is authorized to offer to other qualified
property owners similar warrant rights as provided in this Warrant prior to the
filing of its initial registration statement in connection with the IPO or
following the closing of the IPO.
11. Holder Representations and Warranties.
-------------------------------------
(a) The Holder has all necessary power and authority under all
applicable provisions of law to execute and deliver this Warrant and to carry
out its provisions. All actions on Holder's part required for the lawful
execution and delivery of this Warrant have been taken.
(b) The Holder understands that neither the Warrant nor the Warrant
Stock has been registered under any state securities act or the 1933 Act. The
Holder also understands that the Warrants and the Warrant Stock are being
offered and sold pursuant to an exemption from registration contained in
applicable state securities acts and the 1933 Act based in part upon the
Holder's representations contained in this Warrant.
(c) The Holder has substantial experience in evaluating and investing
in private placement transactions of securities in companies similar to the
Company so that Holder is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests. The
Holder must bear the economic risk of this investment indefinitely unless the
Warrants (or the Warrant Stock) are registered pursuant to the 1933 Act, or an
exemption from registration is available. The Holder understands that the
Company has no present intention of registering the Warrants, the Warrant Stock
or any shares of its Common Stock. The Holder also understands that there is no
assurance that any exemption from registration under the 1933 Act will be
available and that, even if available, such exemption may not allow the Holder
to transfer all or any portion of the Warrants or the Warrant Stock under the
14
<PAGE>
circumstances, in the amounts or at the times the Holder might propose. The
Holder can bear the economic risk of losing its entire investment in the
Company.
(d) The Holder is acquiring the Warrants and the Warrant Stock for
Holder's own account or for the account of an Affiliate or Owner for investment
only, and not with a view towards their resale or distribution in violation of
applicable securities laws.
(e) The Holder represents that, by reason of Holder's or of its
management's business or financial experience, the Holder has the capacity to
protect its own interests in connection with the transactions contemplated in
this Warrant. Further, the Holder is aware of no publication of any
advertisement in connection with the transactions contemplated by the Warrant.
(f) The Holder represents that Holder is an accredited investor
within the meaning of Regulation D under the 1933 Act.
(g) The Holder has had an opportunity to discuss the Company's
business, management and financial affairs with directors, officers and
management of the Company. The Holder has also had the opportunity to ask
questions of, and receive answers from, the Company and its management regarding
the terms and conditions of this investment. The Holder has had an adequate
opportunity to inspect and copy all material documents relating to the Company
which it has requested.
12. Company Representations and Warranties.
--------------------------------------
The Company hereby represents and warrants to, and agrees with, each
Purchaser as follows:
(a) Organization. The Company is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware.
The Company has all requisite corporate power and authority to own and operate
its properties and assets, to execute and deliver this Warrant to issue the
shares of Warrant Stock upon exercise of the Warrant, to carry out the other
provisions of this Warrant and the transactions contemplated hereby, and to
carry on its business as presently conducted and as presently proposed to be
conducted.
(b) Capitalization.
--------------
(i) The authorized capital stock of the Company as of November
16, 1999, consists of (i) Ten Million Eight Hundred Ninety-Four Thousand
Seventy-One and 62/100 (10,894,071.62) shares of Common Stock, Five Hundred
Eighty Five Thousand Nine Hundred Eighty and 46/100 (585,980.46) shares of
which are issued and outstanding, and (ii) Seven Million Six Hundred
Eighty-Seven Thousand Seven Hundred Four and 16/100 (7,687,704.16) shares
of Preferred Stock, of which One Million Two Hundred Eleven Thousand One
Hundred Forty (1,211,140) are designated as Series A Preferred Stock (the
"Series A Preferred"), all of which are issued and outstanding, One Million
Nine Hundred Nineteen Thousand One Hundred Eighty Eight (1,919,188) are
designated as Series B Preferred Stock (the "Series B Preferred"), One
Million Three Hundred Thirty Nine Thousand Five Hundred Seventy Five
(1,339,575) of which are
15
<PAGE>
issued and outstanding, Five Hundred Seventy Nine Thousand Six Hundred
Thirteen (579,613) are designated as Series B-1 Preferred Stock (the
"Series B-1 Preferred"), all of which are issued and outstanding, Three
Million Nine Hundred Seventy Seven Thousand Seven Hundred Sixty Three and
16/100 (3,977,763.16) are designated as Series C Preferred Stock (the
"Series C Preferred"), Two Million Eight Hundred Nineteen Thousand Eight
Hundred Sixty-Eight and 39/100 (2,819,868.39) of which are issued and
outstanding (the Series A Preferred, Series B Preferred, Series B-1
Preferred and Series C Preferred are collectively referred to herein as the
"Preferred Stock").
(ii) Except for the shares of Preferred Stock described in
12(b)(i) and (i) 1,200,000 shares of Common Stock reserved by the Company
for issuance pursuant to warrants granted in connection with the Company's
current licensing efforts, (ii) 2,000,000 shares of Common Stock reserved
for issuance in connection with the Company's Management Option Plan, and
(iii) 710,526.31 shares of Series C Preferred Stock the Company has
committed to issue as part of its Series C Preferred Stock Offering, as of
November 16, 1999, the Company does not have outstanding any capital stock
or other securities convertible into or exchangeable for any shares of its
capital stock.
(c) Authorization; Binding Obligations. All corporate action on the
----------------------------------
part of the Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Warrant and each other document or
instrument executed by it, or any of its officers, in connection herewith or
therewith or pursuant hereto or thereto, the performance of all obligations of
the Company under the Warrant and for the authorization, sale, issuance and
delivery of the shares issuable upon exercise of the Warrant has been taken.
When issued in compliance with the provisions of this Warrant, the shares will
be duly authorized, validly issued, fully paid and nonassessable, free of any
liens, preemptive or similar rights, or, except as set forth herein, any other
encumbrances and issued in compliance with all applicable state and federal
securities laws. This Warrant has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligations of the Company
enforceable in accordance with its terms.
(d) No Violations. The execution, delivery and performance of this
-------------
Warrant and the performance by the Company of its obligations hereunder do not
and will not conflict with or violate any provision of the certificate of
incorporation or bylaws of the Company or any law, statute, rule or regulation
or any agreement, contract or instrument or any order, judgment or decree to
which the Company is subject or by which any of its assets are bound.
(e) No Other Representations or Warranties. The representations and
--------------------------------------
warranties made by the Company in this Warrant supersede any prior statements,
representations and warranties of any person with respect to the Company or the
transactions contemplated hereby. The representations and warranties of the
Company in this Warrant are the only representations and warranties by the
Company upon which Holder may rely in connection with transactions contemplated
by this Warrant.
13. Legends. Unless (i) the shares of Warrant Stock have been registered
-------
under the 1933 Act, or (ii) in the opinion of counsel for the Company such
legend is no longer required in
16
<PAGE>
order to ensure compliance with the 1933 Act and all applicable state securities
laws, upon the issuance of any of the shares of Warrant Stock, all certificates
representing such shares shall bear on the face thereof substantially the
following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") HAVE BEEN ISSUED AND SOLD IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933
(THE "1933 ACT") AND APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED
OTHER THAN (i) PURSUANT TO AN EFFECTIVE REGISTRATION OR AN
EXEMPTION THEREFROM UNDER THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS, AND (ii) UPON RECEIPT BY THE ISSUER OF
EVIDENCE SATISFACTORY TO IT OF COMPLIANCE WITH THE 1933 ACT
AND THE APPLICABLE SECURITIES LAWS OF ANY OTHER
JURISDICTION. THE ISSUER SHALL BE ENTITLED TO REQUIRE AN
OPINION OF COUNSEL SATISFACTORY TO IT WITH RESPECT TO
COMPLIANCE WITH THE ABOVE LAWS. IN MAKING AN INVESTMENT
DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE
PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF
THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE
SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR
THE FINANCIAL RISKS OF THEIR INVESTMENT IN THESE SECURITIES
FOR AN INDEFINITE PERIOD OF TIME.
Additionally, prior to the IPO all certificates representing
shares of Warrant Stock shall bear on the face thereof
substantially the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN TERMS AND PROVISIONS OF A WARRANT AGREEMENT
DATED______________, 1999, WHICH PROVIDES, AMONG OTHER
THINGS, FOR RESTRICTIONS ON THE TRANSFER OF SUCH SHARES. A
COPY OF SUCH WARRANT AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON REQUEST TO
ANY HOLDER OF THE SHARES REPRESENTED BY THIS CERTIFICATE.
14. Notices of Record Date, Etc. In case:
---------------------------
(a) the Company shall establish a record date for the holders of its
Common Stock for the purpose of entitling them to receive any dividend or other
distribution, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or to receive any other
right;
17
<PAGE>
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, any share exchange for
shares of capital stock of another corporation or any conveyance of all or
substantially all of the assets of the Company to another corporation;
(c) of any voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(d) the Company shall enter into a letter of intent or agreement with
respect to a transaction by which all of the outstanding shares of Common Stock
of the Company are to be acquired by a third party;
then the Company shall mail or cause to be mailed to the Holder at the time
outstanding a notice specifying, as the case may be, (i) the date on which a
record is to be taken for the purpose of such dividend, distribution or rights,
and stating the amount and character of such dividend, distribution or rights,
(ii) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding up is to take place, and
the time, if any is to be fixed, as to which the holders of record of Common
Stock shall be entitled to exchange their shares for securities or other
property deliverable upon the completion of such transaction, or (iii) the
closing of the acquisition by a third party of all of the outstanding shares of
Common Stock. Such notice shall be mailed as soon as practicable after the
occurrence or likelihood of such event is publicly disclosed.
15. Transfer and Assignment.
-----------------------
(a) This Warrant and all rights hereunder may be transferred, in
whole or in part, without charge to the Holder, upon surrender of this Warrant
with a properly executed Assignment (in the form attached hereto) and written
notice specifying the particular Buildings and GLA to which the assignment
relates at the principal office of the Company. Notwithstanding the foregoing,
prior to the consummation of the IPO, without the consent of the Company (which
consent shall not be unreasonably withheld), this Warrant and any part hereof
may be transferred only (i) to an Affiliate of Holder or an Owner of any
Building, (ii) to any direct or indirect shareholder, partner, member of other
equity holder or lender of such Owner, (iii) any successor by merger of Holder,
of any Affiliate of Holder or of any Owner or any subsidiary of such successor
by merger, or (iv) any entity acquiring all or any portion of the assets of
Holder (each, a "Permitted Transfer"). Prior to any assignment or transfer
hereunder the Holder must provide to the Company evidence satisfactory to the
Company that the proposed transfer will be effected in compliance with all
applicable laws, including without limitation federal and state securities laws,
and that the transferring Holder, notwithstanding the transfer, remains
primarily and directly bound by, and that the transferee agrees to be bound by,
the terms of this Warrant. The Company reserves the right to consent to any such
transfer if in its reasonable opinion, or the opinion of its counsel, the
transfer would have an adverse effect on the Company's ability to complete on a
timely basis its IPO. In no event will the Company permit any transfer after the
Company files its registration statement and prior to the closing of the IPO
unless the transferor can demonstrate to the Company's reasonable satisfaction
that the transferor had discussions with the transferee regarding the proposed
transfer prior to the filing of the registration statement.
18
<PAGE>
(b) Except as set forth in paragraph (a) above, neither this Warrant
nor any rights hereunder may be assigned, transferred, pledged or hypothecated
in any way (whether by operation of law or otherwise). This Warrant shall not be
subject to execution, attachment or similar process. Any attempted assignment,
transfer, pledge, hypothecation or other disposition of this Warrant contrary to
the provisions of this Warrant shall be null and void and without legal effect.
(c) The Company shall maintain at its principal executive offices
books for the registration and the registration of transfer of Warrants. The
Company may deem and treat the registered owner as the absolute owner hereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone) for all purposes and shall not be affected by any notice (other than a
duly executed Assignment) to the contrary.
16. Notices. All notices required hereunder must be in writing and shall
-------
be deemed given when telefaxed, delivered personally or by overnight delivery
service or within three days after mailing when mailed by certified or
registered mail, return receipt requested, if to the Company, at Fifteen
Piedmont Center, Suite 710, Atlanta, Georgia 30305, Attention: R. Stanley Allen,
with a courtesy copy to Powell, Goldstein, Frazer & Murphy LLP, 191 Peachtree
Street, NE, 16th Floor, Atlanta, Georgia 30303, Attention: William M. Ragland,
Jr., and James K. Wagner, Jr., and if to the Holder, at the address for the
registered Holder as it appears on the books of the Company, or at such other
address of which the Company or Holder has been advised by notice hereunder.
17. Rights as a Shareholder. Unless otherwise expressly provided herein,
-----------------------
the Holder shall have no rights as a shareholder with respect to any shares
covered by this Warrant until the date of issuance of such shares. No provision
hereof, in the absence of affirmative action by the Holder to purchase Warrant
Stock, and no enumeration herein of the rights or privileges of the Holder shall
give rise to any liability of such holder for the Exercise Price of Warrant
Stock acquirable by exercise hereof or as a stockholder of the Company.
18. Lost or Destroyed Warrant. Upon receipt by the Company of evidence
-------------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, and upon surrender and cancellation of this
Warrant, if mutilated, the Company shall execute and deliver a new Warrant of
like tenor and date. The Holder agrees with the Company that this Warrant is
issued, and all the rights hereunder shall be held subject to, all of the
conditions, limitations and provisions set forth herein.
19. Warrant Exchangeable for Different Denominations. This Warrant is
------------------------------------------------
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for new Warrants of like tenor representing in the aggregate the
purchase rights hereunder, and each of such new Warrants will represent such
portion of such rights as is designated by the Holder at the time of such
surrender. The date that the Company initially issues this Warrant will be
deemed to be the date of this Warrant regardless of the number of times new
certificates representing the unexpired and unexercised rights formerly
represented by this Warrant shall be issued. All Warrants representing portions
of the rights hereunder are referred to herein as the "Warrant" or the
"Warrants."
19
<PAGE>
20. Applicable Law. The Warrant is issued under and shall for all
--------------
purposes be governed by and construed in accordance with the internal laws of
the State of Delaware, without regard to conflicts of laws principles.
21. Entire Agreement. This Warrant and the other agreements,
----------------
certificates and documents delivered in connection with this Agreement contain
the entire agreement among the Company and Holder with respect to the
transactions described herein, and supersede all prior agreements or statements,
written or oral, with respect thereto.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
20
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have caused this Warrant to
be signed as of the day and year first above written.
CYPRESS COMMUNICATIONS, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
[HOLDER]
By:_______________________________
Name:_____________________________
Title:____________________________
21
<PAGE>
WARRANT EXERCISE FORM
---------------------
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing __________ shares of Common Stock of Cypress
Communications, Inc., a Delaware corporation, and hereby makes payment of
$____________ in payment therefor.
______________________________
Signature
______________________________
Signature, if jointly held
Date:___________________
********************************************************************************
INSTRUCTIONS FOR ISSUANCE OF STOCK
----------------------------------
(if other than to the registered holder of the within Warrant)
Name_________________________________________________________________________
(Please typewrite or print in block letters)
Address_______________________________________________________________________
Social Security or Taxpayer Identification Number_____________________________
********************************************************************************
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, _____________ hereby sells, assigns and transfers unto
_______________________________________________________________________________
Name (please typewrite or print in block letters)
the right to purchase Common Stock of Cypress Communications, Inc., a Delaware
corporation, represented by this Warrant (which may be a copy if the right to
receive less than all of the shares of Common Stock covered by such Warrant is
being transferred) with respect to the number of shares covered thereby set
forth below and does hereby irrevocably constitute and appoint ________________
______________________________, Attorney, to transfer the same on the books of
the Company with full power of substitution in the premises.
Number of Shares:___________________
Dated:______________________________
Signature___________________________
Signature, if jointly held___________
22
<PAGE>
Exhibit 10.16
FORM OF
INDEMNIFICATION AGREEMENT
This Agreement made and entered into this ____ day of ______ ,
("Agreement"), by and between Cypress Communications, Inc., a Delaware
corporation (the "Company," which term shall include, where appropriate, any
Entity (as hereinafter defined) controlled directly or indirectly by the
Company) and ____________ ("Indemnitee"):
WHEREAS, it is essential to the Company that it be able to retain and
attract as directors and officers the most capable persons available;
WHEREAS, increased corporate litigation has subjected directors and
officers to litigation risks and expenses, and the limitations on the
availability of directors and officers liability insurance have made it
increasingly difficult for companies to attract and retain such persons;
WHEREAS, the Company's Amended and Restated Certificate of Incorporation,
as amended (the "Certificate of Incorporation"), and Amended and Restated By-
laws (the "By-laws") require it to indemnify its directors and officers to the
fullest extent permitted by law and permit it to make other indemnification
arrangements and agreements;
WHEREAS, the Company desires to provide Indemnitee with specific
contractual assurance of Indemnitee's rights to full indemnification against
litigation risks and expenses (regardless, among other things, of any amendment
to or revocation of the Certificate of Incorporation or By-laws or any change in
the ownership of the Company or the composition of its Board of Directors);
WHEREAS, the Company intends that this Agreement provide Indemnitee with
greater protection than that which is provided by the Company's Certificate of
Incorporation or By-laws; and
WHEREAS, Indemnitee is relying upon the rights afforded under this
Agreement in [becoming] [continuing as] a director and/or officer of the
Company:
NOW, THEREFORE, in consideration of the promises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. Definitions.
(a) "Corporate Status" describes the status of a person who is
serving or has served (i) as a director and/or officer of the Company, (ii)
in any capacity with respect to any employee benefit plan of the Company,
or (iii) as a director, partner, trustee, officer, employee, or agent of
any other Entity at the request of the Company. For purposes of subsection
(iii) of this Section 1(a), if Indemnitee is serving or has served
<PAGE>
as a director, partner, trustee, officer, employee or agent of a
Subsidiary, Indemnitee shall be deemed to be serving at the request of the
Company.
(b) "Entity" shall mean any corporation, partnership, limited
liability company, joint venture, trust, foundation, association, organization
or other legal entity.
(c) "Expenses" shall mean all fees, costs and expenses incurred by
Indemnitee in connection with any Proceeding (as defined below),
including, without limitation, reasonable attorneys' fees,
disbursements and retainers (including, without limitation, any such
fees, disbursements and retainers incurred by Indemnitee pursuant to
Sections 10 and 11(c) of this Agreement), fees and disbursements of
expert witnesses, private investigators and professional advisors
(including, without limitation, accountants and investment bankers),
court costs, transcript costs, fees of experts, travel expenses,
duplicating, printing and binding costs, telephone and fax
transmission charges, postage, delivery services, secretarial
services, and other disbursements and expenses.
(d) "Indemnifiable Expenses," "Indemnifiable Liabilities" and
"Indemnifiable Amounts" shall have the meanings ascribed to those terms
in Section 3(a) below.
(e) "Liabilities" shall mean judgments, damages, liabilities,
losses, penalties, excise taxes, fines and amounts paid in settlement.
(f) "Proceeding" shall mean any threatened, pending or completed
claim, action, suit, arbitration, alternate dispute resolution
process, investigation, administrative hearing, appeal, or any other
proceeding, whether civil, criminal, administrative, arbitrative or
investigative, whether formal or informal, including a proceeding
initiated by Indemnitee pursuant to Section 10 of this Agreement to
enforce Indemnitee's rights hereunder.
(g) "Subsidiary" shall mean any corporation, partnership, limited
liability company, joint venture, trust or other Entity of which the
Company owns (either directly or through or together with another
Subsidiary of the Company) either (i) a general partner, managing
member or other similar interest or (ii) (A) 50% or more of the voting
power of the voting capital equity interests of such corporation,
partnership, limited liability company, joint venture or other Entity,
or (B) 50% or more of the outstanding voting capital stock or other
voting equity interests of such corporation, partnership, limited
liability company, joint venture or other Entity.
2
<PAGE>
2. Services of Indemnitee. In consideration of the Company's covenants
and commitments hereunder, Indemnitee agrees to serve or continue to serve as a
director and/or officer of the Company. However, this Agreement shall not impose
any obligation on Indemnitee or the Company to continue Indemnitee's service to
the Company beyond any period otherwise required by law or by other agreements
of the parties, if any.
3. Agreement to Indemnify. The Company agrees to indemnify Indemnitee as
follows:
(a) Subject to the exceptions contained in Section 4(a) below, if
Indemnitee was or is a party or is threatened to be made a party to
any Proceeding (other than an action by or in the right of the
Company) by reason of Indemnitee's Corporate Status, Indemnitee shall
be indemnified by the Company against all Expenses and Liabilities
incurred or paid by Indemnitee in connection with such Proceeding
(referred to herein as "Indemnifiable Expenses" and "Indemnifiable
Liabilities," respectively, and collectively as "Indemnifiable
Amounts").
(b) Subject to the exceptions contained in Section 4(b) below, if
Indemnitee was or is a party or is threatened to be made a party to
any Proceeding by or in the right of the Company to procure a judgment
in its favor by reason of Indemnitee's Corporate Status, Indemnitee
shall be indemnified by the Company against all Indemnifiable
Expenses.
4. Exceptions to Indemnification. Indemnitee shall be entitled to
indemnification under Sections 3(a) and 3(b) above in all circumstances other
than the following:
(a) If indemnification is requested under Section 3(a) and it has
been adjudicated finally by a court of competent jurisdiction that, in
connection with the subject of the Proceeding out of which the claim
for indemnification has arisen, Indemnitee failed to act (i) in good
faith and (ii) in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, or, with respect to
any criminal action or proceeding, Indemnitee had reasonable cause to
believe that Indemnitee's conduct was unlawful, Indemnitee shall not
be entitled to payment of Indemnifiable Amounts hereunder.
(b) If indemnification is requested under Section 3(b) and
(i) it has been adjudicated finally by a court of
competent jurisdiction that, in connection with the
subject of the Proceeding out of which the claim for
indemnification has arisen, Indemnitee failed to act (A)
in good faith and (B) in a manner Indemnitee reasonably
believed to be in or not opposed to the best interests of
the Company, Indemnitee shall not be entitled to payment
of Indemnifiable Expenses hereunder; or
3
<PAGE>
(ii) it has been adjudicated finally by a court of
competent jurisdiction that Indemnitee is liable to the
Company with respect to any claim, issue or matter
involved in the Proceeding out of which the claim for
indemnification has arisen, including, without limitation,
a claim that Indemnitee received an improper personal
benefit, no Indemnifiable Expenses shall be paid with
respect to such claim, issue or matter unless the Court of
Chancery or another court in which such Proceeding was
brought shall determine upon application that, despite the
adjudication of liability, but in view of all the
circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such Indemnifiable
Expenses which such court shall deem proper.
5. Procedure for Payment of Indemnifiable Amounts. Indemnitee shall
submit to the Company a written request specifying the Indemnifiable Amounts for
which Indemnitee seeks payment under Section 3 of this Agreement and the basis
for the claim. The Company shall pay such Indemnifiable Amounts to Indemnitee
within sixty (60) calendar days of receipt of the request. At the request of the
Company, Indemnitee shall furnish such documentation and information as are
reasonably available to Indemnitee and necessary to establish that Indemnitee is
entitled to indemnification hereunder.
6. Indemnification for Expenses of a Party Who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, and without
limiting any such provision, to the extent that Indemnitee is, by reason of
Indemnitee's Corporate Status, a party to and is successful, on the merits or
otherwise, in any Proceeding, Indemnitee shall be indemnified against all
Expenses reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection therewith. If Indemnitee is not wholly successful in such Proceeding
but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses reasonably incurred by Indemnitee or on
Indemnitee's behalf in connection with each successfully resolved claim, issue
or matter. For purposes of this Agreement, the termination of any claim, issue
or matter in such a Proceeding by dismissal, with or without prejudice, by
reason of settlement, judgement, order or otherwise, shall be deemed to be a
successful result as to such claim, issue or matter.
7. Effect of Certain Resolutions. Neither the settlement or termination
of any Proceeding nor the failure of the Company to award indemnification or to
determine that indemnification is payable shall create an adverse presumption
that Indemnitee is not entitled to indemnification hereunder. In addition, the
termination of any proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent shall not create a presumption
that Indemnitee did not act in good faith and in a manner which Indemnitee
reasonably believed to be in or not opposed to the best interests of the Company
or, with respect to any criminal action or proceeding, had reasonable cause to
believe that Indemnitee's action was unlawful.
4
<PAGE>
8. Agreement to Advance Expenses; Undertaking. The Company shall advance
all Expenses incurred by or on behalf Indemnitee in connection with any
Proceeding, including a Proceeding by or in the right of the Company, in which
Indemnitee is involved by reason of such Indemnitee's Corporate Status within
ten (10) days after the receipt by the Company of a written statement from
Indemnitee requesting such advance or advances from time to time, whether prior
to or after final disposition of such Proceeding. To the extent required by
Delaware law, Indemnitee hereby undertakes to repay the amount of Indemnifiable
Expenses paid to Indemnitee if it is finally determined by a court of competent
jurisdiction that Indemnitee is not entitled under this Agreement to
indemnification with respect to such Expenses. This undertaking is an unlimited
general obligation of Indemnitee.
9. Procedure for Advance Payment of Expenses. Indemnitee shall submit to
the Company a written request specifying the Indemnifiable Expenses for which
Indemnitee seeks an advancement under Section 8 of this Agreement, together with
documentation evidencing that Indemnitee has incurred such Indemnifiable
Expenses. Payment of Indemnifiable Expenses under Section 8 shall be made no
later than ten (10) calendar days after the Company's receipt of such request.
10. Remedies of Indemnitee.
(a) Right to Petition Court. In the event that Indemnitee makes a
-----------------------
request for payment of Indemnifiable Amounts under Sections 3 and 5
above or a request for an advancement of Indemnifiable Expenses under
Sections 8 and 9 above and the Company fails to make such payment or
advancement in a timely manner pursuant to the terms of this
Agreement, Indemnitee may petition the Court of Chancery to enforce
the Company's obligations under this Agreement.
(b) Burden of Proof. In any judicial proceeding brought under
---------------
Section 10(a) above, the Company shall have the burden of proving that
Indemnitee is not entitled to payment of Indemnifiable Amounts
hereunder.
(c) Expenses. If Indemnitee is successful in whole or in part in
--------
connection with any action brought by Indemnitee under Section 10(a)
above, the Company agrees to reimburse Indemnitee in full for any
Expenses incurred by Indemnitee in connection with investigating,
preparing for, litigating, defending or settling any such action, or
in connection with any claim or counterclaim brought by the Company in
connection therewith.
(d) Validity of Agreement. The Company shall be precluded from
---------------------
asserting in any Proceeding, including, without limitation, an action
under Section 10(a) above, that the provisions of this Agreement are
not valid, binding and enforceable or that there is insufficient
consideration for this Agreement and shall stipulate in court that the
Company is bound by all the provisions of this Agreement.
5
<PAGE>
(e) Failure to Act Not a Defense. The failure of the Company
----------------------------
(including its Board of Directors or any committee thereof,
independent legal counsel, or stockholders) to make a determination
concerning the permissibility of the payment of Indemnifiable Amounts
or the advancement of Indemnifiable Expenses under this Agreement
shall not be a defense in any action brought under Section 10(a)
above, and shall not create a presumption that such payment or
advancement is not permissible.
11. Defense of the Underlying Proceeding.
(a) Notice by Indemnitee. Indemnitee agrees to notify the Company
--------------------
promptly upon being served with any summons, citation, subpoena,
complaint, indictment, information, or other document relating to any
Proceeding which may result in the payment of Indemnifiable Amounts or
the advancement of Indemnifiable Expenses hereunder; provided,
however, that the failure to give any such notice shall not disqualify
Indemnitee from the right to receive payments of Indemnifiable Amounts
or advancements of Indemnifiable Expenses unless the Company's ability
to defend in such Proceeding is materially and adversely prejudiced
thereby.
(b) Defense by Company. Subject to the provisions of the last
------------------
sentence of this Section 11(b) and of Section 11(c) below, the Company
shall have the right to defend Indemnitee in any Proceeding which may
give rise to the payment of Indemnifiable Amounts hereunder; provided,
however that the Company shall notify Indemnitee of any such decision
to defend within ten (10) days of receipt of notice of any such
Proceeding under Section 11(a) above. The Company shall not, without
the prior written consent of Indemnitee, consent to the entry of any
judgment against Indemnitee or enter into any settlement or compromise
which (i) includes an admission of fault of Indemnitee or (ii) does
not include, as an unconditional term thereof, the full release of
Indemnitee from all liability in respect of such Proceeding, which
release shall be in form and substance reasonably satisfactory to
Indemnitee. This Section 11(b) shall not apply to a Proceeding
brought by Indemnitee under Section 10(a) above or pursuant to Section
19 below.
(c) Indemnitee's Right to Counsel. Notwithstanding the provisions of
-----------------------------
Section 11(b) above, if in a Proceeding to which Indemnitee is a party
by reason of Indemnitee's Corporate Status, (i) Indemnitee reasonably
concludes that it may have separate defenses or counterclaims to
assert with respect to any issue which may not be consistent with the
position of other defendants in such Proceeding or (ii) a conflict of
interest or potential conflict of interest exists between the
Indemnitee and the Company, or if the Company fails to assume the
defense of such proceeding in a timely manner, Indemnitee shall be
entitled to
6
<PAGE>
be represented by separate legal counsel of Indemnitee's choice at the
expense of the Company. In addition, if the Company fails to comply
with any of its obligations under this Agreement or in the event that
the Company or any other person takes any action to declare this
Agreement void or unenforceable, or institutes any action, suit or
proceeding to deny or to recover from Indemnitee the benefits intended
to be provided to Indemnitee hereunder, Indemnitee shall have the
right to retain counsel of Indemnitee's choice, at the expense of the
Company, to represent Indemnitee in connection with any such matter.
12. Representations and Warranties of the Company. The Company hereby
represents and warrants to Indemnitee as follows:
(a) Authority. The Company has all necessary power and authority to
---------
enter into, and be bound by the terms of, this Agreement, and the
execution, delivery and performance of the undertakings contemplated
by this Agreement have been duly authorized by the Company.
(b) Enforceability. This Agreement, when executed and delivered by
--------------
the Company in accordance with the provisions hereof, shall be a
legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the enforcement
of creditors' rights generally.
13. Insurance. The Company shall, from time to time, make the good faith
determination whether or not it is practicable for the Company to obtain and
maintain a policy or policies of insurance with a reputable insurance company
providing the Indemnitee with coverage for losses from wrongful acts, and to
ensure the Company's performance of its indemnification obligations under this
Agreement. Among other considerations, the Company will weigh the costs of
obtaining such insurance coverage against the protection afforded by such
coverage. In all policies of director and officer liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's officers and directors. Notwithstanding the foregoing,
the Company shall have no obligation to obtain or maintain such insurance if the
Company determines in good faith that such insurance is not reasonably
available, if the premium costs for such insurance are disproportionate to the
amount of coverage provided, or if the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit. The Company
shall promptly notify Indemnitee of any good faith determination not to provide
such coverage.
14. Contract Rights Not Exclusive. The rights to payment of Indemnifiable
Amounts and advancement of Indemnifiable Expenses provided by this Agreement
shall be in addition to, but not exclusive of, any other rights which Indemnitee
may have at any time under applicable law, the Company's Certificate of
Incorporation or By-laws, or any other
7
<PAGE>
agreement, vote of stockholders or directors (or a committee of directors), or
otherwise, both as to action in Indemnitee's official capacity and as to action
in any other capacity as a result of Indemnitee's serving as a director and/or
officer of the Company.
15. Successors. This Agreement shall be (a) binding upon all successors
and assigns of the Company (including any transferee of all or a substantial
portion of the business, stock and/or assets of the Company and any direct or
indirect successor by merger or consolidation or otherwise by operation of law)
and (b) binding on and shall inure to the benefit of the heirs, personal
representatives, executors and administrators of Indemnitee. This Agreement
shall continue for the benefit of Indemnitee and such heirs, personal
representatives, executors and administrators after Indemnitee has ceased to
have Corporate Status.
16. Subrogation. In the event of any payment of Indemnifiable Amounts
under this Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of contribution or recovery of Indemnitee against
other persons, and Indemnitee shall take, at the request of the Company, all
reasonable action necessary to secure such rights, including the execution of
such documents as are necessary to enable the Company to bring suit to enforce
such rights.
17. Change in Law. To the extent that a change in Delaware law (whether by
statute or judicial decision) shall permit broader indemnification or
advancement of expenses than is provided under the terms of the By-laws of the
Company and this Agreement, Indemnitee shall be entitled to such broader
indemnification and advancements, and this Agreement shall be deemed to be
amended to such extent.
18. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement, or any clause thereof,
shall be determined by a court of competent jurisdiction to be illegal, invalid
or unenforceable, in whole or in part, such provision or clause shall be limited
or modified in its application to the minimum extent necessary to make such
provision or clause valid, legal and enforceable, and the remaining provisions
and clauses of this Agreement shall remain fully enforceable and binding on the
parties.
19. Indemnitee as Plaintiff. Except as provided in Section 10(c) of this
Agreement and in the next sentence, Indemnitee shall not be entitled to payment
of Indemnifiable Amounts or advancement of Indemnifiable Expenses with respect
to any Proceeding brought by Indemnitee against the Company, any Entity which it
controls, any director or officer thereof, or any third party, unless the Board
of Directors of the Company has consented to the initiation of such Proceeding.
This Section shall not apply to counterclaims or affirmative defenses asserted
by Indemnitee in an action brought against Indemnitee.
8
<PAGE>
20. Modifications and Waiver. Except as provided in Section 17 above with
respect to changes in Delaware law which broaden the right of Indemnitee to be
indemnified by the Company, no supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by each of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions of this Agreement (whether or
not similar), nor shall such waiver constitute a continuing waiver.
21. General Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (a) when delivered by hand, (b) when transmitted by facsimile and
receipt is acknowledged, or (c) if mailed by certified or registered mail with
postage prepaid, on the third business day after the date on which it is so
mailed:
(i) If to Indemnitee, to:
(ii) If to the Company, to:
Cypress Communications, Inc.
Fifteen Piedmont Center, Suite 710
Atlanta, Georgia 30305
Attn: Robert W. McCarthy, Esq.
Fax: (404) 869-2525
or to such other address as may have been furnished in the same manner by any
party to the others.
22. Governing Law; Consent to Jurisdiction; Service of Process. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware without regard to its rules of conflict of laws. Each of the
Company and the Indemnitee hereby irrevocably and unconditionally consents to
submit to the exclusive jurisdiction of the Court of Chancery of the State of
Delaware and the courts of the United States of America located in the State of
Delaware (the "Delaware Courts") for any litigation arising out of or relating
to this Agreement and the transactions contemplated hereby (and agrees not to
commence any litigation relating thereto except in such courts), waives any
objection to the laying of venue of any such litigation in the Delaware Courts
and agrees not to plead or claim in any Delaware Court that such litigation
brought therein has been brought in an inconvenient forum. Each of the parties
hereto agrees, (a) to the extent such party is not otherwise subject to service
of process in the State of Delaware, to appoint and maintain an agent in the
State of Delaware as such party's agent for acceptance of legal process, and (b)
that service of process may also be made on such party by prepaid certified mail
with a proof of mailing receipt validated by the United States Postal Service
constituting evidence of valid service. Service made pursuant to (a) or (b)
above shall have the same legal force and effect as
9
<PAGE>
if served upon such party personally within the State of Delaware. For purposes
of implementing the parties' agreement to appoint and maintain an agent for
service of process in the State of Delaware, each such party does hereby appoint
The Corporation Trust Company, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801, as such agent and each such party hereby agrees to
complete all actions necessary for such appointment.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CYPRESS COMMUNICATIONS, INC.
By:
-----------------------------------
Its:
INDEMNITEE
--------------------------------------
10
<PAGE>
Exhibit 10.17
Form of
CYPRESS COMMUNICATIONS, INC.
Executive Officer Severance Plan
--------------------------------
1. Purpose. Cypress Communications, Inc. (the "Company") considers it
-------
essential to the best interests of its stockholders to foster the continuous
employment of key management personnel. The Board of Directors of the Company
(the "Board") recognizes, however, that, as is the case with many publicly held
corporations, the possibility of a Change in Control (as defined in Section 2
hereof) exists and that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or distraction
of management personnel to the detriment of the Company and its stockholders.
Therefore, the Board has determined that the Cypress Communications, Inc.
Executive Officer Severance Plan (the "Plan") should be adopted to reinforce and
encourage the continued attention and dedication of the individuals from time to
time listed on Appendix A attached hereto (each, a "Covered Employee";
-----------
collectively, the "Covered Employees"), to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a Change in Control. Nothing in this Plan shall be construed as
creating an express or implied contract of employment and, except as otherwise
agreed in writing between the Covered Employee and the Company, the Covered
Employee shall not have any right to be retained in the employ of the Company.
2. Change in Control. For purposes of this Plan, a "Change in Control"
-----------------
shall mean the consummation of a consolidation, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Corporate Transaction"); excluding, however, a Corporate Transaction in which
the stockholders of the Company immediately prior to the Corporate Transaction,
would, immediately after the Corporate Transaction, beneficially own (as such
term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended), directly or indirectly, shares representing in the aggregate more than
50 percent of the voting shares of the corporation issuing cash or securities in
the Corporate Transaction (or of its ultimate parent corporation, if any).
3. Terminating Event. A "Terminating Event" shall mean the termination of
-----------------
employment of a Covered Employee in connection with any of the events provided
in this Section 3 occurring within 12 months following a Change in Control:
(a) termination by the Company of the employment of the Covered Employee
with the Company for any reason other than for Cause or the death or
Disability of such Covered Employee.
As used herein, the term "Cause" shall mean (i) the willful and
continued failure of the Covered Employee (other than any such failure
resulting from incapacity or Disability) to substantially perform the
Covered Employee's normally required duties with the Company continuing for
30 days after notice by the Company to the Covered Employee of such
failure; (ii) any act of fraud, misappropriation, embezzlement or similar
conduct against the Company, as finally determined through arbitration or
final
<PAGE>
judgment of a court of competent jurisdiction (which arbitration or
judgment, due to the passage of time or otherwise, is not subject to
further appeal); or (iii) conviction of the Covered Employee for a felony
or any other crime involving moral turpitude (which conviction, due to the
passage of time or otherwise is not subject to further appeal). For
purposes of clauses (i) and (iii) of this Section 3(a), no act, or failure
to act, on the Covered Employee's part shall be deemed "willful" unless
done, or omitted to be done, by the Covered Employee without reasonable
belief that the Covered Employee's act, or failure to act, was in the best
interest of the Company.
As used herein, the term "Disability" shall have the same meaning as
provided in the long-term disability plan or policy maintained or, if
applicable, most recently maintained, by the Company for the Covered
Employee. If no long-term disability plan or policy was ever maintained on
behalf of the Covered Employee, Disability shall mean that condition
described in Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended (the "Code"). In the event of a dispute, the determination of
Disability will be made by the Committee in good faith and with the advice
of a physician competent in the area to which such Disability relates.
A Terminating Event shall not be deemed to have occurred pursuant to
this Section 3(a) solely as a result of the Covered Employee being an
employee of any direct or indirect successor to the business or assets of
the Company, rather than continuing as an employee of the Company following
a Change in Control; or
(b) termination by the Covered Employee of the Covered Employee's
employment with the Company for Good Reason. "Good Reason" shall mean the
occurrence of any of the following events:
(i) a substantial adverse change in the nature or scope of the
Covered Employee's responsibilities, authorities, title, powers,
functions, or duties from the responsibilities, authorities, powers,
functions, or duties exercised by the Covered Employee immediately
prior to the Change in Control; or
(ii) a reduction in the Covered Employee's annual base salary as
in effect on the date hereof or as the same may be increased from time
to time except for across-the-board salary reductions similarly
affecting all or substantially all management employees; or
(iii) the relocation of the Company's offices at which the
Covered Employee is principally employed immediately prior to the date
of a Change in Control to a location more than 50 miles from such
offices, or the requirement by the Company for the Covered Employee to
be based anywhere other than the Company's offices at such location,
except for required travel on the Company's business to an extent
substantially consistent with the Covered Employee's business travel
obligations immediately prior to the Change in Control; or
2
<PAGE>
(iv) the failure by the Company to pay to the Covered Employee
any portion of his compensation or to pay to the Covered Employee any
portion of an installment of deferred compensation under any deferred
compensation program of the Company within 15 days of the date such
compensation is due without prior written consent of the Covered
Employee; or
(v) the failure by the Company to obtain an effective agreement
from any successor to assume and agree to perform this Agreement.
4. Special Termination Benefits. In the event of a Terminating Event with
----------------------------
respect to a Covered Employee,
(a) the Company shall pay to the Covered Employee an amount equal to
the amount indicated for such Covered Employee on Appendix A attached
----------
hereto. Said amount shall be paid in one lump sum payment no later than 31
days following the Date of Termination (as such term is defined in Section
7(b)); and
(b) the Company shall continue to provide health, dental and life
insurance to the Covered Employee, on the same terms and conditions as
though the Covered Employee had remained an active employee, for the period
of time indicated for such Covered Employee on Appendix A attached hereto;
----------
and
(c) the Company shall pay to the Covered Employee all reasonable legal
and mediation fees and expenses incurred by the Covered Employee in
obtaining or enforcing any right or benefit provided by this Plan, except
in cases involving frivolous or bad faith litigation initiated by the
Covered Employee.
5. Additional Limitation.
---------------------
(a) Anything in this Plan to the contrary notwithstanding, in the
event that any compensation, payment or distribution by the Company to or
for the benefit of the Covered Employee, whether paid or payable or
distributed or distributable pursuant to the terms of this Plan or
otherwise (the "Severance Payments"), would be subject to the excise tax
imposed by Section 4999 of the Code, the following provisions shall apply:
(i) If the Severance Payments, reduced by the sum of (1) the Excise
Tax and (2) the total of the Federal, state, and local income and
employment taxes payable by the Covered Employee on the amount of the
Severance Payments which are in excess of the Threshold Amount, are
greater than or equal to the Threshold Amount, the Covered Employee
shall be entitled to the full benefits payable under this Plan.
(ii) If the Threshold Amount is less than (x) the Severance
Payments, but greater than (y) the Severance Payments reduced by the
sum of (1) the
3
<PAGE>
Excise Tax and (2) the total of the Federal, state, and local income
and employment taxes on the amount of the Severance Payments which are
in excess of the Threshold Amount, then the benefits payable under
this Plan shall be reduced (but not below zero) to the extent
necessary so that the maximum Severance Payments shall not exceed the
Threshold Amount. To the extent that there is more than one method of
reducing the payments to bring them within the Threshold Amount, the
Covered Employee shall determine which method shall be followed;
provided that if the Covered Employee fails to make such determination
--------
within 45 days after the Company has sent the Covered Employee written
notice of the need for such reduction, the Company may determine the
amount of such reduction in its sole discretion.
For the purposes of this Section 5, "Threshold Amount" shall mean three
times the Covered Employee's "base amount" within the meaning of Section
280G(b)(3) of the Code and the regulations promulgated thereunder less one
dollar ($1.00); and "Excise Tax" shall mean the excise tax imposed by
Section 4999 of the Code, or any interest or penalties incurred by the
Covered Employee with respect to such excise tax.
(b) The determination as to which of the alternative provisions of
Section 5(a) shall apply to the Covered Employee shall be made by any
nationally recognized accounting firm selected by the Company (the
"Accounting Firm"), which shall provide detailed supporting calculations
both to the Company and the Covered Employee within 15 business days of the
Date of Termination, if applicable, or at such earlier time as is
reasonably requested by the Company or the Covered Employee. For purposes
of determining which of the alternative provisions of Section 5(a) shall
apply, the Covered Employee shall be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation applicable to
individuals for the calendar year in which the determination is to be made,
and state and local income taxes at the highest marginal rates of
individual taxation in the state and locality of the Covered Employee's
residence on the Date of Termination, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state
and local taxes. Any determination by the Accounting Firm shall be binding
upon the Company and the Covered Employee.
6. Withholding. All payments made by the Company under this Plan shall be
-----------
net of any tax or other amounts required to be withheld by the Company under
applicable law.
7. Notice and Date of Termination; Disputes; Etc.
----------------------------------------------
(a) Notice of Termination. Within 12 months after a Change in Control,
any purported termination of a Covered Employee's employment (other than by
reason of death) shall be communicated by written Notice of Termination
from the Company to the Covered Employee or vice versa in accordance with
this Section 7. For purposes of this Plan, a "Notice of Termination" shall
mean a notice which shall indicate the
4
<PAGE>
specific termination provision in this Plan relied upon and the Date of
Termination. Further, a Notice of Termination for Cause is required to
include a copy of a resolution duly adopted by the affirmative vote of not
less than two- thirds (2/3) of the entire membership of the Board at a
meeting of the Board (after reasonable notice to the Covered Employee and
an opportunity for the Covered Employee, accompanied by the Covered
Employee's counsel, to be heard before the Board) finding that, in the good
faith opinion of the Board, the termination met the criteria for Cause set
forth in Section 3(a) hereof.
(b) Date of Termination. "Date of Termination," with respect to any
-------------------
purported termination of a Covered Employee's employment within 12 months
after a Change in Control, shall mean the date specified in the Notice of
Termination. In the case of a termination by the Company other than a
termination for Cause (which may be effective immediately), the Date of
Termination shall not be less than 30 days after the Notice of Termination
is given. In the case of a termination by a Covered Employee, the Date of
Termination shall not be less than 15 days from the date such Notice of
Termination is given. Notwithstanding Section 3(a) of this Plan, in the
event that a Covered Employee gives a Notice of Termination to the Company,
the Company may unilaterally accelerate the Date of Termination and such
acceleration shall not result in a second Terminating Event for purposes of
Section 3(a) of this Plan.
(c) No Mitigation. The Covered Employee is not required to seek other
-------------
employment or to attempt in any way to reduce any amounts payable to the
Covered Employee by the Company under this Plan. Further, the amount of any
payment provided for in this Plan shall not be reduced by any compensation
earned by the Covered Employee as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to
be owed by the Covered Employee to the Company, or otherwise.
(d) Mediation of Disputes. The parties shall endeavor in good faith to
---------------------
settle within 90 days any controversy or claim arising out of or relating
to this Plan or the breach thereof through mediation with JAMS, Endispute
or similar organizations. If the controversy or claim is not resolved
within 90 days, the parties shall be free to pursue other legal remedies in
law or equity.
8. Benefits and Burdens. This Plan shall inure to the benefit of and be
--------------------
binding upon the Company and the Covered Employees, their respective successors,
executors, administrators, heirs and permitted assigns. In the event of a
Covered Employee's death after a Terminating Event but prior to the completion
by the Company of all payments due him under this Plan, the Company shall
continue such payments to the Covered Employee's beneficiary designated in
writing to the Company prior to his death (or to his estate, if the Covered
Employee fails to make such designation).
5
<PAGE>
9. Enforceability. If any portion or provision of this Plan shall to any
--------------
extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Plan, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Plan shall be valid and enforceable to the fullest
extent permitted by law.
10. Waiver. No waiver of any provision hereof shall be effective unless
------
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Plan, or the waiver by
any party of any breach of this Plan, shall not prevent any subsequent
enforcement of such term or obligation or be deemed a waiver of any subsequent
breach.
11. Notices. Any notices, requests, demands, and other communications
-------
provided for by this Plan shall be sufficient if in writing and delivered in
person or sent by registered or certified mail, postage prepaid, to a Covered
Employee at the last address the Covered Employee has filed in writing with the
Company, or to the Company at its main office, attention of the Board of
Directors.
12. Effect on Other Plans. Nothing in this Plan shall be construed to limit
---------------------
the rights of the Covered Employees under the Company's benefit plans, programs
or policies.
13. Amendment or Termination of Plan. The Company may amend or terminate
--------------------------------
this Plan, including Appendix A attached hereto, at any time or from time to
time; provided, however, that no such amendment shall, without the consent of
the Covered Employees, in any material adverse way affect the rights of the
Covered Employees, and no termination shall be made without the written consent
of the Covered Employees.
14. Governing Law. This Plan and all actions taken hereunder shall be
-------------
governed by, and construed in accordance with, the laws of the State of
Delaware, applied without regard to conflict of law principles.
15. Obligations of Successors. In addition to any obligations imposed by
-------------------------
law upon any successor to the Company, the Company will use its best efforts to
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of the Company to expressly assume and agree to perform this Plan in the
same manner and to the same extent that the Company would be required to perform
if no such succession had taken place.
Adopted: As of _______________, 2000
6
<PAGE>
APPENDIX A
Covered Employees and
Special Termination Benefits
----------------------------
1. Covered Employee: R. Stanley Allen
Special Termination Benefits:
Section 4(a) Benefit: One and one-half (1.5) times the amount
of the current annual base salary of the
Covered Employee, determined prior to any
reductions for pre-tax contributions to a
cash or deferred arrangement or a
cafeteria plan.
Section 4(b) Benefit: Twelve (12) months after the Terminating
Event.
2. Covered Employee: Ward C. Bordeaux, Jr.
Special Termination Benefits:
Section 4(a) Benefit: One and one-half (1.5) times the amount
of the current annual base salary of the
Covered Employee, determined prior to any
reductions for pre-tax contributions
to a cash or deferred arrangement or a
cafeteria plan.
Section 4(b) Benefit: Twelve (12) months after the Terminating
Event.
3. Covered Employee: Mark A. Graves
Special Termination Benefits:
Section 4(a) Benefit: One and one-half (1.5) times the amount
of the current annual base salary of the
Covered Employee, determined prior to any
reductions for pre-tax contributions to a
cash or deferred arrangement or a
cafeteria plan.
Section 4(b) Benefit: Twelve (12) months after the Terminating
Event.
4. Covered Employee: Barry L. Boniface
Special Termination Benefits:
Section 4(a) Benefit: One and one-half (1.5) times the amount
of the current annual base salary of the
Covered Employee, determined prior to any
reductions for pre-tax contributions to a
cash or deferred arrangement or a
cafeteria plan.
Section 4(b) Benefit: Twelve (12) months after the
Terminating Event.
7
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 3, 2000
