<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 18, 1999
REGISTRATION NO. 333-76007
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 6
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WILLIAMS COMMUNICATIONS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4813 73-1462856
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
(918) 573-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
WILLIAM G. VON GLAHN, ESQ.
SENIOR VICE PRESIDENT, LAW
WILLIAMS COMMUNICATIONS GROUP, INC.
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
(918) 573-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
RANDALL H. DOUD, ESQ. MARLENE ALVA, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP DAVIS POLK & WARDWELL
919 THIRD AVENUE 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10017
(212) 735-3000 (212) 450-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
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,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock, par value $0.01 per share(3).................. $750,000,000 $208,500
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457 promulgated under the Securities Act
of 1933.
(2) Previously paid.
(3) This registration statement also pertains to Rights to purchase Series A
Participating Preferred Stock of the registrant. Until the occurrence of
certain prescribed events the Rights are not exercisable, are evidenced by
the certificates for the Common Stock and will be transferred along with and
only with such securities. Thereafter, separate Rights certificates will be
issued representing one Right for each share of Common Stock held subject to
adjustment pursuant to anti-dilution provisions.
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 SPECIFICALLY STATING THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
EXPLANATORY NOTE
This registration statement contains two forms of prospectus, one to be
used in connection with an offering in the United States and Canada and one to
be used in a concurrent international offering outside the United States and
Canada. The U.S. prospectus and the international prospectus will be identical
in all respects except for the front cover page and back cover page. The front
cover page and back cover page for the international prospectus included in this
registration statement are each labelled "Alternate International Page." The
form of U.S. prospectus is included in this registration statement and the form
of the front and back cover pages of the international prospectus follow the
U.S. prospectus.
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED , 1999
PROSPECTUS
SHARES
[WILLIAMS COMMUNICATIONS LOGO]
WILLIAMS COMMUNICATIONS GROUP, INC.
COMMON STOCK
$ PER SHARE
------------------
We are selling ____________ shares of our common stock. The underwriters
named in this prospectus may purchase up to ____________ additional shares of
our common stock from us under certain circumstances.
This is an initial public offering of our common stock. We currently expect
the initial public offering price to be between $________ and $________ per
share, and we have applied to have our common stock listed on the New York Stock
Exchange under the symbol "WCG."
We are a subsidiary of The Williams Companies, Inc. and following this
offering The Williams Companies, Inc. will continue to hold a controlling
interest in our stock.
------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 9.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. 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 Williams Communications Group,
Inc. ..................................................... $ $
</TABLE>
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about
, 1999.
------------------
<TABLE>
<S> <C> <C>
Joint Book-Running Managers Co-Lead Manager
SALOMON SMITH BARNEY LEHMAN BROTHERS MERRILL LYNCH & CO.
Structural
Advisor
</TABLE>
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
, 1999
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................. 1
Risk Factors....................... 9
This Prospectus Contains Forward-
Looking Statements............... 21
Use of Proceeds.................... 22
Dividend Policy.................... 22
Capitalization..................... 23
Dilution........................... 24
Selected Consolidated Financial and
Operating Data................... 25
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 31
Industry Overview.................. 58
Business........................... 65
Regulation......................... 98
Management......................... 106
Principal Stockholders............. 122
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Relationships and Related Party
Transactions..................... 125
Relationship Between Our Company
and Williams..................... 127
Description of Capital Stock....... 134
Description of Indebtedness and
Other Financing Arrangements..... 144
Shares Eligible for Future Sale.... 149
Important United States Federal Tax
Consequences of Our Common Stock
to Non-U.S. Holders.............. 151
Underwriting....................... 154
Legal Matters...................... 159
Experts............................ 159
Where You Can Find Additional
Information...................... 160
Index to Financial Statements...... F-1
</TABLE>
Until __________, 1999, all dealers that buy, sell or trade our common
stock, 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.
i
<PAGE> 5
PROSPECTUS SUMMARY
This is only a summary and does not contain all of the information that may
be important to you. You should read the entire prospectus, including the
section entitled "Risk Factors" and our consolidated financial statements and
related notes, before deciding to invest in our common stock.
WILLIAMS COMMUNICATIONS GROUP, INC.
We own or lease, operate and are extending a nationwide fiber optic network
focused on providing voice, data, Internet and video services to communications
service providers. We also sell, install and maintain communications equipment
and network services that address the comprehensive voice and data needs of
organizations of all sizes. Our three business units are our network unit, our
communications equipment solutions unit, and our strategic investments unit. We
also enter into strategic alliances with communications companies to secure
long-term, high-capacity commitments for traffic on the Williams network and to
enhance our service offerings.
For the six months ended June 30, 1999, the percentage of revenue, before
intercompany eliminations, attributable to each unit was 19.7% for our network
unit, 69.2% for our solutions unit and 13.3% for our strategic investments unit.
As a result of our focus on the development and expansion of the Williams
network, we expect a significant change in our revenue mix over the next few
years. Throughout 1999 and 2000, we expect our network unit to contribute an
increasing percentage of our total revenues and by 2001 we expect our network
unit to contribute the largest percentage of our total revenues and to be the
primary source of our revenue.
Prior to the initial public offering of our common stock, our company was a
wholly-owned subsidiary of The Williams Companies, Inc., which first entered the
communications business in 1985 by pioneering the placement of fiber optic
cables in pipelines that were no longer in use.
Our principal executive offices are located at One Williams Center, Tulsa,
Oklahoma 74172 and our telephone number is (918) 573-2000.
OUR BUSINESS UNITS
OUR NETWORK UNIT
Our network unit offers voice, data, Internet and video services, as well
as rights of use in dark fiber, on our low-cost, high-capacity nationwide
network. Dark fiber is fiber optic cable that we install but for which we do not
provide communications transmission services. We focus on providing
communications services to other communications companies as they seek to
benefit from the growth in communications demand. The Williams network currently
consists of approximately 21,650 miles of installed fiber optic cable, of which
19,490 miles are in operation, or lit. We plan to extend the Williams network,
utilizing pipeline and other rights of way, to connect 125 cities by the end of
the year 2000. Rights of way are rights to install fiber along routes owned by
other parties. We expect that by the end of 2000 the Williams network's total
route miles, or actual miles of the path over which fiber optic cable is
installed, will encompass a total of over 33,000 route miles of fiber optic
cable.
1
<PAGE> 6
OUR NETWORK UNIT'S STRATEGY
Our network unit's objective is to become the leading nationwide provider
of voice, data, Internet and video services to national and international
communications providers. To achieve this objective, we intend to:
- become the leading provider to communications carriers
- deploy a technologically advanced network
- pursue strategic alliances
- leverage network construction, operation and management experience
- utilize pipeline rights of way
- establish international communications capacity
- establish ourselves as a low-cost provider
OUR SOLUTIONS UNIT
Our solutions unit distributes and integrates communications equipment from
leading vendors for the voice and data communications needs of businesses of all
sizes as well as for governmental, educational and non-profit institutions. Our
solutions unit provides planning, design, implementation, management,
maintenance and optimization services for the full life cycle of the equipment.
We also sell the communications services of select network customers and other
carriers to our solutions unit's customers. Our solutions unit's broad range of
voice and data products and services allows us to serve as a single-source
provider of solutions for our customers' communications needs. We serve an
installed base of approximately 100,000 customer sites in the U.S. and Canada
and maintain a sales organization consisting of approximately 1,200 sales
personnel and 110 sales and service offices.
OUR SOLUTIONS UNIT'S STRATEGY
Our objective is to be the premier provider of advanced, integrated
communications solutions to businesses. To achieve this objective, we intend to:
- capitalize on converging voice, data, Internet and video needs
- leverage our engineering and technical resources
- provide advanced professional services
- utilize our nationwide presence and large, installed customer base
- extend the reach of our network's carrier customers
OUR STRATEGIC INVESTMENTS UNIT
Through our strategic investments unit, we make investments in, or own and
operate, domestic and foreign businesses that create demand for capacity on the
Williams network, increase our service capabilities, strengthen our customer
relationships, develop our expertise in advanced transmission electronics or
extend our reach. Our domestic strategic investments include our ownership of
Vyvx, a leading video transmission service for major broadcasters and
advertisers, and minority interests in Concentric Network Corporation, UniDial
Communications, Inc. and UtiliCom Networks Inc. Our international strategic
investments include ownership interests in communications companies located in
Brazil, Australia and Chile.
2
<PAGE> 7
CONCURRENT INVESTMENTS IN OUR COMMON STOCK
- SBC. On February 8, 1999, we entered into agreements with SBC
Communications Inc. under which SBC will invest $500 million in our
company. We and SBC will sell each other's products and we and SBC will
purchase each other's services on a preferred provider basis.
- Intel. On May 24, 1999, we entered into an agreement with Intel
Corporation under which Intel will invest $200 million in our company. We
and Intel Internet Data Services will purchase each other's services.
- Telefonos de Mexico. On May 25, 1999, we entered into an agreement with
Telefonos de Mexico under which Telefonos de Mexico will invest $25
million in our company, which may be increased to $100 million if SBC
agrees to reduce its investment. We and Telefonos de Mexico will sell
each other's products and provide services to each other for 20 years.
Each of the concurrent investments by SBC, Intel and Telefonos de Mexico in
our common stock will be at the initial public offering price less the
underwriting discount.
The consummation of the SBC investment, the equity offering and the notes
offering referred to below will occur simultaneously and are each contingent
upon each other. The Intel and Telefonos de Mexico investments are expected to
occur within a few days following the consummation of the offerings and the SBC
investment. For more information about the concurrent investments, see the
section of this prospectus entitled "Business -- Strategic alliances."
CONCURRENT NOTES OFFERING
Concurrent with the equity offering, we are offering approximately $1.3
billion aggregate principal amount of ____% senior notes due 200_ by means of a
separate prospectus.
For more information about the notes offering, see the section of this
prospectus entitled "Description of Indebtedness and Other Financing
Arrangements -- Notes."
RISK FACTORS
You should consider carefully the risks of an investment in our common
stock. See the section of this prospectus entitled "Risk Factors" for more
information.
3
<PAGE> 8
THE EQUITY OFFERING
Common stock offered in the
equity offering........... ______ shares
Common stock sold in the
concurrent investments.... ______ shares
Subtotal................. ______ shares
Class B common stock owned
by Williams.............. ______ shares
Total capital stock to be
outstanding after the
equity offering and the
concurrent
investments............ 450,000,000 shares
Use of proceeds............... We estimate that the net proceeds from the
equity offering will be approximately $606.7
million. We estimate that the net proceeds from
the notes offering will be approximately $1.27
billion and the net proceeds from the
concurrent investments will be approximately
$725 million. We intend to use these net
proceeds, together with other borrowings and
available funds, to develop and light the
Williams network, repay portions of our debt,
fund operating losses and for working capital
and general corporate purposes. See the section
"Use of Proceeds" for more information.
Voting rights:
Common stock................ One vote per share
Class B common stock........ Ten votes per share
Other common stock
provisions.................... Apart from the different voting rights, the
holders of common stock and Class B common
stock generally have identical rights. See the
section "Description of Capital Stock" for more
information.
Proposed NYSE symbol.......... "WCG"
Dividend policy............... We do not intend to pay cash dividends on our
common stock in the foreseeable future. See the
section "Dividend Policy" for more information.
The number of shares of common stock to be outstanding immediately after
the equity offering and the concurrent investments presented above and elsewhere
in this prospectus do not unless otherwise indicated take into account the
issuance of up to ______ shares of common stock which the underwriters have the
option to purchase solely to cover over-allotments, if any, or the issuance of
shares of common stock pursuant to deferred or restricted share awards or option
grants under our company's stock-based plans for directors, officers and other
employees. See the section "Management -- New stock-based and incentive plans of
our company" for more information. The indicated number of shares of common
stock sold in the concurrent investments is based on an assumed initial public
offering price of $____ per share, the midpoint of the price range on the cover
page of this prospectus.
4
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents summary consolidated financial and operating
data derived from our consolidated financial statements. You should read this
along with the sections of this prospectus entitled "Selected Consolidated
Financial and Operating Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," our consolidated financial
statements and related notes and information related to EBITDA below.
In January 1995, Williams sold its network business to LDDS Communications,
Inc. (now MCI WorldCom, Inc.) for approximately $2.5 billion. The sale included
Williams' nationwide fiber optic network and the associated consumer, business
and carrier customers. Williams excluded from the sale an approximately 9,700
route-mile single fiber optic strand on its original nationwide network, its
telecommunications equipment distribution business and Vyvx. The single fiber,
along with Vyvx, our solutions unit and a number of acquired companies, formed
the basis for what is today our company. See Note 2 to our consolidated
financial statements for a description of acquisitions in 1996 through 1998.
Williams has contributed international communications assets to our
company. When we talk about our company and in the presentation of our financial
information, we include the international assets which Williams has contributed
to us.
We have prepared the accompanying table to reflect the historical
consolidated financial information of our company as if we had operated as a
stand alone business throughout the periods presented. The historical financial
information may not be indicative of our future performance and does not
necessarily reflect what our financial position and results of operations would
have been had we operated as a stand alone entity during the periods covered.
The summary pro forma consolidated balance sheet data give effect to the
following transactions as if they had occurred on June 30, 1999:
- the equity offering
- the notes offering
- the concurrent investments
- the recharacterization of $200 million of paid-in capital to amounts due
to Williams
Pro forma earnings per share is based upon an assumed 450,000,000 shares of
capital stock outstanding after the equity offering and the concurrent
investments and does not include any exercise of the underwriters'
over-allotment option or the issuance of shares of common stock pursuant to
deferred or restricted share awards or option grants under our company's
stock-based plans for directors, officers and other employees. Pro forma net
loss per share has been adjusted to include the interest expense impact of $1.3
billion of debt with an interest rate of 9% as if the debt had been issued on
January 1, 1998.
The Statement of Operations Data reflects certain items and events that
affect comparability with other years as described in the section of this
prospectus entitled "Selected Consolidated Financial and Operating Data."
Included in other financial data are EBITDA amounts. EBITDA represents
earnings before interest, income taxes, depreciation and amortization and other
non-recurring or non-cash items, such as equity earnings or losses and minority
interest. Excluded from the computation of EBITDA are charges in 1999, 1998 and
1997 included in other expense of $26.7 million, $23.2 million and $36.0
million, respectively, and gains recognized in 1997 and 1996 of $44.5 million
and $15.7 million. The $44.5 million gain in 1997 is attributable to our sale of
30% of Solutions LLC to Nortel. The $15.7 million gain in 1996 is attributable
to the sale of rights to use communications frequencies. EBITDA is used by
management and certain
5
<PAGE> 10
investors as an indicator of a company's historical ability to service debt.
Management believes that an increase in EBITDA is an indicator of improved
ability to service existing debt, to sustain potential future increases in debt
and to satisfy capital requirements. However, EBITDA is not intended to
represent cash flows for the period, nor has it been presented as an alternative
to either operating income, as determined by generally accepted accounting
principles, as an indicator of operating performance or cash flows from
operating, investing and financing activities, as determined by generally
accepted accounting principles, and is thus susceptible to varying calculations.
EBITDA as presented may not be comparable to other similarly titled measures of
other companies. We expect that under the permanent credit facility, which we
expect to enter into on or before September 1, 1999, our discretionary use of
funds reflected by EBITDA will be limited in order to conserve funds for capital
expenditures and debt service.
6
<PAGE> 11
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Network.............. $ 197,389 $ 52,042 $ 194,936 $ 43,013 $ 11,063
Solutions............ 692,492 672,096 1,367,404 1,189,798 568,072
Strategic
Investments....... 133,469 102,612 221,410 217,966 132,477
Eliminations......... (22,211) (25,024) (50,281) (22,264) (6,425)
----------- ----------- ----------- ----------- -----------
Total
revenues... 1,001,139 801,726 1,733,469 1,428,513 705,187
Operating expenses:
Cost of sales........ 765,742 587,238 1,294,583 1,043,932 517,222
Selling, general and
administrative.... 265,352 205,296 487,073 329,513 152,484
Provision for
doubtful
accounts.......... 11,810 2,696 21,591 7,837 2,694
Depreciation and
amortization...... 57,912 39,409 84,381 70,663 32,378
Other................ 26,913 1,033 34,245 39,269 500
----------- ----------- ----------- ----------- -----------
Total
operating
expenses... 1,127,729 835,672 1,921,873 1,491,214 705,278
----------- ----------- ----------- ----------- -----------
Loss from operations... $ (126,590) $ (33,946) $ (188,404) $ (62,701) $ (91)
=========== =========== =========== =========== ===========
Net loss............... $ (196,065) $ (40,877) $ (180,929) $ (35,843) $ (3,514)
=========== =========== =========== =========== ===========
Historical per share
data (basic):
Net loss............. $ (196,065) $ (40,877) $ (180,929) $ (35,843) $ (3,514)
Weighted average
shares
outstanding....... 1,000 1,000 1,000 1,000 1,000
Pro forma per share
data (basic):
Net loss............. (.57) (.22) $ (.66) $ (.08) $ (.01)
Weighted average
shares
outstanding....... 450,000,000 450,000,000 450,000,000 450,000,000 450,000,000
OTHER FINANCIAL DATA:
EBITDA................. $ (42,024) $ 5,463 $ (80,873) $ 44,005 $ 32,287
Deficiency of earnings
to fixed charges..... (151,619) (38,973) (204,945) (25,697) (1,545)
Net cash provided by
(used in) operating
activities........... (37,432) (74,762) (298,710) 147,858 (1,775)
Net cash provided by
financing
activities........... 898,926 324,122 890,623 225,953 226,009
Net cash used in
investing
activities........... (829,792) (253,125) (561,199) (363,494) (224,186)
Capital expenditures... 571,887 255,671 403,104 276,249 66,900
</TABLE>
7
<PAGE> 12
<TABLE>
<CAPTION>
AT JUNE 30, 1999
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 73,706 $2,171,546
Working capital............................................ 424,178 2,522,018
Property, plant and equipment, net......................... 1,063,335 1,063,335
Total assets............................................... 3,174,138 5,305,878
Long-term debt, including long-term debt due within one
year..................................................... 1,414,603 2,414,603
Total liabilities.......................................... 2,219,572 3,219,572
Total stockholders' equity................................. 954,566 2,086,306
</TABLE>
<TABLE>
<CAPTION>
AT JULY 31, 1999
----------------
(NUMBERS
APPROXIMATE)
<S> <C>
OPERATING DATA:
Planned route miles......................................... 33,120
Single-fiber network route miles.......................... 9,700
Route miles in construction............................... 9,500
Route miles constructed and leased........................ 3,270
Route miles jointly constructed........................... 1,520
Route miles to be acquired................................ 9,130
Route miles in operation.................................... 19,490
Planned retained fiber miles................................ 420,000
</TABLE>
Planned route miles are the total route miles that we expect the Williams
network to traverse upon completion. Single-fiber network route miles are the
route miles traversed by the single fiber optic strand that Williams excluded
from the sale of its original network to LDDS in 1995. Route miles in
construction are those route miles that we either have constructed or plan to
construct to complete the Williams network. Route miles constructed and leased
are those route miles that are in the process of construction and which are, or
when completed will be, leased by us. For more information concerning the lease
arrangements, see the section of this prospectus entitled "Description of
Indebtedness and Other Financing Arrangements -- Asset defeasance program."
Route miles jointly constructed are those route miles which we are in the
process of jointly constructing with others. Route miles to be acquired are
those route miles over which we plan to acquire rights in dark fiber through
purchases, leases or exchanges in completing the Williams network. Planned
retained fiber miles are those fiber miles of our completed network that we
expect to retain for our use in serving our customers. Fiber miles are
calculated by multiplying the route miles traversed over a given segment by the
number of fibers contained within that segment.
8
<PAGE> 13
RISK FACTORS
You should carefully consider the risks described below before deciding
whether to invest in shares of our common stock.
RISKS RELATING TO OUR NETWORK UNIT
WE MUST COMPLETE THE WILLIAMS NETWORK EFFICIENTLY AND ON TIME TO INCREASE OUR
REVENUES BUT FACTORS OUTSIDE OUR CONTROL MAY PREVENT US FROM DOING SO, WHICH
WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS
Our ability to become a leading coast-to-coast provider of communications
services to other communications providers and our ability to increase our
revenues will depend in large part upon the successful, timely and
cost-effective completion of the Williams network. Difficulties in constructing
the Williams network which we cannot control could increase its estimated costs
and delay its scheduled completion, either of which could have a material
adverse effect on our business.
In addition to factors described elsewhere in "Risk Factors," factors out
of our control include:
- our management of costs related to construction of route segments
- timely performance by contractors
- technical performance of the fiber and equipment used in the Williams
network
We have embarked upon an aggressive plan to build the Williams network and
we cannot guarantee that we will be successful in completing the Williams
network in the time planned.
WE NEED TO INCREASE THE VOLUME OF TRAFFIC ON THE WILLIAMS NETWORK OR THE
WILLIAMS NETWORK WILL NOT GENERATE PROFITS
We must substantially increase the current volume of voice, data, Internet
and video transmission on the Williams network in order to realize the
anticipated cash flow, operating efficiencies and cost benefits of the Williams
network. If we do not develop long-term commitments with new large-volume
customers as well as maintain our relationships with current customers, we will
be unable to increase traffic on the Williams network, which would adversely
affect our profitability.
We believe that an important source of increased traffic will be from the
introduction by regional telephone companies of long distance services within
their historical service areas once they satisfy the applicable requirements
under the Telecommunications Act of 1996. Accordingly, delays in the
introduction of these services could have an adverse effect on our traffic flow.
See the section of this prospectus entitled "Regulation -- General regulatory
environment."
OUR NETWORK UNIT OPERATES IN A HIGHLY COMPETITIVE INDUSTRY WITH PARTICIPANTS
THAT HAVE GREATER RESOURCES AND EXISTING CUSTOMERS THAN WE HAVE, WHICH COULD
LIMIT OUR ABILITY TO INCREASE OUR MARKET SHARE
Our success depends upon our ability to increase our share of the carrier
services market by providing high quality services at prices equal to or below
those of our competitors. Increased competition could lead to price reductions,
fewer large-volume sales, under-utilization of resources, reduced operating
margins and loss of market share. Many of our competitors have,
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and some potential competitors are likely to enjoy, substantial competitive
advantages, including the following:
- greater name recognition
- greater financial, technical, marketing and other resources
- larger installed bases of customers
- well-established relationships with current and potential customers
- more extensive knowledge of the high-volume long distance services
industry
- greater international presence
Our competitors include Qwest Communications International, Inc, Level 3
Communications, Inc., IXC Communications, Inc., as well as the three U.S. long
distance fiber optic networks that are owned by each of AT&T Corp., MCI
WorldCom, Inc. and Sprint Corp.
CONSOLIDATION WITHIN THE TELECOMMUNICATIONS INDUSTRY COULD REDUCE OUR MARKET
SHARE AND HARM OUR FINANCIAL PERFORMANCE
Consolidation of some of the major service providers and strategic
alliances in the communications industry have occurred in response to the
passage of the Telecommunications Act and further consolidation could lead to
fewer large-volume sales, reduced operating margins and loss of market share.
Regional telephone companies that fulfill required conditions under the
Telecommunications Act may choose to compete with us. In addition, significant
new and potentially larger competitors could enter our market as a result of
other regulatory changes, technological developments or the establishment of
cooperative relationships. Foreign carriers may also compete in the U.S. market.
PRICES FOR NETWORK SERVICES MAY DECLINE, WHICH MAY REDUCE OUR REVENUES
The prices we can charge our customers for transmission capacity on the
Williams network could decline for the following reasons:
- installation by us and our competitors, some of which are expanding
capacity on their existing networks or developing new networks, of fiber
and related equipment that provides substantially more transmission
capacity than needed
- recent technological advances that enable substantial increases in, or
better usage of, the transmission capacity of both new and existing fiber
- strategic alliances or similar transactions that increase the parties'
purchasing power, such as purchasing alliances among regional telephone
companies for long distance capacity
If prices for network services decline, we may experience a decline in
revenues which would have a material adverse effect on our operations.
SERVICE INTERRUPTIONS ON THE WILLIAMS NETWORK COULD EXPOSE US TO LIABILITY OR
CAUSE US TO LOSE CUSTOMERS
Our operations depend on our ability to avoid and mitigate any damages from
power losses, excessive sustained or peak user demand, telecommunications
failures, network software flaws, transmission cable cuts or natural disasters.
The failure of any equipment or facility on the Williams network could result in
the interruption of customer service until we make necessary repairs or install
replacement equipment. Additionally, if a carrier or other service provider
fails to provide the communications capacity that we have leased in order to
provide service to our customers, service to our customers would be interrupted.
If service is not restored in a timely manner, agreements with our customers may
obligate us to provide credits or other remedies to
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them, which would reduce our revenues. Service disruptions could also damage our
reputation with customers, causing us to lose existing customers or have
difficulty attracting new ones. Many of our customers' communications needs will
be extremely time sensitive, and delays in signal delivery may cause significant
losses to a customer using the Williams network. The Williams network may also
contain undetected design faults and software "bugs" that, despite our testing,
may be discovered only after the Williams network has been completed and is in
use.
WE MAY NEED TO EXPAND OR ADAPT THE WILLIAMS NETWORK IN THE FUTURE IN ORDER TO
REMAIN COMPETITIVE, WHICH COULD BE VERY COSTLY
Any expansion or adaptation of the Williams network could require
substantial additional financial, operational and managerial resources which may
not be available to us. After we complete the Williams network, we may have to
expand or adapt its components to respond to the following:
- an increasing number of customers
- demand for greater transmission capacity
- changes in our customers' service requirements
- technological advances
- government regulation
OUR NETWORK UNIT HAS GENERATED LOSSES IN ITS LIMITED OPERATING HISTORY, WHICH WE
EXPECT WILL CONTINUE
Our network unit has a limited operating history upon which you can base an
evaluation of our performance. In connection with developing the Williams
network, we have incurred operating and net losses and working capital deficits
and we expect to continue to do so at least until completion of the Williams
network. In 1998, our network unit experienced an operating loss of $27.7
million. Continued operating losses could limit our ability to obtain the cash
needed to develop the Williams network, make interest and principal payments on
our debt or fund our other business needs.
WE NEED TO OBTAIN AND MAINTAIN THE NECESSARY RIGHTS OF WAY FOR THE WILLIAMS
NETWORK IN ORDER TO OPERATE THE NETWORK; IF WE ARE UNABLE TO OBTAIN AND MAINTAIN
RIGHTS OF WAY OVER DESIRED ROUTES ON COMMERCIALLY REASONABLE TERMS, OUR
PROFITABILITY MAY BE ADVERSELY AFFECTED
If we are unable to maintain all of our existing rights and permits or
obtain and maintain the additional rights and permits needed to implement our
business plan on acceptable terms, we may incur additional costs which could
have a material adverse effect on our business. We are a party to litigation
which the plaintiff is seeking to have certified as a class action which
challenges, among other things, our right to use railroad rights of way. It is
likely that we will be subject to other suits challenging use of all of our
railroad rights of way and the plaintiffs will also seek class certification.
Approximately 15% of our network is installed on railroad rights of way. This
litigation may increase our costs and adversely affect our profitability. See
"Business -- Legal proceedings."
WE NEED TO OBTAIN ADDITIONAL CAPACITY FOR THE WILLIAMS NETWORK FROM OTHER
PROVIDERS IN ORDER TO SERVE OUR CUSTOMERS AND KEEP OUR COSTS DOWN
We lease telecommunications capacity and obtain rights to use dark fiber
from both long distance and local telecommunications carriers in order to extend
the range of the Williams network. Any failure by these companies to provide
service to us would adversely affect our ability to serve our customers or
increase our costs of doing so.
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Costs of obtaining local services from other carriers comprise a
significant proportion of the operating expenses of long distance carriers,
including our network unit. Similarly, a large proportion of the costs of
providing international services consists of payments to other carriers. Changes
in regulation, particularly the regulation of local and international
telecommunications carriers, could indirectly but significantly affect our
network unit's competitive position; such changes could increase or decrease our
costs, relative to those of our competitors, of providing services.
RISKS RELATING TO OUR SOLUTIONS UNIT
OUR SOLUTIONS UNIT HAS EXPERIENCED LOSSES WHICH MAY CONTINUE IN THE FUTURE
In 1998, our solutions unit incurred significant losses. We have had
difficulties in integrating our equipment distribution business with Nortel's
equipment distribution business and in managing the increased complexity of our
business. Since the new systems our solutions unit is implementing to address
these problems have not yet been fully implemented or tested, we expect that our
financial results in 1999 will continue to be adversely affected by these
difficulties. These difficulties have included an inability to operate and
manage our business effectively with multiple information systems, insufficient
management resources, internal control deficiencies, a high turnover of sales
personnel, lost sales, customer dissatisfaction and increased selling, general
and administrative costs. See the section of this prospectus entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview -- Our solutions unit" for more information.
TERMINATION OF RELATIONSHIPS WITH KEY VENDORS COULD RESULT IN DELAYS OR
INCREASED COSTS
We have a series of agreements which authorize us to act as a distributor
of communications products for a variety of vendors, most significantly Nortel,
as well as Cisco Systems, Inc., NEC Corp. and others. We cannot assure you that
any vendor with which we do business will elect to continue its relationship
with us on substantially the same terms and conditions. We believe that an
interruption, or substantial modification, of our distribution relationships,
particularly with Nortel, could have a material adverse effect on our solutions
unit's business, operating results and financial condition, in that we may no
longer be able to provide services and products to our customers, or the cost of
doing so may be more expensive. Periodically, our distribution agreements expire
and we must negotiate new agreements if we desire to continue distributing the
vendor's products at competitive prices. In addition, under our distribution
agreement with Nortel, if we do not purchase a minimum percentage of our total
product mix from Nortel, we each have the option to change the ownership
structure of Solutions LLC. If Nortel is no longer an owner of Solutions LLC,
there is no guarantee that Nortel would continue its distribution agreement with
our solutions unit once it is no longer required to do so under the terms of the
agreement. See the section of this prospectus entitled "Business -- Our
solutions unit -- LLC agreement with Nortel" for more information.
OUR SOLUTIONS UNIT OPERATES IN A HIGHLY COMPETITIVE INDUSTRY, WHICH COULD REDUCE
OUR MARKET SHARE AND HARM OUR FINANCIAL PERFORMANCE
We face competition from communications equipment manufacturers and
distributors, as well as from other companies that offer services to integrate
systems and equipment of different types. Increased competition could lead to
price reductions, fewer sales and client projects, under-utilization of
employees, reduced operating margins and loss of market share. Many of our
competitors have significantly greater financial, technical and marketing
resources or greater
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name recognition than we currently have. We also face competition from lower
cost providers and from new entrants to the market.
RISKS RELATING TO OUR COMPANY
AFTER THE OFFERINGS, WILLIAMS MAY NOT PROVIDE ADDITIONAL CAPITAL OR CREDIT
SUPPORT TO US, WHICH MAY ADVERSELY AFFECT OUR ABILITY TO MAKE FUTURE BORROWINGS
We have funded our past capital needs mainly through borrowings or capital
contributions from Williams or through external financings guaranteed by
Williams. Following the offerings, Williams may not provide us with additional
funding or credit support. Without Williams' support, we may have less borrowing
capacity and funds may only be available to us on less favorable terms.
WE HAVE SUBSTANTIAL DEBT WHICH MAY HINDER OUR GROWTH AND PUT US AT A COMPETITIVE
DISADVANTAGE
Our substantial debt may have important consequences for us, including the
following:
- our ability to obtain additional financing for acquisitions, working
capital, investments and capital or other expenditures could be impaired
or financing may not be available on terms favorable to us
- a substantial portion of our cash flow will be used to make principal and
interest payments on our debt, reducing the funds that would otherwise be
available to us for our operations and future business opportunities
- a substantial decrease in our net operating cash flows or an increase in
our expenses could make it difficult for us to meet our debt service
requirements and force us to modify our operations
- we may have more debt than our competitors, which may place us at a
competitive disadvantage
- our substantial debt may make us more vulnerable to a downturn in our
business or the economy generally
We had substantial deficiencies of earnings to cover fixed charges of
$204.9 million in 1998, $25.7 million in 1997 and $1.5 million in 1996.
WE MAY NOT BE ABLE TO REPAY OUR EXISTING DEBT; FAILURE TO DO SO OR TO REFINANCE
OUR DEBT COULD PREVENT US FROM IMPLEMENTING OUR BUSINESS PLANS AND REALIZING
ANTICIPATED PROFITS
If we are unable to refinance our debt or to raise additional capital on
favorable terms, this may impair our ability to develop the Williams network and
to implement our other business plans. At June 30, 1999, as adjusted to give
effect to the offerings, the concurrent investments, the recharacterization of
$200 million of paid-in capital to amounts due to Williams, the payment of
related expenses and the application of the net proceeds to repay debt, we would
have had approximately $2.4 billion of long-term debt, approximately $2.1
billion of stockholders' equity and a debt-to-equity ratio of approximately 1.16
to 1. We have made additional borrowings since June 30, 1999 under our interim
credit facility and anticipate making further borrowings under our interim
credit facility or our new permanent credit facility, all of which will increase
the amount of our outstanding debt and our debt-to-equity ratio. Our ability to
make interest and principal payments on our debt and borrow additional funds on
favorable terms depends on the future performance of our business. If we do not
have enough cash flow in the future to make interest or principal payments on
our debt, we may be required to refinance all or a part of our debt or to raise
additional capital. We do not know if refinancing our debt will be
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possible at that time or if we will be able to find someone who will lend us
more money, nor do we know upon what terms we could borrow more money.
RESTRICTIONS AND COVENANTS IN OUR DEBT AGREEMENTS LIMIT OUR ABILITY TO CONDUCT
OUR BUSINESS AND COULD PREVENT US FROM OBTAINING FUNDS WHEN WE NEED THEM IN THE
FUTURE
The notes and some of our other debt and financing arrangements contain a
number of significant limitations that will restrict our ability to conduct our
business and to:
- borrow additional money
- pay dividends or other distributions to our stockholders
- make investments
- create liens on our assets
- sell assets
- enter into transactions with affiliates
- engage in mergers or consolidations
These restrictions may limit our ability to obtain future financing, fund
needed capital expenditures or withstand a future downturn in our business or
the economy.
IF WE ARE UNABLE TO COMPLY WITH THE RESTRICTIONS AND COVENANTS IN OUR DEBT
AGREEMENTS, THERE COULD BE A DEFAULT UNDER THE TERMS OF THESE AGREEMENTS, WHICH
COULD RESULT IN AN ACCELERATION OF PAYMENT OF FUNDS THAT WE HAVE BORROWED
If we are unable to comply with the restrictions and covenants in our debt
agreements, there would be a default under the terms of our agreements. Some of
our debt agreements also require us and certain of our subsidiaries to maintain
specified financial ratios and satisfy financial tests. Our ability to meet
these financial ratios and tests may be affected by events beyond our control;
as a result, we cannot assure you that we will be able to meet such tests. In
the event of a default under these agreements, our lenders could terminate their
commitments to lend to us or accelerate the loans and declare all amounts
borrowed due and payable. Borrowings under other debt instruments that contain
cross-acceleration or cross-default provisions may also be accelerated and
become due and payable. If any of these events occur, we cannot assure you that
we would be able to make the necessary payments to the lenders or that we would
be able to find alternative financing. Even if we could obtain alternative
financing, we cannot assure you that it would be on terms that are favorable or
acceptable to us.
IF WE ARE UNABLE TO SECURE ANY NEEDED ADDITIONAL FINANCING OUR ABILITY TO
COMPLETE THE WILLIAMS NETWORK AND TO CONDUCT OUR BUSINESS GENERALLY COULD BE
ADVERSELY AFFECTED
We may need additional capital to complete the build of the Williams
network and meet our long-term business strategies. If we need additional funds,
our inability to raise them may have an adverse effect on our operations. If we
decide to raise funds through the incurrence of additional debt, we may become
subject to additional or more restrictive financial covenants and ratios. The
actual amount and timing of our future capital requirements may differ
materially from our estimates as a result of financial, business and other
factors, many of which are beyond our control. Our ability to arrange financing
and the costs of financing depend upon many factors, including:
- general economic and capital markets conditions
- conditions in the communications market
- regulatory developments
- credit availability from banks or other lenders
- investor confidence in the telecommunications industry and our company
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- the success of the Williams network
- provisions of tax and securities laws that are conducive to raising
capital
WE MUST ATTRACT AND RETAIN QUALIFIED EMPLOYEES TO ENSURE THE GROWTH AND SUCCESS
OF OUR COMPANY
We believe that our growth and future success will depend in large part on
our ability to attract and retain highly skilled and qualified personnel. Any
inability of ours in the future to hire, train and retain a sufficient number of
qualified employees could impair our ability to manage and maintain our business
and our customers' communications infrastructures. Some of the problems
experienced by our solutions unit in 1998 were due to high turnover of
managerial, technical and sales personnel, as well as insufficient management
resources to run our solutions unit. The competition for qualified personnel in
the communications industry is intense.
SBC COULD TERMINATE OUR STRATEGIC ALLIANCE, WHICH COULD HARM OUR BUSINESS
If SBC terminates our strategic alliance, there could be a material adverse
effect on our business, financial condition and results of operations. Because
SBC is a major customer of ours, termination of our agreements with SBC would
result in decreased revenues and increased marginal costs. Our alliance
agreements with SBC are material to us and SBC may terminate these agreements in
certain cases, including the following:
- if SBC does not complete its proposed acquisition of Ameritech Corp. or
if regulators impose conditions on the acquisition that SBC refuses to
accept
- if we begin to offer retail long distance or local services on the
Williams network under some circumstances
- if the action or failure to act of any regulatory authority materially
frustrates or hinders the purpose of any of our agreements with SBC, the
affected agreement may be terminated
- if we materially breach our agreements with SBC causing a material
adverse effect on the commercial value of the relationship to SBC
- if we have a change of control
- if SBC acquires an entity which owns a nationwide fiber optic network in
the U.S. and determines not to sell us several long distance assets
In the event of termination due to our actions, we could be required to pay
SBC's transition costs of up to $200 million. Similarly, in the event of
termination due to SBC's actions, SBC could be required to pay our transition
costs of up to $200 million, even though our costs may be higher.
INTEL OR TELEFONOS DE MEXICO COULD EACH TERMINATE OUR STRATEGIC ALLIANCE WITH
IT, WHICH COULD HARM OUR BUSINESS
Our alliance agreements with Intel and Telefonos de Mexico are each
material to us and Intel or Telefonos de Mexico may terminate its agreements
with us in certain cases. If either of these alliance agreements is terminated
for any reason before our initial public offering is completed, then the related
purchase of our common stock could be cancelled. If this occurs, we would not
receive the anticipated proceeds from the sale of our common stock and would not
have the revenues that we anticipate from the alliances in the future.
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WE ARE DEPENDENT ON A SMALL NUMBER OF CUSTOMERS, AS A RESULT OF WHICH THE LOSS
OF EVEN A SINGLE CUSTOMER OR A FEW CUSTOMERS COULD HAVE A MATERIAL ADVERSE
IMPACT ON OUR BUSINESS
We currently derive a large percentage of the revenue generated by our
network unit and Vyvx from a small number of customers, as a result of which the
loss of even a single customer or a few customers could have a material adverse
impact on our business. There is no guarantee that these customers will continue
to do business with us after the expiration of their commitments with us.
COMMUNICATIONS TECHNOLOGY CHANGES VERY RAPIDLY AND OUR TECHNOLOGY COULD BE
RENDERED OBSOLETE
We expect that new products and technologies will emerge and that existing
products and technologies, including voice transmission over the Internet and
high speed transmission of packets of data, will further develop. These new
products and technologies may reduce the prices for our services or they may be
superior to, and render obsolete, the products and services we offer and the
technologies we use. As a result, our most significant competitors in the future
may be new entrants to our markets which would not be burdened by an installed
base of older equipment. It may be very expensive for us to upgrade our products
and technology in order to continue to compete effectively. Our future success
depends, in part, on our ability to anticipate and adapt in a timely manner to
technological changes, including wider acceptance and usage of voice
transmission over the Internet.
OUR SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT, WHICH COULD EXPOSE US TO LIABILITY
FROM THIRD PARTIES
We, and the companies with which we do business, must upgrade our computer
systems and software products to accept four-digit entries that distinguish the
year 2000 from the year 1900. Due to the limited availability and cost of
trained personnel, the difficulty in locating all relevant computer code and our
reliance on third-party suppliers and vendors, serious systems failures may
occur. These systems failures may result in litigation with our vendors,
suppliers or customers, particularly for our solutions unit, given the nature of
its extensive product offerings, its maintenance obligations and broad customer
base.
We cannot assure you that we will achieve full year 2000 compliance before
the end of 1999 or that we will develop and implement effective contingency
plans for all possible scenarios. We have identified two areas that would most
likely result in significant problems for our business. First, the system
replacements scheduled for completion during 1999 may be delayed. Second, we may
not be able to remedy a material systems failure. Either of these could lead to
lost revenues, increased operating costs, loss of customers or other business
interruptions of a material nature, and potential litigation claims including
mismanagement, misrepresentation or breach of contract. See the section of this
prospectus entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Year 2000 readiness disclosure" for more
information.
IF WE DO NOT HAVE SOPHISTICATED INFORMATION AND BILLING SYSTEMS, WE MAY NOT BE
ABLE TO ACHIEVE DESIRED OPERATING EFFICIENCIES
Sophisticated information and billing systems are vital to our growth and
ability to monitor costs, bill customers, fulfill customer orders and achieve
operating efficiencies. Our plans for developing and implementing our
information and billing systems rely primarily on the delivery of products and
services by third party vendors. We may not be able to develop new business,
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identify revenues and expenses, service customers, collect revenues or develop
and maintain an adequate work force if any of the following occur:
- vendors fail to deliver proposed products and services in a timely and
effective manner or at acceptable costs
- we fail to adequately identify all of our information and processing
needs
- our related processing or information systems fail
- we fail to upgrade systems when necessary
- we fail to integrate our systems with those of our major customers
OUR BUSINESS IS SUBJECT TO REGULATION THAT COULD CHANGE IN AN ADVERSE MANNER
The communications business is subject to federal, state, local and foreign
regulation. Regulation of the telecommunications industry is changing rapidly,
with ongoing effects on our opportunities, competition and other aspects of our
business. We cannot assure you that future regulatory, judicial or legislative
activities will not have a material adverse effect on us. The regulatory
environment varies substantially from state to state. Generally, we must obtain
and maintain certificates of authority from regulatory bodies in most states
where we offer intrastate services or in order to use eminent domain powers to
obtain rights of way. We also must obtain prior regulatory approval of the
services, equipment and pricing for our intrastate services in most of these
jurisdictions. In addition, some of our alliance partners are subject to
extensive regulation, which could adversely affect the expected benefits of our
arrangements with them by preventing us or them from selling each other's
products and services as planned. For example, while the terms of our agreements
with SBC are intended to comply with restrictions on SBC's provision of long
distance services, various aspects of these arrangements have not been tested
under the Telecommunications Act.
FAILURE TO DEVELOP THE "WILLIAMS COMMUNICATIONS" BRAND COULD ADVERSELY AFFECT
OUR BUSINESS
We believe that brand recognition is very important in the communications
industry. If the "Williams Communications" brand awareness does not increase or
is weakened, it could decrease the attractiveness of our company's product and
service offerings to potential customers, which could result in decreased
revenues. We have licensed the use of the Williams trademark from Williams for
so long as Williams owns at least 50% of our outstanding capital stock. The loss
of this license would require us to establish a new brand and build new brand
recognition.
OUR INTERNATIONAL OPERATIONS AND INVESTMENTS MAY EXPOSE US TO RISKS WHICH COULD
HARM OUR BUSINESS
We have operations based in Canada, Australia and Mexico and investments in
companies with operations in Brazil and Chile. We are exposed to risks inherent
in international operations. These include:
- general economic, social and political conditions
- the difficulty of enforcing agreements and collecting receivables through
certain foreign legal systems
- tax rates in some foreign countries may exceed those in the United States
and foreign earnings may be subject to withholding requirements or the
imposition of tariffs, exchange controls or other restrictions
- required compliance with a variety of foreign laws and regulations which
impose a range of restrictions on the companies' operations, corporate
governance and shareholders, with penalties for noncompliance including
loss of license and monetary fines
- changes in United States laws and regulations relating to foreign trade
and investment
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CURRENCY EXCHANGE RATE FLUCTUATIONS COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS
Our international operations will cause our results of operations and the
value of our assets to be affected by the exchange rates between the U.S. dollar
and the currencies of the additional countries in which we have operations and
assets. Fluctuations in foreign currency rates may adversely affect reported
earnings and the comparability of period-to-period results of operations. On
January 13, 1999, the Brazilian Central Bank removed the limits on the valuation
of the Brazilian Real compared to the U.S. dollar, allowing free market
fluctuation of the exchange rate. As a result, the value of the Brazilian Real
in U.S. dollars has declined approximately 33% from December 31, 1998 to June
30, 1999. The ultimate duration and severity of the conditions in Brazil may
have a material adverse effect on our investments there. In addition, Mexico and
Chile have historically experienced exchange rate volatility. Changes in
currency exchange rates may affect the relative prices at which we and foreign
competitors sell products in the same market. In addition, changes in the value
of the relevant currencies may affect the cost of items required in our
operations.
RISKS RELATING TO OUR RELATIONSHIP WITH WILLIAMS
WILLIAMS HAS SIGNIFICANT CONTROL OVER OUR COMPANY, WHICH COULD ADVERSELY AFFECT
OUR STOCKHOLDERS
After completion of the equity offering and the concurrent investments,
Williams will hold 100% of our Class B common stock and will therefore own
shares with approximately __% of the voting power of our company. As a result,
Williams will be in a position to cause our company to take actions that benefit
only Williams.
As long as Williams continues to beneficially own shares of capital stock
representing more than 50% of the combined voting power of our outstanding
capital stock, Williams will be able to exercise a controlling influence over
our company, including:
- composition of our board of directors and, through it, the direction and
policies of our company, including the appointment and removal of
officers
- mergers or other business combinations involving our company
- acquisition or disposition of assets by our company
- future issuances of common stock or other securities of our company
- incurrence of debt by our company
- amendments, waivers and modifications to the agreements between us and
Williams being entered into in connection with the offerings
- payment of dividends on our common stock
- treatment of items in our tax returns that are consolidated or combined
with Williams' tax returns
CONFLICTS OF INTEREST MAY ARISE BETWEEN US AND WILLIAMS WHICH COULD BE RESOLVED
IN A MANNER UNFAVORABLE TO OUR COMPANY
Conflicts of interest could arise relating to the nature, quality and
pricing of services or products provided by us to Williams or by Williams to us,
any payment of dividends by us to Williams, any prepayment of the borrowings by
us from Williams and general issues relating to maintaining or increasing our
profitability. In addition, one of our directors is both a senior officer and
director, and seven of our directors are also senior officers, of Williams and
some of these individuals and a number of our executive officers own substantial
amounts of Williams stock and options for shares of Williams stock. There could
be potential conflicts of interest
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when these directors and officers are faced with decisions that could have
different implications for our company and Williams.
Our directors who are also directors or executive officers of Williams will
have obligations to both companies and may have conflicts of interest with
respect to matters potentially or actually involving or affecting us, such as
acquisitions, financings and other corporate opportunities that may be suitable
for both us and Williams. As a result, it is possible that these directors and
executive officers could place the interests of Williams ahead of our interests
when the two are incompatible. Our restated certificate of incorporation
contains provisions designed to facilitate resolution of these potential
conflicts which we believe will assist the directors of our company in
fulfilling their fiduciary duties to our stockholders. By becoming a stockholder
in our company, you will be considered to have consented to these provisions of
our restated certificate of incorporation, except to the extent that any of
these provisions are inconsistent with Delaware law or the fiduciary duties of
our directors. Although these provisions are designed to resolve conflicts
between us and Williams fairly, we cannot assure you that this will occur.
WE RELY ON WILLIAMS FOR ADMINISTRATIVE SERVICES WHICH WILLIAMS COULD CEASE TO
PROVIDE TO US; WE MAY BE UNABLE TO REPLACE THESE SERVICES IN A TIMELY MANNER OR
ON FAVORABLE TERMS
We have never operated as a stand alone company. While Williams is
contractually obligated to provide us with certain administrative services, we
cannot assure you that these services will be sustained at the same level as
when we were wholly owned by Williams or that we will obtain the same benefits.
We will also lease and sub-lease office and manufacturing facilities from
Williams. We cannot assure you that, after the expiration of these various
arrangements, we will be able to replace the administrative services or enter
into appropriate leases in a timely manner or on terms and conditions, including
cost, as favorable as those we will receive from Williams.
These agreements were made in the context of a parent-subsidiary
relationship. The prices charged to us under these agreements may be higher or
lower than the prices that may be charged by unaffiliated third parties for
similar services. For more information about these arrangements, see the section
of this prospectus entitled "Relationship Between Our Company and Williams."
RISKS RELATING TO OUR COMMON STOCK
THE POSSIBLE VOLATILITY OF OUR STOCK PRICE COULD ADVERSELY AFFECT OUR
STOCKHOLDERS
Prior to the equity offering, you could not buy or sell our common stock
publicly. Although an application will be made to list our shares of common
stock on the NYSE, an active public market for our common stock might not
develop or be sustained after the equity offering. Moreover, even if such a
market does develop, the market price of our common stock may decline below the
initial public offering price. The market price of our common stock could be
subject to significant fluctuations due to a variety of factors, including
actual or anticipated fluctuations in our operating results and financial
performance, announcements of technological innovations by our existing or
future competitors or changes in financial estimates by securities analysts.
Historically, the market prices for securities of emerging companies in the
communications industry have been highly volatile. In addition, the stock market
has experienced volatility that has affected the market prices of equity
securities of many companies and that often has been unrelated to the operating
performance of such companies. These broad market fluctuations may adversely
affect the market price of our common stock. Furthermore, following periods of
19
<PAGE> 24
volatility in the market price of a company's securities, stockholders of such a
company have often instituted securities class action litigation against the
company. Any such litigation against our company could result in substantial
costs and a diversion of management's attention and resources, which could
adversely affect the conduct of our business.
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING MAY ADVERSELY AFFECT OUR
STOCK PRICE
The market price of our common stock could drop in response to possible
sales of a large number of shares of common stock in the market after the equity
offering or to the perception that such sales could occur. As a result, we may
be unable to raise additional capital through the sale of equity at prices
acceptable to us.
We have entered into a registration rights agreement with Williams which
enables Williams to require us to register shares of our common stock owned by
Williams and to include those shares in registrations of common stock made by us
in the future. We have also entered into agreements with SBC, Intel and
Telefonos de Mexico which provide these three companies with registration rights
which enable them to require us to register shares of our common stock they own
after a period of time. If these companies exercise their registration rights,
the additional shares that become eligible for public sale as a consequence
could affect the price at which our shares trade.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER AND BY-LAWS COULD LIMIT OUR SHARE PRICE
AND DELAY A TAKEOVER OR CHANGE IN CONTROL OF OUR COMPANY
Our restated certificate of incorporation and by-laws include provisions
that could delay, deter or prevent a future takeover or change in control of our
company. These provisions include the disproportionate voting rights of the
Class B common stock (relative to the common stock) to elect a majority of the
members of our board of directors and the authorization of our board to issue,
without stockholder approval, one or more series of preferred stock. In
addition, our directors are organized into multiple classes and the members of
only one class are elected each year. These provisions and our stockholder
rights plan may have the effect of discouraging a third party from making a
tender offer or otherwise attempting to obtain control of our company, even
though such a change in ownership would be economically beneficial to our
company and our stockholders. See the section of this prospectus entitled
"Description of Capital Stock" for more information.
20
<PAGE> 25
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. The forward-looking
statements are principally contained in the sections "Prospectus Summary,"
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." These statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performances
or achievements expressed or implied by the forward-looking statements. Forward-
looking statements include but are not limited to:
- our expectations and estimates as to completion dates, construction costs
and subsequent maintenance and growth of the Williams network
- our ability to implement successfully our operating strategy and attract
sufficient capacity volumes on the Williams network
- future financial performance, including growth in net sales and earnings
- our continuing relationship with Williams
- our plan to address the Year 2000 issue, the costs associated with Year
2000 compliance and the results of Year 2000 non-compliance by us or one
or more of our customers, suppliers or other strategic business partners
In addition to factors that may be described in our filings with the
Securities and Exchange Commission and this prospectus, the following factors,
among others, could cause our actual results to differ materially from those
expressed in any forward-looking statements we make:
- the effects of and changes in political and/or economic conditions,
including inflation, interest rates and monetary conditions, and in
communications, trade, monetary, fiscal and tax policies in international
markets, including Mexico, Canada, Brazil, Australia and Chile
- changes in external competitive market factors or in our internal
budgeting process which might affect trends in our results of operations
- intense competition from other communications companies
- rapid, unpredictable and dramatic changes in the technological,
regulatory or business environment applicable to us or the communications
industry generally
- changes in the prices of equipment, supplies, rights of way or
construction expenses necessary to complete the Williams network
You should carefully review our consolidated financial statements and
related notes included in this prospectus as well as the risk factors described
in this prospectus before deciding to invest in shares of our common stock.
We urge you to consider that statements which use the terms "believe," "do
not believe," "expect," "plan," "intend," "estimate," "anticipate" and similar
expressions, as they relate to our management, are intended to identify
forward-looking statements. These statements reflect our current views with
respect to future events and are based on assumptions and subject to risks and
uncertainties.
21
<PAGE> 26
USE OF PROCEEDS
We estimate that the net proceeds we will receive from the sale of the
______ shares of common stock will be approximately $606.7 million, or
approximately $____ million if the underwriters exercise their over-allotment
option in full, based on an assumed initial public offering price of $____ per
share. We estimate that the net proceeds we will receive from the notes offering
will be approximately $1.27 billion. In addition, we estimate that we will
receive approximately $725 million in net proceeds from the concurrent
investments. We also anticipate having available to us borrowings from our new
permanent credit facility as well as funds from other sources, as described in
the section of this prospectus entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and capital
resources -- Anticipated funding sources and uses."
We intend to use the net proceeds from the offerings and the concurrent
investments, together with borrowings under our permanent credit facility and
funds from other sources, primarily to develop and light the Williams network
and to repay debt that was incurred to develop and light the Williams network.
At the time of the completion of the offerings, we estimate that the capital
expenditures remaining to be made for this purpose will be approximately $2.3
billion and that the debt to be so repaid will be approximately $500 million. We
will also use these proceeds, borrowings and other funds to fund operating
losses, for working capital and for general corporate purposes. For more
information about our anticipated funding sources and our uses of these funds,
see the section of this prospectus entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
capital resources -- Anticipated funding sources and uses."
DIVIDEND POLICY
We have not paid any cash dividends on our capital stock since 1997. We do
not expect to pay cash dividends on our capital stock in the foreseeable future.
The terms of the notes and our other debt agreements place limitations on the
payment of cash dividends. We currently intend to retain our future earnings, if
any, to finance the operation and development of our business. Future dividends,
if any, will be determined by our board of directors and will depend on the
success of our operations, capital needs, financial conditions, contractual
restrictions and other factors that our board of directors considers. See the
section of this prospectus entitled "Description of Indebtedness and Other
Financing Arrangements" for more information.
22
<PAGE> 27
CAPITALIZATION
The following table sets forth our capitalization at June 30, 1999 on an
actual basis and as adjusted to give effect to the equity offering, the notes
offering, the concurrent investments and the recharacterization of $200 million
of paid-in capital to amounts due to Williams, after deducting underwriting
discounts and commissions and estimated expenses, and after application of the
net proceeds to repay debt. The adjustments for the equity offering are based on
an assumed initial public offering price of $____, the midpoint of the price
range on the cover of this prospectus. The table assumes that the underwriters
do not exercise their over-allotment option. The table does not take into
consideration any additional shares of our common stock issued pursuant to
deferred share awards and does not take into consideration any option grants as
described in the section of this prospectus entitled "Management -- New
stock-based and incentive plans of our company -- Treatment of specified
Williams stock awards."
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Cash and cash equivalents.................................. $ 73,706 $2,171,546
========== ==========
Long-term debt due within one year......................... $ 372 $ 372
========== ==========
Long-term debt:
Due to affiliates........................................ $ 800,956 1,000,956
__% senior notes due 200_................................ -- 1,300,000
Other.................................................... 613,275 113,275
---------- ----------
Total long-term debt.................................. 1,414,231 2,414,231
Stockholders' equity:
Common stock, $1.00 par value per share:
1,000 shares authorized; and 1,000 shares issued and
outstanding......................................... 1 --
Class A common stock, $0.01 par value per share:
1,000,000,000 shares authorized; and ____ shares
issued and outstanding.............................. --
Class B common stock, $0.01 par value per share:
500,000,000 shares authorized; and ____ shares issued
and outstanding..................................... --
Preferred stock, $0.01 par value per share:
500,000,000 shares authorized; no shares issued or
outstanding......................................... -- --
Capital in excess of par value........................... 1,391,160
Accumulated deficit...................................... (514,224) (514,224)
Accumulated other comprehensive income................... 77,629 77,629
---------- ----------
Total stockholders' equity......................... 954,566 2,086,306
---------- ----------
Total capitalization............................ $2,368,797 $4,500,537
========== ==========
</TABLE>
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<PAGE> 28
DILUTION
As of June 30, 1999, our consolidated net tangible book value was $588.7
million, or $____ per share of common stock, based on the expected number of
450,000,000 shares outstanding upon completion of the equity offering and the
concurrent investments. Consolidated net tangible book value per share
represents the total amount of our consolidated tangible assets, reduced by the
amount of total consolidated liabilities and divided by the number of shares of
common stock outstanding. Tangible assets are defined as our consolidated
assets, excluding intangible assets such as goodwill. After giving effect to the
equity offering and the concurrent investments, after deducting underwriting
discounts and commissions and estimated expenses, the recharacterization of $200
million of paid-in capital to amounts due to Williams and after application of
the net proceeds from the offerings and the concurrent investments, our net
consolidated tangible book value at June 30, 1999 would have been approximately
$1.72 billion, or $____ per share. This represents an immediate increase in
consolidated net tangible book value of approximately $____ per share to
Williams and an immediate dilution of $____ per share to new investors in the
equity offering.
Dilution per share represents the difference between the price per share to
be paid by new investors and the net consolidated tangible book value per share
immediately after the equity offering and the concurrent investments. The
following table illustrates the per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
----------
Consolidated net tangible book value before the equity
offering, the concurrent investments and the
recharacterization of $200 million of paid-in capital to
amounts due to Williams...................................
-----
Consolidated increase per share attributable to new
investors, including the concurrent investments...........
-----
Adjusted consolidated tangible book value per share after
the equity offering, the concurrent investments and the
recharacterization of $200 million of paid-in capital to
amounts due to Williams...................................
----------
Net consolidated tangible book value dilution per share to
new investors............................................. $
----------
</TABLE>
This table does not take into account the issuance of deferred shares or
the exercise of options to be granted at the time of the completion of the
equity offering. See the section of this prospectus entitled "Management -- New
stock-based and incentive plans of our company." If these amounts had been taken
into consideration, assuming the exercise of all options and the receipt of the
full amount of cash consideration, the dilution per share to new investors would
have been reduced by $____ per share.
The following table sets forth, on a pro forma basis at June 30, 1999, the
number of shares of common stock purchased from us, the total consideration paid
to us and the average price per share paid to us by Williams, by SBC, by Intel,
by Telefonos de Mexico and by the new investors purchasing shares of common
stock in the equity offering, before deducting estimated underwriting discounts
and commissions and estimated expenses of the equity offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- -------------- ------- -------------
<S> <C> <C> <C> <C> <C>
Williams..................... % $ % $
SBC, Intel and Telefonos de
Mexico..................... $
Investors in the equity
offering................... $
----------- ----- -------------- -----
Total................... 100.0% $ 100.0% $
=========== ===== ============== =====
</TABLE>
24
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
In the table below, we provide you with historical selected consolidated
financial and operating data derived from our consolidated financial statements.
We have prepared the financial information using our consolidated financial
statements for the five years ended December 31, 1998 and the six months ended
June 30, 1999 and 1998. Our consolidated balance sheets as of December 31, 1998
and 1997 and the related consolidated statements of operations, stockholder's
equity, and cash flows for each of the three years in the period ended December
31, 1998 have been audited by Ernst & Young LLP, independent auditors, whose
report is based in part on the reports of Arthur Andersen S/C, independent
public accountants. When you read these historical selected consolidated
financial and operating data, it is important that you also read the section of
this prospectus entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and related notes included in this prospectus.
In January 1995, Williams sold its network business to LDDS for
approximately $2.5 billion. The sale included Williams' nationwide fiber optic
network and the associated consumer, business and carrier customers. Along the
original nationwide network, Williams kept an approximately 9,700 route-mile
single-fiber network, comprised of a single fiber optic strand and associated
equipment, its telecommunications equipment distribution business and Vyvx, a
leading provider of multimedia fiber transmission for the broadcast industry.
The single-fiber network can only be used to transmit video and multimedia
services, including Internet services, through July 1, 2001. The single-fiber
network, along with Vyvx, our solutions unit and a number of acquired companies,
formed the basis for what is today our company. See Note 2 to our consolidated
financial statements for a description of acquisitions in 1996 through 1998.
Williams has contributed international communications assets to our
company. When we talk about our company and in the presentation of our financial
information, we include the international assets which Williams has contributed
to us.
We have prepared the accompanying table to reflect the historical
consolidated financial information of our company as if we had operated as a
stand alone business throughout the periods presented. The historical financial
information may not be indicative of our future performance and does not
necessarily reflect what our financial position and results of operations would
have been had we operated as a separate, stand alone entity during the periods
covered.
Pro forma earnings per share is based upon an assumed 450,000,000 shares of
capital stock outstanding after the equity offering and the concurrent
investments and does not include any exercise of the underwriters' overallotment
option or the issuance of shares of common stock pursuant to deferred share
awards or option grants under our company's stock-based plans for directors,
officers and other employees. Pro forma net loss has been adjusted to include
the interest expense impact of $1.3 billion of debt with an interest rate of 9%
as if the debt had been issued on January 1, 1998.
In connection with the equity offering, we will issue deferred shares of
our common stock and grant options to purchase our common stock to directors and
selected officers and other employees of our company and Williams. Some of the
deferred shares and options are expected to be issued or granted to electing
employees in exchange for existing deferred shares of Williams common stock or
options to purchase Williams common stock on a basis intended to preserve their
economic value. We will account for the options granted in exchange for existing
Williams options as new fixed awards and record compensation expense over the
vesting period for the options based on the difference between the initial
public offering price and the exercise price of the new options. Compensation
expense for the deferred shares, whether issued in
25
<PAGE> 30
exchange for Williams deferred shares or newly issued, will be recorded over the
vesting period based on the initial public offering price. Assuming that
employees elect to exchange all eligible deferred shares and options, based upon
current economic value, we estimate that the compensation expense relating to
the options and deferred shares will be approximately $____ million over the
vesting periods, of which we estimate that approximately $____ million will be
expensed during the remainder of 1999 and approximately $____ million will be
expensed annually in 2000, 2001 and 2002.
Included in other financial data are EBITDA amounts. EBITDA represents
earnings before interest, income taxes, depreciation and amortization and other
non-recurring or non-cash items, such as equity earnings or losses and minority
interest. Excluded from the computation of EBITDA are charges in 1999, 1998 and
1997 included in other expense of $26.7 million, $23.2 million and $36.0
million, respectively, described below and the gains recognized in 1997 and 1996
of $44.5 million and $15.7 million described below. EBITDA is used by management
and certain investors as an indicator of a company's historical ability to
service debt. Management believes that an increase in EBITDA is an indicator of
improved ability to service existing debt, to sustain potential future increases
in debt and to satisfy capital requirements. However, EBITDA is not intended to
represent cash flows for the period, nor has it been presented as an alternative
to either operating income, as determined by generally accepted accounting
principles, nor as an indicator of operating performance or cash flows from
operating, investing and financing activities, as determined by generally
accepted accounting principles, and is thus susceptible to varying calculations.
EBITDA as presented may not be comparable to other similarly titled measures of
other companies. We expect that under the permanent credit facility, which we
expect to enter into on or before September 1, 1999, our discretionary use of
funds reflected by EBITDA will be limited in order to conserve funds for capital
expenditures and debt service.
The Statement of Operations Data reflects the following items and events
that affect comparability with other years as follows:
- In January 1995, Williams sold its network business to LDDS for
approximately $2.5 billion. The sale included Williams' nationwide fiber
optic network and the associated consumer, business and carrier
customers. We accounted for the sale as a disposal of a business segment
and accordingly have reported the results of the sold business as
discontinued operations.
- In 1996, we recognized a gain of $15.7 million from the sale of rights to
use communications frequencies for approximately $38.0 million.
- In April 1997, we purchased Nortel's equipment distribution business,
which we then combined with our equipment distribution business to create
Solutions LLC. This combination effectively doubled the size of our
solutions unit. We recorded the 30% ownership reduction in our operations
contributed to Solutions LLC as a sale to Nortel and recognized a gain of
$44.5 million based on the excess of the fair value over the net book
value. In 1997, we began to recognize a minority interest in income
(loss) of subsidiaries.
- In October 1997, management and ownership of the single-fiber network
were transferred from our strategic investments unit to our network unit
and intercompany transfer pricing was established prospectively. In
addition, consulting, outsourcing and the management of Williams'
internal telephone operations, activities previously performed within our
strategic investments unit, were transferred to our network unit. For
comparative purposes, the 1996 and 1997 consulting, outsourcing and
internal telephone management
26
<PAGE> 31
activities previously performed in our strategic investments unit that
were transferred to our network unit have been reflected in our network
unit's results. See Note 3 to our consolidated financial statements for
more information regarding segment disclosures.
- Other expense in 1997 included $36.0 million of charges primarily related
to the decision to sell our learning content business and the write-down
of assets and development expenses associated with other activities in
the strategic investments unit. Other expense in 1998 included a $23.2
million loss related to exiting a venture in the strategic investments
unit involved in the transmission of business information for news and
educational purposes. Other expense for the six months ended June 30,
1999 included $26.7 million of charges related to the sale of our audio
and video conferencing and closed-circuit video broadcasting services
businesses.
- Williams has historically been the primary funding source for our
activities. In 1997, most of our funding was through direct capital
contributions. Prior to 1997 and in 1998, funding included
interest-bearing related party borrowings. In 1997 and 1998, we began the
process of capitalizing interest associated with the construction of
assets.
- In the fourth quarter of 1998, we began to recognize revenues from dark
fiber leases accounted for as sales-type leases. Dark fiber revenues for
this period were $64.1 million. Revenues from dark fiber for the six
months ended June 30, 1999 were $71.9 million.
- Under our tax sharing arrangement with Williams, after the equity
offering we will generally receive the benefit of net operating losses
only while we remain part of Williams' consolidated tax group and only to
the extent we would be able to utilize them if we filed separate income
tax returns. If we had filed separate federal income tax returns for 1997
and 1998, the deferred federal income tax benefit would have been
increased by approximately $12.8 million and $5.6 million. These amounts
reflect the benefit of a net deferred tax asset for federal net operating
loss carryforwards to the extent of the existing net deferred tax
liability that would have been reflected by us on a separate filing
basis.
- The recharacterization of $200 million of paid-in capital to amounts due
to Williams.
27
<PAGE> 32
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------- ------------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues:
Network................. $ 197,389 $ 52,042 $ 194,936 $ 43,013 $ 11,063 $ -- $ --
Solutions............... 692,492 672,096 1,367,404 1,189,798 568,072 494,919 396,640
Strategic Investments... 133,469 102,612 221,410 217,966 132,477 44,000 18,247
Eliminations............ (22,211) (25,024) (50,281) (22,264) (6,425) -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total
revenues..... 1,001,139 801,726 1,733,469 1,428,513 705,187 538,919 414,887
Operating expenses:
Cost of sales........... 765,742 587,238 1,294,583 1,043,932 517,222 402,336 316,891
Selling, general and
administrative....... 265,352 205,296 487,073 329,513 152,484 93,560 78,552
Provision for doubtful
accounts............. 11,810 2,696 21,591 7,837 2,694 2,932 3,866
Depreciation and
amortization......... 57,912 39,409 84,381 70,663 32,378 21,050 18,554
Other................... 26,913 1,033 34,245 39,269 500 (1,240) (224)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total operating
expenses..... 1,127,729 835,672 1,921,873 1,491,214 705,278 518,638 417,639
------------ ------------ ------------ ------------ ------------ ------------ ------------
Income (loss) from
operations.............. (126,590) (33,946) (188,404) (62,701) (91) 20,281 (2,752)
Interest accrued.......... (29,033) (6,250) (18,650) (8,714) (17,367) (13,999) (7,405)
Interest capitalized...... 8,798 4,556 11,182 7,781 -- -- --
Equity losses............. (18,682) (2,739) (7,908) (2,383) (1,601) (72) 243
Investing income.......... 4,762 1,267 1,931 670 296 405 41
Minority interest in
(income) loss of
subsidiaries............ 11,272 (4,904) 15,645 (13,506) -- -- --
Gain on sale of interest
in subsidiary........... -- -- -- 44,540 -- -- --
Gain on sale of assets.... -- -- -- -- 15,725 -- --
Other income (loss),
net..................... (758) (44) 178 508 (108) 148 44
------------ ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
28
<PAGE> 33
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------- ------------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from
continuing operations
before income taxes..... (150,231) (42,060) (186,026) (33,805) (3,146) 6,763 (9,829)
(Provision) benefit for
income taxes............ (45,834) 1,183 5,097 (2,038) (368) (8,380) (2,710)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Loss from continuing
operations.............. (196,065) (40,877) (180,929) (35,843) (3,514) (1,617) (12,539)
Income from discontinued
operations.............. -- -- -- -- -- 1,018,800 94,001
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net income (loss)......... $ (196,065) $ (40,877) $ (180,929) $ (35,843) $ (3,514) $ 1,017,183 $ 81,462
============ ============ ============ ============ ============ ============ ============
Historical per share data
(basic):
Loss from continuing
operations........... $ (196,065) $ (40,877) $ (180,929) $ (35,843) $ (3,514) $ (1,614) $ (12,539)
Income from discontinued
operations........... $ -- $ -- $ -- $ -- $ -- $ 1,018,800 $ 94,001
Net income (loss)....... $ (196,065) $ (40,877) $ (180,929) $ (35,843) $ (3,514) $ 1,017,183 $ 81,462
Weighted average shares
outstanding.......... 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Pro forma per share data
(basic):
Loss from continuing
operations........... $ (.57) $ (.22) $ (.66) $ (.08) $ (.01) $ -- $ (.03)
Income from discontinued
operations........... $ -- $ -- $ -- $ -- $ -- $ 2.26 $ .21
Net income (loss)....... $ (.57) $ (.22) $ (.66) $ (.08) $ (.01) $ 2.26 $ .18
Weighted average shares
outstanding.......... 450,000,000 450,000,000 450,000,000 450,000,000 450,000,000 450,000,000 450,000,000
</TABLE>
29
<PAGE> 34
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------- ------------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA.................... $ (42,024) $ 5,463 $ (80,873) $ 44,005 $ 32,287 $ 41,331 $ 15,802
Ratio of earnings to fixed
charges................. -- -- -- -- -- 1.43 --
(Deficiency) excess of
earnings to cover fixed
charges................. $ (151,619) $ (38,973) $ (204,945) $ (25,697) $ (1,545) $ 6,856 $ (9,829)
Net cash provided by (used
in) operating
activities.............. (37,432) (74,762) (298,710) 147,858 (1,775) 34,144 41,389
Net cash provided by
financing activities.... 898,926 324,122 890,623 225,953 226,009 47,022 27,764
Net cash used in investing
activities.............. (829,792) (253,125) (561,199) (363,494) (224,186) (81,189) (58,844)
Capital expenditures...... 571,887 255,671 403,104 276,249 66,900 32,412 12,616
BALANCE SHEET DATA:
Working capital........... $ 424,178 $ 224,771 $ 284,358 $ 150,965 $ 145,865 $ 80,989 $ 64,110
Net assets of discontinued
operations.............. -- -- -- -- -- -- 743,622
Property, plant and
equipment, net.......... 1,063,335 631,611 711,404 407,652 174,091 98,128 70,415
Total assets.............. 3,174,138 1,712,575 2,337,546 1,506,034 721,687 413,630 1,086,329
Long-term debt, including
long-term debt due
within one year......... 1,414,603 230,339 624,420 126,941 2,702 189,031 164,067
Total liabilities......... 2,219,572 755,193 1,330,864 643,332 194,434 319,409 340,831
Total stockholders'
equity.................. 954,566 957,382 1,006,682 862,702 527,253 94,221 745,498
</TABLE>
30
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
our consolidated financial statements and related notes included in this
prospectus. You can find additional information concerning our businesses and
strategic investments and alliances in the section of this prospectus entitled
"Business."
OVERVIEW
We own or lease, operate and are extending a nationwide fiber optic network
and provide a comprehensive array of communications products and services for
organizations of all sizes through our network unit and our solutions unit.
Through our third business unit, the strategic investments unit, we make
investments in, or own and operate, domestic and foreign businesses that create
demand for capacity on the Williams network, increase our service capabilities,
strengthen our customer relationships, develop our expertise in advanced
transmission electronics or extend our reach. We also enter into strategic
alliances with communications companies to secure long-term, high-capacity
commitments for traffic on the Williams network and to enhance our service
offerings.
In January 1995, Williams sold its network business to LDDS for
approximately $2.5 billion. The sale included Williams' nationwide fiber optic
network and the associated consumer, business and carrier customers. Williams
excluded from the sale the single-fiber network, its telecommunications
equipment distribution business and Vyvx. The single-fiber network, along with
Vyvx, our solutions unit and a number of acquired companies, formed the basis
for what is today our company. See Note 2 to our consolidated financial
statements for a description of acquisitions in 1996 through 1998.
On May 27, 1999, Williams contributed its international communications
assets to our company. When we talk about our company and in the presentation of
our financial information, we include the international assets which Williams
contributed to us.
In October 1997, management and ownership of the single-fiber network were
transferred from our strategic investments unit to our network unit and
intercompany transfer pricing was established prospectively. In addition,
consulting, outsourcing and the management of Williams' internal telephone
operations, activities previously performed within our strategic investments
unit, were transferred to our network unit. For comparative purposes, the 1996
and 1997 consulting, outsourcing and internal telephone management activities
previously performed in our strategic investments unit that were transferred to
our network unit have been reflected in our network unit's segment results. See
Note 3 to our consolidated financial statements for more information regarding
segment disclosure.
Our consolidated financial statements and this section have been prepared
to reflect the historical consolidated financial information of our company as
if we had operated as a stand alone business throughout the periods presented.
As a result of the expansion of our fiber optic network, we expect a
significant change in our revenue mix over the next few years. In 1998, our
network unit contributed approximately 11.2% of our total consolidated revenues,
our solutions unit contributed approximately 78.9% of our total consolidated
revenues and our strategic investments unit primarily contributed the remainder.
Throughout 1999 and 2000, we expect our network unit to contribute an increasing
percentage of our total consolidated revenues and by 2001 we expect our network
unit to contribute the largest percentage of our revenues and to be the primary
source of our income from operations on a consolidated basis. In addition, as a
result of our alliances, we expect a
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<PAGE> 36
higher concentration of revenue from SBC, Intel and Telefonos de Mexico. Over
the next few years, revenue increases in our solutions unit are expected to be
modest, with higher revenue growth expected during the same period in our
strategic investments unit.
OUR NETWORK UNIT
Our network unit's business consists of network services and revenues
generated from dark fiber. Our network services include:
- packet-based data services
- private line services, which are dedicated direct connections between
locations
- voice services
- local calling area services
- optical wave services, which allow a customer exclusive long-term use of
a portion of the transmission capacity of a fiber optic strand
- network design and operational support
These services are provided under capacity service arrangements. Capacity
service arrangements typically have terms ranging from months to many years.
Pricing is generally based on the amount of capacity provided, minutes of use,
distance of communication, jurisdiction regulating the service and other
factors, and is often based on a form of agreement which requires minimum
payments regardless of the amount of service used. These agreements are known as
take-or-pay commitments. Customers are typically billed for capacity services on
a monthly basis and the agreements generally have payment terms of 30 days. Our
network unit's revenues also include intercompany and affiliate revenues for our
management of Williams' internal telephone operations and our management of the
single-fiber network.
Beginning in 1998, our revenues also included dark fiber leases accounted
for as sales-type leases. A dark fiber lease conveys rights to use strands of
fiber optic cable on the Williams network with the purchaser providing its own
optical equipment to transmit light signals over the fiber optic strands. An
agreement for a dark fiber lease typically has a term which approximates the
economic life of a fiber optic strand, which is generally 20 to 30 years.
Usually, the customer pays for the dark fiber with a down payment due upon
execution of the agreement and the balance due upon delivery to and acceptance
by the customer of the fiber. For these sales-type leases, revenue is generally
recognized at the time of delivery and acceptance of the fiber. However, see
"Accounting pronouncements" below for a discussion of future revenue recognition
related to dark fiber leases. The customer also pays for the use of equipment
space in sites along the route of the fiber optic cable and for our network
unit's maintenance of the cable. Dark fiber leases that do not meet the criteria
for sales-type lease accounting are accounted for as operating leases and the
cash received is recognized as revenue over the term of the lease.
Our network unit's cost of sales for capacity service arrangements include
off-net capacity costs, which are costs of network capacity attributable to
using other carrier networks, local access costs, which are the costs of
connecting the Williams network to customer locations via local access
facilities, and operations and maintenance personnel costs. Construction costs
associated with dark fiber leases accounted for as sales-type leases primarily
include cable installation, construction of buildings to house equipment,
acquisition of rights of way and real estate purchase costs determined on an
average cost basis for the applicable portion of the network route sold.
As a result of our expansion of the Williams network and as a result of our
alliances with SBC, Intel and Telefonos de Mexico, we expect a significant
change in our network unit's revenue mix over the next few years. By 2001,
revenues from our network unit are expected to
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<PAGE> 37
consist primarily of voice services and packet-based data service for
communications transmissions. In 1998 and the first six months of 1999,
approximately 33% and 36%, respectively, of our network unit's total revenues
were generated from dark fiber. However, as a result of recent accounting
pronouncements discussed below, we do not expect this level of revenues from
dark fiber transactions to continue.
We evaluate our grants to customers of rights in dark fiber under lease
accounting rules. Certain of our grants of rights in dark fiber were accounted
for as sales-type leases even though title does not actually transfer to our
customers under our existing grants of rights in dark fiber. Sales-type lease
accounting effectively treats a transaction as a sale, resulting in the
recognition of revenues and cost of sales. Through June 30, 1999, all of our
network unit's revenues included in the category of dark fiber represented
revenues recorded from transactions accounted for as sales-type leases.
In June 1999, the Financial Accounting Standards Board issued a new
interpretation effective for transactions entered into after June 30, 1999 that
has the effect of requiring transfer of title to be an included element in order
to account for a grant of rights in dark fiber as a sales-type lease.
Accordingly, sales-type lease accounting will no longer be appropriate for the
grants of rights in dark fiber for transactions entered into after June 30,
1999. Transactions for which title is not transferred will be accounted for as
operating leases with revenues recognized ratably over the term of the grant of
the rights in dark fiber.
See "Accounting pronouncements" below for additional discussion of future
revenue recognition related to dark fiber leases.
OUR SOLUTIONS UNIT
Our solutions unit's revenues primarily consist of sales and installation
of voice and data communications equipment and the service and maintenance of
this equipment. Revenues from voice equipment are derived from sales of private
branch exchange systems and key systems and the applications and upgrades
associated with these systems. A private branch exchange system is a switching
system of connections within an office building which allows calls from outside
the building to be routed to the individual instead of through a central number.
A key system is an on-site telephone system for smaller organizations. Like a
private branch exchange system, a key system switches calls to and from the
public network as well as within an organization. Applications and upgrades
associated with these systems include voice messaging and call centers, which
are offices with multiple persons making and answering calls and performing
functions such as taking orders, answering service- and product-related
questions and telemarketing. Revenues from data equipment consist mainly of the
sale of the following:
- routers, which connect two or more data networks
- switches, which are devices that open, close, select or complete paths
through which the transmission signal flows to connect to its destination
- hubs, which are devices on a data network to which other devices such as
printers and computers are connected
- other equipment that comprise corporate voice and data networks
We expect the provision of professional services will generate an
increasing portion of our solutions unit's revenue growth. Professional services
include the design and operational support of voice, data and integrated
networks for companies and organizations, call center design and installation
and Internet network design and implementation. Professional services are
typically
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<PAGE> 38
higher margin services due to the increased complexity and expertise required.
These services are billed in one of three ways:
- as part of an equipment or network package
- separately as a contract
- separately on an hourly basis
Our solutions unit's cost of sales consists primarily of cost of goods,
labor costs for design and installation and operations and maintenance personnel
costs.
Issues relating to our solutions unit's business performance. Our
solutions unit's sales and operating losses were $1.37 billion and $59.0 million
in 1998 compared to sales and operating income of $1.19 billion and $37.1
million in 1997. In April 1997, we purchased Nortel's equipment distribution
business, which we then combined with our equipment distribution business to
create Solutions LLC. On a pro forma basis assuming the two businesses had been
combined for the entire year, sales and operating income would have been $1.44
billion and $45.6 million in 1997.
We have experienced difficulties in integrating our equipment distribution
business with Nortel's equipment distribution business and in managing the
increased complexity of our business. These difficulties include:
- inability to operate and manage our business effectively with the
multiple non-integrated management information systems which we have as a
result of the combination with Nortel as well as acquisition activity by
both us and Nortel prior to our business combination
- insufficient resources at management levels to manage the operations and
finances of the combined business
- management turnover
- sales force turnover, including the loss of approximately 200 sales
representatives, or approximately 25% of our total of approximately 850
sales representatives, in the first quarter of 1998
- inability to accurately track customers' orders, billings and collections
- lack of brand recognition due to the change from the "WilTel" and
"Nortel" names
- lower customer satisfaction due to service and delivery disruptions and
billing errors
- inability to manage employee productivity and achieve operational
efficiencies
- inability to accurately track selling, general and administrative
expenses
- inability to accurately calculate sales compensation in a timely manner
- increased selling, general and administrative costs
Our solutions unit's operating results in 1998 were also negatively
affected by the expansion of our professional services business, which led to
increased administrative costs for 1998 without the corresponding revenue
benefit we would expect from this expenditure going forward.
We are taking the following initiatives to address these issues:
- implementing standard operating and financial management information
systems throughout our organization, a process which will continue
throughout 1999
- continuing to rebuild our sales force by adding approximately 200 sales
representatives in 1998, correcting sales compensation issues and
implementing sales training and development programs
- adding additional resources to address internal control issues
- realignment of our administrative and operating functions in the fourth
quarter of 1998, eliminating approximately $19 million of annualized
overhead costs
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<PAGE> 39
- hiring an external marketing consulting company and investing in an
advertising campaign, both of which will assist us in establishing brand
awareness and improving sales productivity
These and other initiatives began in the second quarter of 1998 and are
continuing throughout 1999. However, we expect that our financial results in
1999 will continue to be adversely affected by the difficulties outlined above.
OUR STRATEGIC INVESTMENTS UNIT
We make investments in, or own and operate, companies that create demand
for capacity on the Williams network, increase our service capabilities,
strengthen our customer relationships, develop our expertise in advanced
transmission electronics or extend our reach. We currently have significant
investments in Concentric Network Corporation, UniDial Communications and
UtiliCom Networks. Our investments in these three domestic companies represent
less than a 20% ownership, and accordingly we account for these investments
using the cost method of accounting. Under the cost method, our financial
results are not impacted by our percentage ownership interest in the results and
operations of these companies.
Williams has contributed to us its interests in communications ventures in
Brazil, Australia and Chile. Our financial results include the international
assets contributed to us. Our investment in Brazil is accounted for under the
equity method. Our investment in Australia is consolidated. We account for our
investment in Chile under the cost method. In addition, Williams has granted us
an option to acquire its entire equity and debt interests in Algar Telecom S/A,
a Brazilian telecommunications company, at net book value. We may exercise this
option at any time from January 1, 2000 to January 1, 2001 and pay the exercise
price entirely in our Class B common stock. See the section of this prospectus
entitled "Business -- Strategic investments -- International -- Algar Telecom"
for more information.
In addition, revenues from our strategic investments unit are derived from
Vyvx and other businesses which we own and operate. These businesses provide:
- distribution of video and audio signals of televised sports and news
events from live events to television networks
- distribution of advertisements and other media to local television
stations
Our strategic investments unit's cost of sales consists primarily of
off-net capacity costs and operations and maintenance personnel costs.
RESULTS OF OPERATIONS
In order to meet our strategic objectives, we must increase substantially
the volume of traffic on the Williams network. As a result, we do not believe
that our financial condition or results of operations for prior years serve as a
meaningful indication of our future financial condition or results of
operations. We expect to incur substantial net operating losses for the
foreseeable future and there can be no assurance that we will be able to achieve
or sustain operating profitability in the future.
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<PAGE> 40
The table below summarizes our percentage of revenue by source and
operating expenses as a percentage of total revenues:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------- ---------------------------
1999 1998 1998 1997 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Network.......................... 19.7% 6.5% 11.2% 3.0% 1.6%
Solutions........................ 69.2 83.8 78.9 83.3 80.6
Strategic Investments............ 13.3 12.8 12.8 15.3 18.8
Eliminations..................... (2.2) (3.1) (2.9) (1.6) (1.0)
----- ----- ----- ----- -----
Total revenues................ 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Cost of sales.................... 76.5 73.2 74.7 73.1 73.3
Selling, general and
administrative................ 26.5 25.6 28.1 23.1 21.6
Provision for doubtful
accounts...................... 1.2 0.3 1.2 0.5 0.4
Depreciation and amortization.... 5.8 4.9 4.9 4.9 4.6
Other............................ 2.6 0.2 2.0 2.7 0.1
----- ----- ----- ----- -----
Total operating expenses...... 112.6 104.2 110.9 104.3 100.0
----- ----- ----- ----- -----
Loss from operations............... (12.6)% (4.2)% (10.9)% (4.3)% --
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
CONSOLIDATED RESULTS
We experienced a net loss of $196.1 million for the six months ended June
30, 1999 compared to a net loss of $40.9 million for the six months ended June
30, 1998, an increase of $155.2 million from the prior period. The increase in
net loss included an increase in losses from operations of $92.6 million
(including a charge of $26.7 million related to the sale of our audio and video
conferencing and closed-circuit video broadcasting services businesses), an
increase in equity losses of $15.9 million and an increase in net interest
expense of $18.5 million, somewhat offset by a change in minority interest
results of $16.2 million. Net loss was also increased by $47.0 million pursuant
to our tax sharing agreement with Williams. The depreciation scheduled in 1999
on the Williams network results in a significant deferred tax expense for us in
1999 with no current benefit for the net operating losses generated, as a result
of the tax sharing agreement which we have entered into with Williams. Our
provision for taxes for the six months ended June 30, 1999 increased $47.0
million from a benefit of $1.2 million for the six months ended June 30, 1998 to
a provision of $45.8 million for the six months ended June 30, 1999.
Our network unit accounted for $30.3 million of the increase in losses from
operations, our solutions unit accounted for $33.6 million of the increase in
losses from operations and our strategic investments unit accounted for $26.8
million of the increase in losses from operations, primarily due to the $26.7
million charge referred to above. We discuss these results in detail below by
segment.
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<PAGE> 41
OUR NETWORK UNIT
The table below summarizes our network unit's results for the six months
ended June 30, 1999 and 1998 and for the last three fiscal years:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Dark fiber........................ $ 71,927 $ -- $ 64,100 $ -- $ --
Leased capacity and other......... 96,855 23,282 73,367 16,637 --
Intercompany...................... 21,947 24,750 49,759 21,159 6,145
Affiliates........................ 6,660 4,010 7,710 5,217 4,918
-------- -------- -------- -------- --------
Total revenues................. 197,389 52,042 194,936 43,013 11,063
Operating expenses:
Cost of sales..................... 185,858 40,968 157,379 29,211 4,681
Selling, general and
administrative................. 43,384 20,841 51,499 6,512 632
Provision for doubtful accounts... 40 42 136 -- --
Depreciation and amortization..... 13,481 5,135 13,228 4,012 --
Other............................. 2 203 410 -- --
-------- -------- -------- -------- --------
Total operating expenses....... 242,765 67,189 222,652 39,735 5,313
-------- -------- -------- -------- --------
Income (loss) from operations....... $(45,376) $(15,147) $(27,716) $ 3,278 $ 5,750
======== ======== ======== ======== ========
</TABLE>
Our network unit's revenues increased $145.3 million, or 279%, to $197.4
million for the six months ended June 30, 1999 from $52.1 million for the same
period in 1998. The increase was due primarily to $71.9 million of revenues from
dark fiber leases accounted for as sales-type leases and $68.0 million of
revenues from services provided to customers of the Williams network.
Our network unit's gross profit increased to $11.5 million for the six
months ended June 30, 1999 from $11.1 million for the same period in 1998 while
gross margin decreased to 5.8% for the six months ended June 30, 1999 from 21.3%
for the six months ended June 30, 1998. Our network unit's cost of sales
increased $144.9 million, or 354%, to $185.9 million for the six months ended
June 30, 1999 from $41.0 million for the same period in 1998, due primarily to
$54.2 million of construction costs associated with dark fiber leases accounted
for as sales-type leases, $47.1 million of higher off-net capacity costs
incurred prior to the completion of the Williams network and $16.0 million of
higher operating and maintenance expenses.
Our network unit's selling, general and administrative expenses increased
$22.5 million, or 108%, to $43.4 million for the six months ended June 30, 1999
from $20.8 million for the same period in 1998, due primarily to an increase in
the number of employees and the expansion of the infrastructure to support the
Williams network.
Our network unit's depreciation and amortization increased $8.3 million, or
163%, to $13.5 million for the six months ended June 30, 1999 from $5.1 million
for the same period in 1998, reflecting the impact of completing the
construction of various segments of the Williams network.
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<PAGE> 42
OUR SOLUTIONS UNIT
The table below summarizes our solutions unit's results for the six months
ended June 30, 1999 and 1998 and for the last three fiscal years:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------
1999 1998 1998 1997 1996
-------- -------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
New systems and upgrades....... $403,818 $376,339 $ 791,518 $ 674,604 $306,110
Maintenance and customer
service orders.............. 271,431 289,378 556,392 508,319 251,221
Other.......................... 15,148 4,739 16,029 5,363 9,379
Affiliates..................... 2,095 1,640 3,465 1,512 1,362
-------- -------- ---------- ---------- --------
Total revenues.............. 692,492 672,096 1,367,404 1,189,798 568,072
Operating expenses:
Cost of sales.................. 501,697 487,035 1,009,475 881,112 435,490
Selling, general and
administrative.............. 177,817 152,318 355,014 234,615 105,891
Provision for doubtful
accounts.................... 11,115 1,536 19,231 5,622 1,526
Depreciation and
amortization................ 22,686 18,702 36,637 30,142 16,023
Other.......................... 124 (142) 6,013 1,255 255
-------- -------- ---------- ---------- --------
Total operating expenses.... 713,439 659,449 1,426,370 1,152,746 559,185
-------- -------- ---------- ---------- --------
Income (loss) from operations.... $(20,947) $(12,647) $ (58,966) $ 37,052 $ 8,887
======== ======== ========== ========== ========
</TABLE>
Our solutions unit's revenues increased $20.4 million, or 3%, to $692.5
million for the six months ended June 30, 1999 from $672.1 million for the same
period in 1998. Increases in new systems and upgrades as well as increases in
professional services were offset by decreases in maintenance and customer
service orders. The increase in professional services is primarily attributable
to the October 1998 acquisition of Computer Networking Group, Inc.
Our solutions unit's gross profit increased to $190.8 million for the six
months ended June 30, 1999 from $185.1 million for the same period in 1998,
while gross margin increased to 27.6% for the six months ended June 30, 1999
from 27.5% for the same period in 1998. Our solutions unit's cost of sales
increased $14.7 million, or 3.0%, to $501.7 million for the six months ended
June 30, 1999 from $487.0 million for the same period in 1998, due primarily to
the increased revenue.
Our solutions unit's selling, general and administrative expenses increased
$25.5 million, or 16.7%, to $177.8 million for the six months ended June 30,
1999 from $152.3 million for the same period in 1998. Cost reduction initiatives
implemented in the fourth quarter of 1998 were offset by higher costs
attributable to the CNG acquisition and expansion of the professional services
business.
Our solutions unit's provision for doubtful accounts increased $9.6 million
to $11.1 million for the six months ended June 30, 1999 from $1.5 million for
the same period in 1998. The increase in the provision reflects adjustments to
our reserves based on unresolved billing and collection issues.
Our solutions unit's depreciation and amortization increased $4.0 million,
or 21.3%, to $22.7 million for the six months ended June 30, 1999 from $18.7
million for the same period in 1998, due primarily to the CNG acquisition and
depreciation related to systems infrastructure.
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<PAGE> 43
OUR STRATEGIC INVESTMENTS UNIT
The table below summarizes our strategic investments unit's results for the
six months ended June 30, 1999 and 1998 and for the last three fiscal years:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- --------------------------------
1999 1998 1998 1997 1996
-------- -------- --------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Vyvx............................ $ 79,968 $ 79,689 $ 161,201 $ 162,009 $ 99,974
PowerTel........................ 19,323 -- 11,248 -- --
Other........................... 34,178 22,923 48,961 55,957 32,503
-------- -------- --------- --------- --------
Total revenues............... 133,469 102,612 221,410 217,966 132,477
Operating expenses:
Cost of sales................... 100,398 84,259 178,010 155,873 83,476
Selling, general and
administrative............... 44,151 32,137 80,560 88,386 45,961
Provision for doubtful
accounts..................... 655 1,118 2,224 2,215 1,168
Depreciation and amortization... 21,745 15,572 34,516 36,509 16,355
Other........................... 26,787 972 27,822 38,014 245
-------- -------- --------- --------- --------
Total operating expenses..... 193,736 134,058 323,132 320,997 147,205
-------- -------- --------- --------- --------
Loss from operations.............. $(60,267) $(31,446) $(101,722) $(103,031) $(14,728)
======== ======== ========= ========= ========
ATL and other equity losses....... $(18,682) $ (2,739) $ (7,908) $ (2,383) $ (1,601)
======== ======== ========= ========= ========
</TABLE>
Our strategic investments unit's revenues increased $30.9 million, or 30%,
to $133.5 million for the six months ended June 30, 1999 from $102.6 million for
the same period in 1998. The increase is primarily attributable to $19.3 million
in international activity as a result of the August 1998 acquisition of PowerTel
and $11.3 million in increases primarily related to audio and video conferencing
and closed-circuit video broadcasting services for businesses.
Our strategic investments unit's gross profit increased to $33.1 million
for the six months ended June 30, 1999 from $18.4 million for the same period in
1998, while gross margin increased to 24.8% for the six months ended June 30,
1999 from 17.9% for the same period in 1998. Our strategic investments unit's
cost of sales increased $16.1 million, or 19.2%, to $100.4 million for the six
months ended June 30, 1999 from $84.3 million for the same period in 1998,
primarily due to $16.7 million in increased costs attributable to the August
1998 acquisition of PowerTel.
Our strategic investments unit's selling, general and administrative
expenses increased $12.0 million, or 37.4%, to $44.2 million for the six months
ended June 30, 1999 from $32.2 million for the same period in 1998, primarily as
a result of the $9.4 million impact of the August 1998 acquisition of PowerTel.
Our strategic investments unit's equity losses increased to $18.7 million
for the six months ended June 30, 1999 from $2.7 million for the same period in
1998 due primarily to the March 1998 investment in ATL-Algar Telecom Leste S.A,
which was formed to acquire a concession for cellular licenses in Brazil in the
states of Rio de Janeiro and Espirito Santo. Following the contribution from
Williams, our investment in ATL totaled $415 million, representing a direct 55%
and indirect 10% economic interest and a direct 19% and indirect 30% voting
interest. On March 11, 1999, the shareholders of ATL, including Williams,
pledged 49% of their common ATL stock and all of their preferred ATL stock as
collateral for a U.S. dollar-
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<PAGE> 44
denominated $521 million loan from Ericsson Project Finance AB to ATL. ATL had
significant pre-operational losses in the construction of a digital cellular
network in 1998 and the six months ended June 30, 1999.
During the second quarter of 1999, management determined that the
businesses that provide audio and video conferencing services and closed-circuit
video broadcasting services for businesses were held for sale. Upon that
determination, we ceased accruing depreciation and amortization for those
businesses. On June 30, 1999, we signed an agreement, which closed effective
July 31, 1999, with Genesys, S.A. to sell our business that provides audio and
video conferencing services. In addition, effective July 31, 1999, we signed and
closed an agreement with Cyberstar L.P. to sell our business which provides
closed-circuit video broadcasting services for businesses. Proceeds from these
two transactions totalled approximately $50.0 million. In the second quarter of
1999 we recognized a pre-tax loss of $26.7 million related to the sales of these
businesses consisting of a $22.8 million impairment charge to write-down the
assets to fair value based on the expected net sales proceeds and exit costs of
$3.9 million, consisting of $2.8 million of contractual obligations and $1.1
million of employee-related costs.
CONSOLIDATED NON-OPERATING COSTS
Our net interest expenses for the six months ended June 30, 1999 increased
$18.5 million from the same period of the prior year as interest expense
incurred to finance operations and capital expenditures exceeded amounts
capitalized for the period by $20.2 million. Our minority interest (income) loss
is attributable to Nortel's 30% ownership of Solutions LLC as well as the other
PowerTel stockholders' 64% ownership since February 1999 and 78% ownership prior
to February 1999. The change in minority interest resulted in an increase in
income for the six months ended June 30, 1999 of $11.3 million compared to a
reduction in income for the same period in 1998 of $4.9 million. The 1999 amount
attributable to Nortel is $5.3 million and the 1999 amount attributable to
PowerTel is $6.0 million. In 1998, the minority interest amount was all
attributable to Nortel.
For the six months ended June 30, 1999, we recorded a tax provision of
$45.8 million, compared to a tax benefit of $1.2 million for the same period in
1998. The increase in our tax provision is primarily due to an increase in our
deferred taxes pursuant to our tax sharing agreement with Williams. The
depreciation of the Williams network that has begun resulted in a significant
deferred tax expense for us in 1999 with no current benefit for the net
operating losses generated under the tax sharing agreement. Under our tax
sharing agreement with Williams, after the equity offering we will generally
receive the benefit of net operating losses only while we remain part of the
Williams consolidated tax group and only to the extent we would be able to
utilize them if we filed separate income tax returns.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
CONSOLIDATED RESULTS
We experienced a net loss of $180.9 million in 1998 compared to a net loss
of $35.8 million in 1997, an increase of $145.1 million from 1997. The increase
in our net loss is primarily attributable to an increase in losses from
operations of $125.7 million, which we discuss in detail below by segment. The
increase in net loss is offset somewhat by a change in minority interest results
of $29.2 million and a tax benefit of $5.1 million compared with a tax expense
of $2.0 million in 1997. Our 1997 results were also affected by the occurrence
of a $44.5 million non-recurring gain on the sale of a 30% interest in Solutions
LLC to Nortel.
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Our network unit accounted for $31.0 million of the increase in losses from
operations and our solutions unit accounted for $96.0 million of the increase in
losses from operations, partially offset by a $1.3 million decrease in losses
from operations in our strategic investments unit.
OUR NETWORK UNIT
Our network unit's revenues increased $151.9 million, or 353%, to $194.9
million in 1998 from $43.0 million in 1997. The increase in 1998 was due
primarily to $64.1 million of revenues from dark fiber leases accounted for as
sales-type leases, $49.5 million of revenues from services provided to new
long-term customers of the Williams network and $28.6 million higher
intercompany revenues following the transfer of the single-fiber network from
our strategic investments unit to our network unit in October 1997 and the
establishment of intercompany transfer pricing.
Our network unit's gross profit increased to $37.6 million in 1998 from
$13.8 million in 1997, while gross margin decreased to 19.2% in 1998 from 32.1%
in 1997. Our network unit's cost of sales increased $128.2 million, or 439%, to
$157.4 million in 1998 from $29.2 million in 1997, due primarily to $38.5
million of construction costs associated with dark fiber leases accounted for as
sales-type leases, $54.8 million of off-net capacity costs incurred prior to
completion of the Williams network and $17.1 million of higher operating and
maintenance expenses. Costs associated with higher intercompany revenues
primarily account for the remainder of the increased cost.
Our network unit's selling, general and administrative expenses increased
$45.0 million, or 692%, to $51.5 million in 1998 from $6.5 million in 1997, due
primarily to an increase in the number of employees and the expansion of the
infrastructure to support the Williams network, including $7.7 million of
increased information systems costs and $8.0 million for a new national
advertising campaign.
Our network unit's depreciation and amortization increased $9.2 million, or
230%, to $13.2 million in 1998 from $4.0 million in 1997, due to the transfer of
the single-fiber network from our strategic investments unit to our network
unit.
OUR SOLUTIONS UNIT
In 1997 and 1998, several integration issues relating to the combination of
Nortel's equipment distribution business with ours had an adverse impact on our
solutions unit's operating results. Although these issues began in 1997, our
financial results were not materially adversely impacted until 1998. See the
section above entitled "-- Overview -- Our solutions unit -- Issues relating to
our solutions unit's business performance." Write-offs of previously capitalized
software costs in favor of new systems, end of the year severance plans and the
modification of an employee benefit plan also had an adverse impact on the
operating results. Consequently, our solutions unit's total segment operating
results declined from operating income of $37.1 million in 1997 to an operating
loss of $59.0 million in 1998.
Our solutions unit's revenues increased $177.6 million, or 15%, to $1.37
billion in 1998 from $1.19 billion in 1997, due primarily to an increase of
$195.5 million arising from the additional four months of combined operations
with Nortel's equipment distribution business in 1998 as compared to 1997. While
maintenance contract revenues increased in 1998, the increase was offset by a
reduction in new system sales and fewer customer service orders due, in part, to
competitive pressures and the integration issues discussed above. See the
section above entitled "-- Overview -- Our solutions unit -- Issues relating to
our solutions unit's business performance."
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Our solutions unit's gross profit increased to $357.9 million in 1998 from
$308.7 million in 1997, while gross margin increased to 26.2% in 1998 from 25.9%
in 1997. Our solutions unit's cost of sales increased $128.4 million, or 15%, to
$1.01 billion in 1998 from $881.1 million in 1997, due primarily to an increase
of $121.4 million arising from an additional four months of combined operations
with Nortel in 1998 as compared to 1997. $49.4 million of the increased costs
are attributable to direct costs associated with new systems and upgrades
revenues and $43.5 million of the increased costs are direct costs associated
with maintenance and customer service orders revenues. $31.6 million of the
increased costs are attributable to higher indirect costs which are primarily
attributable to maintenance and customer service orders revenues.
Our solutions unit's selling, general and administrative expenses increased
$120.4 million, or 51%, to $355.0 million in 1998 from $234.6 million in 1997.
The increase was due to an increase of $48.4 million arising from an additional
four months of combined operations with Nortel. Also contributing to the
increase was $23.3 million of increased information systems costs associated
with infrastructure expansion and enhancement and the continued costs of
maintaining multiple systems while common systems were being developed. In
addition, $36.0 million of increased costs was due to additions to sales
personnel and support staff and higher sales commission rates than anticipated.
Selling, general and administrative costs in 1998 also included fourth quarter
charges of $8.7 million. The charges consisted of $5.8 million related to the
modification of our solutions unit's employee benefits program to increase the
number of vested days in the new paid time off policy, including a change with
regard to sick pay. The remaining charge of $2.9 million was for the severance
of 133 employees who were terminated in December 1998 and to whom we paid
severance benefits during January 1999. Additionally, an expansion of our
professional services business increased administrative expenses.
Provision for doubtful accounts increased $13.6 million, or 242%, to $19.2
million in 1998 from $5.6 million in 1997. This increase was due to our
inability to accurately bill our customers and to collect payment from our
customers in a timely manner.
Our solutions unit's depreciation and amortization increased $6.5 million,
or 22%, to $36.6 million in 1998 from $30.1 million in 1997, due primarily to an
increase of $5.4 million arising from an additional four months of combined
operations with Nortel in 1998 as compared to 1997. The combination with Nortel
resulted in additional goodwill of approximately $180.0 million which is being
amortized over 25 years, resulting in annual amortization expense of
approximately $7.2 million.
Our solutions unit's other operating expense increased $4.7 million, or
379%, to $6.0 million in 1998 from $1.3 million in 1997, due primarily to a
fourth quarter non-cash charge of $5.6 million related to the abandonment of
capitalized software costs in favor of new systems.
OUR STRATEGIC INVESTMENTS UNIT
Our strategic investments unit's revenues increased $3.4 million, or 2%, to
$221.4 million in 1998 from $218.0 million in 1997, due primarily to the $11.2
million impact of our investment in PowerTel and a $9.1 million increase from
audio and video conferencing and closed-circuit video broadcasting services for
businesses. This was partially offset by the $13.7 million impact of exiting our
learning content business. In late 1997, we decided to sell our learning content
business. During 1998, a substantial portion of the learning content business
was sold at its approximate carrying value.
PowerTel Limited is a public company in Australia which plans to build, own
and operate communications networks serving the cities of Brisbane, Melbourne
and Sydney and which plans to provide local services in the central business
districts of these three cities. Our total
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investment represents a 36% economic interest in PowerTel, which will increase
to 45% after we make all of our remaining required cash contributions of $39
million. We also hold options which, if exercised, would increase our interest
by 4%. PowerTel's revenues for the period from Williams' investment on August
14, 1998 through December 31, 1998 consisted of fixed telephone line revenues of
$7.3 million and cellular phone revenues of $3.9 million. Since PowerTel is
accounted for under the principles of consolidation despite our less than 50%
ownership, our consolidated financial statements reflect revenues of $11.2
million and operating expenses of $14.5 million.
Our strategic investments unit's gross profit decreased to $43.4 million in
1998 from $62.1 million in 1997, while gross margin decreased to 19.6% in 1998
from 28.5% in 1997. Our strategic investments unit's cost of sales increased
$22.1 million, or 14%, to $178.0 million in 1998 from $155.9 million in 1997,
due primarily to $15.0 million of costs relating to the existence of
intercompany transfer pricing following the transfer of the single-fiber network
to our network unit in October 1997 and $9.9 million due to our investment in
PowerTel. Cost of sales of PowerTel included $6.8 million related to fixed
telephone line revenues and $3.1 million related to cellular telephone revenues.
Other changes in our strategic investments unit's cost of sales included the
$6.7 million impact of increased activity in audio and video conferencing and
closed-circuit video broadcasting services, partially offset by $5.6 million in
lower costs as a result of our exiting our learning content business.
Our strategic investments unit's selling, general and administrative
expenses decreased $7.8 million, or 9%, to $80.6 million in 1998 from $88.4
million in 1997, due primarily to our exiting the learning content business,
partially offset by $3.7 million in expenses related to PowerTel.
Our strategic investments unit's depreciation and amortization decreased
$2.0 million, or 5%, to $34.5 million in 1998 from $36.5 million in 1997, due
primarily to the absence of depreciation and amortization of $3.9 million
associated with our exiting the learning content business. Decreases in
depreciation associated with the transfer of the single-fiber network to our
network unit in October 1997 were offset by increases related to new video and
teleport equipment. Depreciation and amortization related to PowerTel totaled
$0.9 million.
Our strategic investments unit's other operating expense decreased $10.2
million, or 27%, to $27.8 million in 1998 from $38.0 million in 1997. The 1998
amount included a $23.2 million write-down related to our abandonment of a
venture involved in the technology and transmission of business information. The
write-down occurred as a result of our decision to exit the venture and not to
make further investments in the venture. The write-down was recorded in the
third quarter and we abandoned the venture during the fourth quarter. The
write-down primarily consisted of $17.0 million from the impairment of the total
carrying value of the investment and $5.0 million from the recognition of
contractual obligations that continued after the abandonment. During the fourth
quarter of 1998, $2.0 million of these contractual obligations were paid. Other
operating expenses in 1997 included charges totaling $36.0 million related to
our decision and commitment to sell the learning content business ($22.7
million) and the write-down of assets and development costs. The write-down of
assets and development costs was a result of management's evaluation of certain
business activities because of indications that their carrying values might not
be recoverable.
Our strategic investments unit had 1998 equity losses in ATL of $4.2
million. ATL incurred significant pre-operational losses in the construction of
a digital cellular network in 1998.
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CONSOLIDATED NON-OPERATING COSTS
Our net interest expense increased $6.5 million to $7.5 million in 1998
from $0.9 million in 1997 as a result of our increased borrowings in 1998
compared to 1997, and was offset somewhat by increased capitalization of
interest related to assets under construction. Our cash from financing
activities increased $664.7 million, or 294%, to $890.6 million in 1998 from
$225.9 million in 1997. Most of our 1998 funding was provided by borrowings from
Williams, while most of our 1997 funding was provided by capital contributions
from Williams.
Our minority interest (income) loss is attributable to Nortel's 30%
ownership of Solutions LLC as well as the other stockholders' 78% ownership of
PowerTel. The change in minority interest resulted in an increase in income in
1998 of $15.6 million compared to a reduction of income in 1997 of $13.5
million. This change of $29.1 million was due primarily to operating losses
attributable to our solutions unit in 1998 as compared to operating profit in
1997. In 1997, we recognized a $44.5 million gain on the sale of a 30% ownership
in Solutions LLC to Nortel based on the excess of the fair value over the net
book value of the assets conveyed to Nortel.
In 1998, we recorded a tax benefit of $5.1 million compared to a tax
provision of $2.0 million in 1997. The notes to our consolidated financial
statements include a reconciliation of the expected benefit for income taxes at
the federal statutory rate to the actual provision or benefit. In 1998, the
expected benefit was largely offset by unused operating losses.
Under our tax sharing agreement with Williams, after the equity offering we
will generally receive the benefit of net operating losses only while we remain
part of Williams' consolidated tax group and only to the extent we would be able
to utilize them if we filed separate income tax returns. If we had filed
separate federal income tax returns for 1997 and 1998, the provision (benefit)
for income taxes would generally be unchanged for 1997, and for 1998 the
deferred federal income tax benefit would have been increased by approximately
$5.6 million. This amount reflects the benefit of a net deferred tax asset for
federal net operating loss carryforwards to the extent of the existing net
deferred tax liability that would have been reflected by us on a separate filing
basis.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
CONSOLIDATED RESULTS
We incurred a net loss of $35.8 million in 1997 compared to a net loss of
$3.5 million in 1996, representing an increase in net loss of $32.3 million, or
920%, from the prior year. The increase in net loss was due to increased losses
from operations of $62.6 million and the recording of minority interest expense
of $13.5 million attributable to Nortel's 30% share of the 1997 results of
Solutions LLC. These results were offset by lower net interest expense of $16.4
million and the recognition of a $44.5 million gain on the sale of a 30%
interest in Solutions LLC to Nortel. Our 1996 results were affected by a
non-recurring gain on the sale of communications assets of $15.7 million.
Our network unit accounted for $2.5 million of the increase in losses from
operations. These losses were offset somewhat by an increase in our solutions
unit's operating income of $28.2 million. Our strategic investments unit
accounted for $88.3 million of the increase in losses from operations.
OUR NETWORK UNIT
Our network unit's revenues increased $31.9 million, or 289%, to $43.0
million in 1997 from $11.1 million in 1996, due primarily to $13.6 million in
consulting and outsourcing revenues attributable to the March 1997 acquisition
of Critical Technologies, Inc., a company which
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designs and manages outsourced communications networks. The increase in revenues
was also primarily due to an increase of $15.0 million in intercompany revenues,
including revenues from the transfer of the single-fiber network from our
strategic investments unit to our network unit in October 1997.
Our network unit's gross profit improved to $13.8 million in 1997 from $6.4
million in 1996, while gross margin percentages declined to 32.1% in 1997 from
57.7% in 1996. Our network unit's cost of sales increased $24.5 million, or
524%, to $29.2 million in 1997 from $4.7 million in 1996, due primarily to the
$15.0 million impact of the transfer of the single-fiber network from our
strategic investments unit to our network unit and the $8.0 million impact of
the acquisition of Critical Technologies.
Our network unit's selling, general and administrative expenses increased
$5.9 million to $6.5 million in 1997 from $0.6 million in 1996 as a result of
the acquisition of Critical Technologies.
Our network unit's depreciation and amortization was none in 1996 and
increased to $4.0 million in 1997 as a result of the transfer of the
single-fiber network from our strategic investments unit to our network unit and
the acquisition of Critical Technologies.
OUR SOLUTIONS UNIT
Our solutions unit's revenues increased $621.7 million, or 109%, to $1.19
billion in 1997 from $568.1 million in 1996, due primarily to acquisitions which
contributed revenues of approximately $556.0 million, including $535.6 million
from the April 1997 combination of Nortel's equipment distribution business with
ours.
During 1997, our solutions unit modified its basic contract structure for
new systems and upgrades to separately state prices for the equipment and
services portions of a contract. As a result of this contract structure,
revenues on these contracts are initially recognized upon delivery of the
equipment with the remaining revenues under the contracts being recognized over
the installation period based on the relationship of incurred labor to total
estimated labor. This new contract structure increased revenues by $38.0 million
and operating profit by $6.7 million in 1997. Increased business activity
resulted in an $81.0 million increase in new system sales, partially offset by a
$46.0 million decrease in system upgrade revenues.
Our solutions unit's gross profit increased to $308.7 million in 1997 from
$132.6 million in 1996, while gross margin percentages increased to 25.9% in
1997 from 23.3% in 1996. Our solutions unit's cost of sales increased $445.6
million, or 102%, to $881.1 million in 1997 from $435.5 million in 1996. The
increase was due primarily to the $393.0 million impact of the combination with
Nortel. The remaining increase was attributable to the modification of the
contract structure discussed above, resulting in increased costs of $31.3
million, and to increased business activity.
Our solutions unit's selling, general and administrative expenses increased
$128.7 million, or 122%, to $234.6 million in 1997 from $105.9 million in 1996,
due primarily to the approximately $109.3 million impact of the combination with
Nortel with the remaining costs attributable to expanding the infrastructure and
sales support for anticipated future growth.
Our solutions unit's depreciation and amortization increased $14.1 million,
or 88%, to $30.1 million in 1997 from $16.0 million in 1996, due primarily to
the combination with Nortel.
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OUR STRATEGIC INVESTMENTS UNIT
Our strategic investments unit's revenues increased $85.5 million, or 65%,
to $218.0 million in 1997 from $132.5 million in 1996, due primarily to
acquisitions which contributed revenues of $80.6 million. Our strategic
investments unit's revenues in 1997 also included revenues from our learning
content business for which, in late 1997, we developed a plan for disposal and
defined as an asset held for sale. As detailed in our consolidated financial
statements, a series of acquisitions were completed in 1996 and 1997 which
expanded our strategic investments unit's product offerings to include satellite
links, audio and video conferencing, closed-circuit video broadcasting for
businesses and advertising distribution.
Our strategic investments unit's gross profit increased to $62.1 million in
1997 from $49.0 million in 1996, while gross margins decreased to 28.5% in 1997
from 37.0% in 1996. Cost of sales increased $72.4 million, or 87%, to $155.9
million in 1997 from $83.5 million in 1996, due primarily to the $68.0 million
impact of the acquired operations.
Our strategic investments unit's selling, general and administrative
expenses increased $42.4 million, or 92%, to $88.4 million in 1997 from $46.0
million in 1996, primarily attributable to the acquired operations.
Our strategic investments unit's depreciation and amortization increased
$20.1 million, or 123%, to $36.5 million in 1997 from $16.4 million in 1996,
primarily attributable to the acquired operations.
Our strategic investments unit's other expense increased $37.8 million to
$38.0 million from $0.2 million in 1996, due primarily to charges totaling $36.0
million in 1997 related to our decision and commitment to sell our learning
content business, resulting in a $22.7 million charge, and the write-down of
assets and development costs. The $22.7 million charge consisted of a $21.0
million impairment of the assets to fair value less cost to sell and recognition
of $1.7 million in exit costs, which primarily consisted of employee-related
costs and contractual obligations. Fair value was based on management's estimate
of the expected net proceeds to be received. The write-down of assets and
development costs was a result of management's evaluation of certain of our
strategic investments unit's business activities because of indications that
their carrying values might not be recoverable. This resulted in impairments of
$11.0 million based on management's estimate as to the ultimate recoverable
value of these business activities.
CONSOLIDATED NON-OPERATING COSTS
Our net interest expense decreased $16.4 million to $0.9 million in 1997
from $17.4 million in 1996 as a result of our funding needs and resources in
1997 as compared to 1996 and as a result of the capitalization of interest
beginning in 1997 for network construction projects. Our cash from financing
activities decreased $0.1 million to $225.9 million in 1997 from $226.0 million
in 1996. Most of our 1997 funding was provided by capital contributions from
Williams, while in 1996 funding included both borrowings and capital
contributions from Williams.
Our minority interest expense in 1997 is attributable to Nortel's 30%
ownership of Solutions LLC and resulted in expense in 1997 of $13.5 million
compared to none in 1996. This change was due to the April 1997 combination with
Nortel.
We recognized a $44.5 million gain in 1997 on the sale of the 30% ownership
interest in Solutions LLC to Nortel based on the excess of the fair value over
the net book value of the assets conveyed to Nortel. In 1996, we recorded a gain
of $15.7 million from the sale of communication assets for $38.0 million.
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In 1997, we recorded a tax expense of $2.0 million compared to a tax
expense of $0.4 million in 1996. The notes to our consolidated financial
statements include a reconciliation of the expected benefit to the actual
provision or benefit. The 1997 and 1996 expenses reflect our inability to
utilize net operating losses under our tax sharing agreement with Williams.
LIQUIDITY AND CAPITAL RESOURCES
Our operations currently do not provide positive cash flow. Accordingly, we
have funded capital expenditures, acquisitions and other cash needs through a
combination of borrowings and capital contributions from Williams as well as
external borrowings when required. After the completion of the offerings, we
plan on financing future cash outlays through internally generated and external
funds without relying on cash advances, credit support or contributions from
Williams. Some amounts denominated in dollars represent amounts actually
denominated in foreign currencies. These amounts have been converted from these
currencies as of recent dates.
HISTORICAL FUNDING SOURCES AND USES
Total cash expended from January 1, 1996 to June 30, 1999 to fund capital
expenditures and investments, pay debt and make acquisitions was approximately
$2.63 billion. Of this amount, approximately $811.1 million was expended for
acquisitions and approximately $1.32 billion was used for capital expenditures,
of which approximately $1.19 billion was spent to construct and light the
Williams network. In addition, total cash used in operating activities was
approximately $186.1 million during the same period.
Cash provided during this same period by loans and capital contributions
from Williams totaled approximately $1.78 billion, of which approximately $701
million was for the buildout of the Williams network. Total cash provided by
external borrowings was approximately $1.09 billion. As of June 30, 1999,
working capital was $424.2 million. At December 31, 1998, 1997 and 1996, working
capital was approximately $284.4 million, $151.0 million and $145.9 million,
respectively.
Beginning in July 1997, our solutions unit became a borrower under the
revolving credit facility among Williams, other Williams subsidiaries and
certain banks. Our solutions unit had a commitment of $300 million under this
credit facility. In January 1999, we also became a borrower under this credit
facility and agreed that our borrowings, including those of our solutions unit,
under this facility would not exceed $400 million. Our borrowings under this
facility other than borrowings by our solutions unit are guaranteed by Williams.
During 1999, our total borrowings under this credit facility reached $315
million; however, as of June 30, 1999, all borrowings under this facility had
been repaid utilizing proceeds from the interim loan facility described below
and there was no outstanding balance under this credit facility.
During 1998, we entered into an asset defeasance program. This program
provides funds to a trust which we, as agent for the trust, use to buy and
install fiber optic cable and equipment for portions of our network that we
lease from the trust. As of June 30, 1999, we had spent approximately $495
million under this program. Our obligations under the lease are partially
guaranteed by Williams. For more information regarding our obligations under
this program, see the section of this prospectus entitled "Description of
Indebtedness and Other Financing Arrangements -- Asset defeasance program."
In 1999, we accelerated the schedule for completion of the Williams
network. In order to provide for additional financing needed prior to completion
of the offerings, we entered into a $1.4 billion interim loan facility on April
16, 1999. Our obligations under the interim loan facility are guaranteed by
Williams. The facility terminates on September 30, 1999. As of June 30, 1999,
approximately $610.0 million was outstanding under the interim loan facility.
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We intend to replace the current revolving credit facility and interim loan
facility on or before September 1, 1999 with a $1.0 billion permanent credit
facility for our subsidiary, Williams Communications, Inc. Assuming conditions
to the termination of the guarantee are satisfied, this permanent credit
facility will not be guaranteed by Williams following the completion of the
offerings. For more information regarding the permanent credit facility, see
"Description of Indebtedness and Other Financing Arrangements -- Permanent
credit facility."
Upon the completion of the offerings and the recharacterization of $200
million from paid-in capital to amounts due to Williams, we estimate we will
have approximately $1.0 billion in borrowings from Williams. We will pay a
floating interest rate on borrowings from Williams equal to LIBOR plus a margin
based on our credit rating. See the section of this prospectus entitled
"Capitalization."
ANTICIPATED FUNDING SOURCES AND USES
We anticipate total cash expended from June 30, 1999 through December 31,
2000 to approximate $3.2 billion as set forth in the table below:
PROJECTED SOURCES AND USES
(IN MILLIONS)
<TABLE>
<S> <C>
Sources:
Net proceeds from the equity offering....................... $ 607
Net proceeds from the concurrent investments................ 725
Net proceeds from the notes offering........................ 1,268
Net increase in bank borrowings............................. 370
Asset defeasance program.................................... 255
------
$3,225
======
Uses:
Capital expenditures:
Network................................................... $2,910
Other business units...................................... 230
------
Total capital expenditures....................... 3,140
Intercompany debt........................................... 25
Other....................................................... 60
------
$3,225
======
</TABLE>
FUNDING SOURCES
Some of our funding sources include the following:
- Concurrent investments: We expect to receive approximately $725 million
from the concurrent investments in our company, consisting of $500
million from SBC, $25 million from Telefonos de Mexico and $200 million
from Intel. The concurrent investments are conditioned upon the
completion of the equity offering and the continuation of the respective
alliances. For more detail regarding the concurrent investments and
events which may result in the termination of the alliances, see the
section of this prospectus entitled "Business -- Strategic alliances."
- Notes offering: Concurrently with the equity offering, we expect to
issue in the notes offering approximately $1.3 billion principal amount
of publicly traded debt securities.
- Bank borrowings: We intend to enter into a new $1.0 billion permanent
credit facility that we will use to replace the current revolving credit
facility and pay any outstanding balance on the $1.4 billion interim loan
facility. We will make new borrowings under this new permanent credit
facility as and when needed.
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- Asset defeasance program: The asset defeasance program provides cash
which we may use, as agent for the trust, to buy and install fiber optic
cable and equipment for portions of our network that we lease. We have
the right to acquire these assets from the lessor upon the expiration of
the lease term.
CASH USES
- Network capital expenditures: Our primary anticipated cash need is
funding capital expenditures for our network unit for construction costs,
including the purchase and deployment of fiber optic cable, equipment
costs and other costs including capitalized interest. Our network's
construction contracts typically cover all or a portion of a cable
construction project. While our network may use the same contractors on
different projects, it has no long-term construction agreements. Our
network has long-term equipment purchase contracts with Nortel and Ascend
Communications, Inc. We spent approximately $1.2 billion under our network
capital plan through June 30, 1999. We estimate that during the period
from June 30, 1999 through December 31, 2000, we will spend a total of
approximately $2.9 billion on our network. This amount includes
expenditures made under our asset defeasance program, as agent for the
trust, and expenditures made for dark fiber. We estimate that of this
amount approximately $1.2 billion will be spent for conduit, fiber optic
cable, right of way acquisition and construction costs and approximately
$1.7 billion will be spent for equipment.
- Other: We intend to spend an additional $21.5 million in order to
complete our business units' transition to common information systems.
With respect to our strategic investments unit, we expect to invest an
additional $39 million in PowerTel over the next year.
We believe that the net proceeds from the offerings, the amount funded by
Williams, our borrowings under our bank facilities, the funds available under
the asset defeasance program and proceeds from grants of dark fiber rights will
be sufficient to satisfy our anticipated cash requirements at least through the
end of 2000. However, we cannot assure you that our capital expenditures will
not exceed the amounts we have estimated or that we will be able to obtain the
required funds on terms acceptable to us, either from the sources described
above or other sources. If we are unable to obtain the necessary funds, we may
be required to scale back or defer our planned capital expenditures and,
depending on the cash flow from our then-existing businesses, reduce the scope
of our planned operations. In addition, our ability to expand our business and
enter into new customer relationships may depend on our ability to obtain
additional financing for these projects.
CAPITAL COMMITMENTS
We have the following other capital commitments which we plan to fund with
borrowings from our credit facilities if operating cash flows are not
sufficient:
In addition to the cash uses described above, at June 30, 1999 we had
approximately $280 million remaining on our $400 million commitment to acquire
wireless capacity under our agreement with WinStar described in
"Business -- Strategic alliances -- WinStar," payable over the next four years.
We also have commitments to purchase Nortel's interest in our solutions
unit under certain circumstances. After 1999, Nortel may require us to purchase
up to one-third of its 30% interest in our solutions unit at the then-fair
market value. Nortel may also require us to purchase its entire interest in our
solutions unit at market value in the event of a change in control of either us
or Nortel or in the event our solutions unit's purchases of Nortel equipment do
not meet
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certain targets. To date our solutions unit has met the equipment purchase
targets. In either case, the fair market value would be determined at the time
of the purchase and would be dependent on a number of factors, some of which are
subjective. We intend to fund any required purchase out of operating cash flows
or from borrowings under our bank facilities. If operating cash flows are not
sufficient or if we are not able to borrow sufficient funds for the purchase
under our bank facilities, we would expect to obtain additional funding from
other sources, including equity sales.
We are also committed to making additional capital contributions to ATL to
the extent necessary for it to maintain a 70-to-30 debt to contributed capital
ratio. Our ownership interests could be diluted if we fail to make required
capital contributions. In addition, Williams has granted us an option to acquire
its entire equity and debt interests in Algar Telecom at net book value. We may
exercise this option at any time from January 1, 2000 to January 1, 2001 and pay
the exercise price entirely in our Class B common stock. See the section of this
prospectus entitled "Business -- Strategic investments -- Algar Telecom."
In addition, the companies in which we have made strategic investments have
their own funding requirements. We expect that these companies will obtain
required funding from third parties to the extent sufficient funds are not
generated from internal operations. To the extent internally-generated funds or
third party borrowings are unavailable, we may invest additional funds or lend
additional money to these companies in order for them to meet their capital
needs. Anticipated funding needs of these companies include:
- approximately $641 million for ATL over the next three years to pay
amounts required under its Brazilian cellular license bid
- approximately $186 million for MetroCom over the next three years to
construct a network to provide communications services in the Santiago,
Chile metropolitan area
- approximately $30 million for PowerTel over the next three years to
construct communications networks to serve Brisbane, Melbourne and
Sydney, Australia
If ATL cannot meet its cellular license payments, it could lose its
licenses. Also, our ownership interest in ATL has been pledged to secure a loan
made to ATL and, in the event of a loan default, we could lose our ownership
interests.
Our debt agreements will contain restrictive covenants and require us to
meet certain financial ratios and tests. These agreements will restrict our
ability to borrow additional money, pay dividends or other distributions to
stockholders, make investments, create liens on our assets and sell assets.
For more detail regarding net proceeds from the offerings, the amount
funded by Williams, our borrowings under our bank facilities and the funds
available under the asset defeasance program that will continue in place
following the completion of the offerings, see the section of this prospectus
entitled "Description of Indebtedness and Other Financing Arrangements."
INFLATION
Inflation has not significantly affected our operations during the past
three years.
ACCOUNTING PRONOUNCEMENTS
We adopted the American Institute of Certified Public Accountants'
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP
98-5) effective January 1, 1999. SOP 98-5 requires that all start-up costs be
expensed and that the effect of adopting SOP 98-5 be reported as the cumulative
effect of a change in accounting principle. The effect of adopting SOP 98-5 on
our results of operations was immaterial.
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We adopted Statement of Financial Accounting Standards (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related Information," during
the fourth quarter of 1998. SFAS No. 131 established standards for reporting
information about operating segments and related disclosures about products and
services, geographic areas and major customers.
In June 1999, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 43, "Real Estate Sales, an interpretation of FASB Statement
No. 66." The interpretation is effective for sales of real estate with property
improvements or integral equipment entered into after June 30, 1999. Under this
interpretation, dark fiber is considered integral equipment and accordingly
title must transfer to a lessee in order for a lease transaction to be accounted
for as a sales-type lease. After June 30, 1999, the effective date of FASB
Interpretation No. 43, sales-type lease accounting will no longer be appropriate
for dark fiber leases and therefore these transactions will be accounted for as
operating leases unless title to the fibers under lease transfers to the lessee
or if the agreement was entered into prior to June 30, 1999.
MARKET RISK DISCLOSURES
INTEREST RATE RISK
We have interest rate exposure related to our existing credit facilities
and a note payable to Williams. Borrowings under our existing credit facilities
and note payable to Williams are influenced by changes in short-term LIBOR
interest rates. Additionally, we will have interest rate risk associated with
our permanent credit facility, which we expect will replace our interim loan
facility, as well as the $1.3 billion in notes to be issued at the time of the
equity offering. The permanent credit facility will be influenced by changes in
LIBOR rates. The notes will be subject to interest rate risk resulting from a
future decrease in interest rates on obligations with comparable terms below the
interest rate on the notes. None of our existing or proposed arrangements
require us to manage or hedge the risks related to interest rate movements and
we currently do not mitigate the risk through the use of interest rate swaps or
other derivative instruments. However, subsequent to the offerings we may choose
to manage our risk associated with interest rate movements through an
appropriate balance of fixed and variable rate obligations. To maintain an
effective balance of fixed and variable obligations, we may elect to enter into
specific interest rate swaps or other derivative instruments as we deem
necessary.
The following table provides information as of December 31, 1998 about the
Williams note. The table presents principal cash flows and weighted average
interest rates by maturity dates. At December 31, 1998, we had no borrowings
outstanding under existing credit facilities.
<TABLE>
<CAPTION>
FAIR VALUE AT
DECEMBER 31,
1999 2000 2001 2002 2003 THEREAFTER TOTAL 1998
----- ----- ----- ----- ----- ---------- ----- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
VARIABLE RATE LIABILITIES
Note Payable to
Williams............... -- -- -- $ 614 -- -- $614 $614
Avg. Interest Rate..... Libor Libor Libor Libor
+ .75 + .75 + .75 + .75
</TABLE>
At June 30, 1999, borrowings under existing credit facilities and the
Williams note were $610 million and $794 million, respectively. The carrying
value of our borrowings under both arrangements approximates the fair value. We
expect to repay our interim loan facility through borrowings under our permanent
credit facility. The permanent credit facility is expected to be entered into on
or before September 1, 1999 and is subject to a number of significant conditions
as described in the section of this prospectus entitled "Description of
Indebtedness and Other Financing Arrangements." Rates under this facility will
be based on LIBOR plus margins based on investment ratings and are expected to
be in the range of LIBOR plus 2.25% to 2.75%. We
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expect our permanent credit facility to require repayment beginning in the
fourth year of the facility. However, we expect to repay a portion of our
outstanding borrowings under the permanent credit facility at the time of the
offerings with the net proceeds from the offerings.
At the time of the offerings, the borrowings under the Williams note will
be converted into a seven-year amortizing note payable bearing interest at rates
equivalent to the rate on our permanent credit facility. Upon the conversion of
the Williams note we will be permitted to make minimum repayments of no less
than $25 million each fiscal year beginning June 30, 2000 for so long as no
default or event of default exists under the permanent credit facility.
FOREIGN CURRENCY RISK
We have international investments, primarily in Australia, Brazil, Canada,
and Chile, that could affect our financial results if the investments incur a
permanent decline in value as a result of changes in foreign currency exchange
rates and the economic conditions in foreign countries.
We have a preferred stock investment in a Brazilian telecommunications
venture totaling $101 million and $317 million at December 31, 1998 and June 30,
1999, respectively. Estimating cash flows by year from this investment is not
practicable, given that the cash flows from or liquidations of this investment
are uncertain. In recent months, the Brazilian economy has experienced
significant volatility resulting in a 30% reduction in the value of the
Brazilian Real against the U.S. dollar. However, at December 31, 1998 and June
30, 1999, management believes the fair value of this investment approximated the
carrying value. An additional 20% reduction in the value of the Brazilian Real
against the U.S. dollar could result in up to a $63 million reduction in the
value of our investment at June 30, 1999, assuming a direct correlation in the
fluctuation of the Brazilian Real against the value of our investment. The
ultimate duration and severity of the conditions in Brazil remain uncertain, as
does the long-term impact on our interest in this venture. In the event that we
exercise the option to acquire Williams' interest in Algar Telecom, our
investment in Brazil, and our exposure to fluctuations in the value of the
Brazilian Real against the U.S. dollar, would be increased.
The net assets of our operations that we consolidate are located in various
other countries throughout the world and approximate 8% and 10% of our total net
assets at December 31, 1998 and June 30, 1999, respectively. These foreign
operations, whose functional currency is the local currency, do not have
significant transactions or financial instruments denominated in other
currencies. However, these investments do have the potential to impact our
financial position, due to fluctuations in these local currencies arising from
the process of remeasuring the local functional currency into the U.S. dollar.
As an example, a 20% decrease in the respective functional currencies against
the U.S. dollar could have reduced stockholder's equity by approximately $18
million at June 30, 1999.
We presently do not utilize derivative or other financial instruments to
hedge the risk associated with the movement in foreign currencies. However,
management continually monitors fluctuations in these currencies and will
consider the use of derivative financial instruments or employment of other
investment alternatives if cash flows or investment returns so warrant.
YEAR 2000 READINESS DISCLOSURE
OUR STATE OF READINESS
Beginning on January 1, 2000, installed computer systems and software
products must either accept four digit entries to distinguish the year 2000 and
all subsequent years from the year 1900 or be modified to recognize the change
of the century even though there are only two digits being used.
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We, with Williams, established a plan in 1997 to address Year 2000 issues
relating to the areas of our business that could be impacted by the date and
time change from 1999 to 2000. We are reviewing our products and services as
well as our internal systems in order to identify and modify the products,
services and systems that are date-and time-sensitive. These areas include:
- traditional informational technology
- non-traditional informational technology
- external interfaces with our customers and vendors
Our traditional information technology, or IT, includes our software,
applications, data and related computer hardware equipment, such as mainframe
and personal or midrange computers. Our non-traditional technology, or Non-IT,
includes all computer hardware, network hardware, plant equipment and other
embedded items that contain date-sensitive code. Examples of Non-IT include
elevator control systems, card key access systems and telecommunications
equipment.
Also in 1997, Williams established a Year 2000 committee to oversee
management and execution of the plan. The Year 2000 issue is being addressed in
the following phases:
- awareness
- inventory and assessment
- renovation and replacement
- testing and validation
The initial phase, awareness, is a continuing process intended to heighten
awareness of Year 2000 issues both within our company and among our customers.
We have completed the inventory and assessment phase. During this phase, we
inventoried and classified all systems with possible Year 2000 implications into
the following categories:
- highest, compliance is business critical
- high, compliance necessary within a short period of time following
January 1, 2000
- medium, compliance necessary within 30 days from January 1, 2000
- low, compliance desirable but not required
- unnecessary
We designated the first three categories above as critical and as our major
focus. Critical systems are systems that directly support customer systems and
applications for our products and services customer base. Examples of critical
systems include our solutions unit's "SIMS" database which holds our solutions
unit's customer records and our network unit's provisioning and ordering
fulfillment system.
We split the inventory and assessment phase into two categories, IT and
Non-IT. We hired an external contractor as a consultant to provide support
services for the IT assessment. Third-party software information was compared
with the contractor's master product compliance database to determine Year 2000
compliance status. Vendors were contacted for software not found in this master
database. The systems identified in the assessment phase included all date-and
time-sensitive hardware and embedded items. The Non-IT assessment was developed
to ensure that all computer hardware, network hardware and plant equipment
continues to operate without interruption up to and beyond the rollover to the
year 2000. The systems identified in the assessment included both manned sites
and unmanned network sites as well as other Non-IT systems.
For the testing and validation phases, a Year 2000 test lab capable of
testing almost any software is in place and operational. As of June 30, 1999,
approximately 94% of our IT systems
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have been fully tested or otherwise validated as compliant. An example of
another way a system is validated as compliant is when a business process is
determined not to be date- and time-sensitive. Approximately 2% of our IT
systems, which are deemed compliant by vendors or employees, have not yet been
validated; of this 2%, we have categorized 100% as critical. Approximately 4%
have been identified as not Year 2000 compliant; of this 4%, we have categorized
100% as critical. Approximately 99% of our Non-IT systems have been tested and
were found to be compliant. Less than 1% remain to be tested and have been
categorized as critical. Less than 1% of the Non-IT systems are not compliant
and have been characterized as critical.
We expect to complete the renovation and replacement and testing and
validation phases for most of the critical systems by August 31, 1999. Some
non-critical systems that will not have a material impact on our business may
not be compliant until after January 1, 2000.
We have initiated a formal communications process with customers, vendors,
service providers and other companies to determine the extent to which these
companies are addressing Year 2000 compliance. In connection with this process,
as of June 30, 1999 we had sent approximately 9000 letters and questionnaires to
third parties who have conducted business with us during the last three years.
While the response rate has been 37% overall, the response rate is higher from
our critical business partners. For example, there is a 72% response rate from
our IT business partners, a 78% response rate from our Non-IT partners and a 44%
response rate from our lessors. Virtually all of these companies have indicated
that they are already compliant or will be compliant on a timely basis. We have
identified the most critical business partners and are currently in the process
of determining the amount of risk to which we may be exposed. Where necessary,
we will be working with key business partners to reduce the risk of a break in
service or supply and with non-compliant companies to mitigate any material
adverse effect on our business.
We have utilized both internal resources and external contractors to
complete the Year 2000 compliance project. We have a core group of 13 people who
are responsible for coordinating, organizing, managing, communicating, and
monitoring the project and another estimated 80 staff members are responsible
for completing the project. Depending on which phase the project is in and what
area is being focused on at any given point in time, there can be an additional
50 to 250 employees working on completion of the project. The estimated cost of
our external contractors is approximately $3.5 million.
COSTS OF YEAR 2000 COMPLIANCE
We expect to incur total costs of $12.2 million to address the Year 2000
issue. Of this total, approximately $2.2 million is expected to be incurred for
new software and hardware purchases and will be capitalized with the remaining
amounts expensed. Through July 31, 1999, approximately $8.1 million has been
expensed and $233,000 has been capitalized. The $11.8 million in total costs has
been or is expected to be spent as follows:
- First quarter 1998. Prior to and during the first quarter of 1998, we
conducted the project awareness and inventory and assessment phases of
the project and incurred costs totaling $200,000.
- Second quarter 1998. We spent $700,000 on renovation and replacement and
the completion of the inventory and assessment phase.
- Third and fourth quarter 1998. We focused on the renovations and
replacement, and testing and validation phases in which a cost of
approximately $2.5 million was incurred.
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- First quarter 1999. Renovations and replacement and testing and
validation continued, and contingency planning began. We spent
approximately $2 million during the first quarter of 1999.
- Second quarter 1999. Our primary focus shifted to testing and
validation, and contingency planning and final testing, with
approximately $3 million spent.
- Third and fourth quarters 1999. We will focus primarily on contingency
planning and final testing and estimate that we will spend approximately
$3.5 million.
- First and second quarters 2000. We will be managing and reporting Year
2000 issues and estimate an additional $450,000 will be spent over this
period.
Of the approximately $4 million of future costs necessary to complete the
project on schedule, approximately $2 million will be expensed and the remainder
capitalized. This estimate does not include our potential share of Year 2000
costs that may be incurred by partnerships and joint ventures in which we
participate but are not the operator. The costs of previously planned system
replacements are not considered to be Year 2000 costs and are therefore excluded
from the amounts discussed above.
RISKS ASSOCIATED WITH YEAR 2000 ISSUES
Our estimates of costs associated with the project and of the completion
dates are based on our best estimates, which we derived utilizing numerous
assumptions of future events, including the continued availability of resources,
third-party Year 2000 compliance modifications plans and other factors. We
expect the necessary modifications will be made on a timely basis and do not
believe that the cost of these modifications will have a material adverse effect
on our business, financial conditions and operating results. However, in part
due to the unavailability and high cost of trained personnel, the difficulty
locating all relevant computer code, reliance on third-party suppliers and
vendors and the ability to implement interfaces between the new systems and the
systems being replaced, there is a possibility of service interruptions due to
non-compliance. For example, power failures along the Williams network would
cause both customer and internal service interruptions. We cannot guarantee that
these estimates or completion dates will be achieved, and actual results could
differ materially from these estimates.
We have attempted to minimize our risks for the Year 2000 rollover by
taking actions, which include the following:
- following a comprehensive project methodology
- ongoing coordination with the legal and audit departments
- completing an audit of the software, hardware and firmware in use at our
facilities
- determining the business criticality of the items identified and
formulating appropriate action plans
- maintaining centralized storage of project documentation and
communication with critical files kept and logged as vital records
- contacting vendors, suppliers and business partners regarding their Year
2000 compliance efforts
- issuing consistent and approved responses to external requests regarding
Year 2000 status
- conducting ongoing management reporting and awareness and training
programs for employees
- contacting customers and notifying them of plans and changes (potential
or tangible) relating to our business
- taking appropriate legal actions where required based on contractual
agreements, warranties and representations (including Year 2000 wording
in contracts, warranties, and purchase orders)
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- preventing the purchase or construction of any system, tools or processes
that are not Year 2000 compliant or upgradeable before January 1, 2000
Although all critical systems over which we have control are planned to be
compliant and tested before the Year 2000, we have identified two areas of
concern. First is the possibility of service interruptions to us and/or our
customers due to non-compliance by third parties. Second is the delay in system
replacements scheduled for completion during 1999. We are closely monitoring the
status of these systems to reduce the chance of delays in completion. We believe
the most reasonably likely worst possible scenario would be a systems failure
beyond our control to remedy, which could materially prevent us from operating
our business. We believe that such a failure would likely lead to lost revenues,
increased operations costs, loss of customers or other business interruptions of
a material nature, in addition to potential claims including mismanagement,
misrepresentation or breach of contract.
CONTINGENCY PLANS
We began initial contingency planning during 1998 and significant focus on
that phase of the project is taking place in 1999. Guidelines for that process
were issued in January 1999 in the form of a formal business continuity plan. An
external contractor is working within each business unit to review existing
business continuity plans and to modify these plans to include Year 2000
contingency plans for the critical business processes, critical business
partners, suppliers and system replacements that may experience significant
delays.
Our Year 2000 contingency plan methodology is as follows:
- assess each business process for business risk and potential need for
contingency plans
- create business process contingency plans as needed based on the risk
analysis
- test the completed plans, evaluate the test results and revise plans
accordingly
- store completed plans both on-site and off-site
- maintain plan copies at the appropriate Year 2000 offices
- review and modify contingency plans as part of an ongoing change
management process
These plans should be defined by August 31, 1999 and implemented where
appropriate. However, due to the general uncertainty inherent in the Year 2000
issue and the inability to anticipate all potential risks, we cannot ensure our
ability to timely and cost effectively resolve all post-Year 2000 problems
associated with the Year 2000 issue that may affect our operations and business
or expose us to third party liability.
In addition to the Year 2000 committee which serves all of our business
units, our solutions unit has established a Year 2000 team to assist in making
its customer base Year 2000 compliant. The team consists of marketing, legal,
operations and other shared services personnel who assess, test and validate the
telecommunications products for our solutions unit's customer base. Monetary
support for the team and our solutions unit's Year 2000 project is provided for
out of each department's budget.
Our solutions unit team's purpose is to educate and inform customers and
employees about Year 2000 related issues and proactively seek to implement
upgrades to bring our customers into compliance. The majority of the upgrades
and new products needed to support the customer migration are available from the
manufacturers. Our solutions unit has launched extensive efforts including
direct and mass mailings to inform its customer base of the need to take action
to assess and if necessary, upgrade, their products to be Year 2000 compliant.
Although our solutions unit believes it has sufficient resources to provide
timely support to its customers that require product migrations or upgrades, our
solutions unit has set an August 31, 1999 target date for its products and
services contingency plan. This contingency
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plan will address both potential spikes in the demand for customer support and
potential problems with its suppliers. Based on customer demand, our solutions
unit is reviewing its work projects to address customer service. To ensure
timely delivery from its suppliers, our solutions unit is proactively monitoring
and seeking assurances from its key suppliers. However, since the effort to
provide Year 2000 compliant products and essential services to its customers is
heavily dependent on its major suppliers, interruptions or disruptions in this
supply could have an adverse material impact on our solutions unit.
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INDUSTRY OVERVIEW
Telecommunications is the transmission of data, voice or video signals
across a distance. Data signals connect computers in networks such as the
Internet, or connect other devices, such as facsimile machines. Voice signals
usually connect people in telephone conversations. Video signals include video
conferencing and television signals. Telecommunications services are typically
divided into long distance and local services. The demand for all types of
telecommunications services has been increasing, with especially rapid growth in
high-speed data services, including the Internet. The telecommunications
industry includes telecommunications services, equipment, and technical services
for creating and operating telecommunications networks.
Recently, the telecommunications industry has been characterized by rapid
technological change, changes in the industry structure and increased demand for
services and equipment. A February 1999 report of the President's Council of
Economic Advisers estimated total U.S. telecommunications services and equipment
revenues in 1998 of $408 billion, up from approximately $250 billion in 1993.
Over the past several years, the telecommunications industry has undergone
significant structural change. Many of the largest equipment and service
providers have achieved growth through acquisitions and mergers. These
combinations have provided access to new markets, new products, and economies of
scale. Despite this consolidation, the number of new entrants is increasing and
small new entrants are gaining market share from the large and established
providers. In this highly competitive environment, telecommunications providers
are increasingly focusing on core activities and core competencies and
outsourcing non-core activities to other providers. This trend is a significant
change from the traditional integrated model that has prevailed in the industry
since its inception.
INDUSTRY TRENDS
ADVANCES IN TELECOMMUNICATIONS AND NETWORKING TECHNOLOGY
Telecommunications providers transmit voice, data and video signals
primarily over coaxial cable, copper cables, microwave systems, satellites and
fiber optic cables. Beginning in the 1960s, microwave systems began to replace
copper cable and by 1990, fiber optic cables had largely replaced copper cable
for long distance transmission. Fiber optic cables use light to transmit
information in digital format through ultra-thin strands of glass. Compared to
copper, fiber optic cables provide significantly greater capacity at lower cost
with fewer errors and increased reliability.
Several advances in switching and electronics have further increased the
bandwidth, or transmission capacity, of telecommunications networks. Dense
wavelength division multiplexing is a technology which allows the transmission
of multiple light signals through a single optical fiber and can currently
increase the bandwidth of fiber optic cables by up to 128 times the original
fiber optic technology.
Historically, carriers have built telecommunications networks based on
circuit switching. Circuit switching establishes and keeps open a dedicated path
until the call is terminated. While circuit switching has worked well for
decades to provide voice communications, it does not efficiently use
transmission capacity. Once a circuit is dedicated, it is unavailable to
transmit any other information, even when the particular users of that circuit
are not speaking or otherwise transmitting information. Packet switching is
replacing circuit switching. Packet switching divides data into small "packets"
which are then independently transmitted to their destination via the quickest
path. Upon their arrival, the packets are reassembled. Packet switching
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provides more efficient use of the capacity in the network because the network
does not establish inefficient dedicated circuits, which waste unused capacity.
The new packet networking technologies operate at very high speeds ranging
from 1.544 million bits per second, or DS-1, to 2.488 billion bits per second,
or OC-48, and beyond. A bit is the smallest unit of information a computer can
process and is the basic unit of data communications. By comparison, one voice
call requires roughly 64,000 bits per second. Packet networks are especially
efficient at carrying data signals.
CONVERGENCE OF VOICE AND DATA SERVICES
Telecommunications network designs have traditionally created separate
networks using separate equipment for voice, data and video signals. The
evolution from analog to digital technologies, which convert voice and other
signals into a stream of "1"s and "0"s, erases the traditional distinctions
between voice, data and video transmission services. High-bandwidth networks
that use advanced packet-switched technology transmit mixed digital voice, data
and video signals over the same network. This enables telecommunications
customers to use a single device for voice, data and video communications.
Although these devices are new to the market, customer interest and acceptance
are rapidly growing.
Each evolution, from copper to fiber optic cables, from one to many light
signals, from circuit switching to packet switching and from analog to digital
signals, has produced significant increases in network capacity. When considered
together, these evolutions have produced enormous increases in the ability to
transfer large amounts of information across vast distances almost
instantaneously. With each new leap in transmission capacity, end-users have
come to rely on their ability to access and manipulate ever greater amounts of
information quickly and easily. This reliance has consistently created demand
that outstrips the available capacity.
HISTORY OF THE MODERN TELECOMMUNICATIONS INDUSTRY
In the first half of the twentieth century, AT&T Corp. created the Bell
System, a nationwide collection of telecommunications network assets. For most
of the century, the Bell System operated as a regulated monopoly providing
telecommunications services in most areas of the U.S. Even in those areas where
a non-Bell System carrier, such as GTE Corp., provided local service, that local
carrier was a regulated monopoly providing local service, and AT&T provided
regulated monopoly long distance service.
The 1982 antitrust consent decree between AT&T and the U.S. Department of
Justice strongly influenced the current structure of the communications
industry. The consent decree was intended, among other things, to spur
competition in providing long distance service and supplying telecommunications
equipment. The decree required AT&T to divest its Bell operating companies to
seven newly created regional Bell operating companies, and divided the country
into approximately 200 local access and transport areas which delineate the
areas between which the regional Bell operating companies are prohibited from
providing long distance services and in which the regional Bell operating
companies are authorized to provide local exchange services. The regional Bell
operating companies remained regulated monopolists, operating network assets and
providing exchange services, including local telecommunications service, access
to long distance carriers and toll service within the exchange area. However,
the regional Bell operating companies were prohibited from providing services
between the different local areas and from manufacturing telecommunications
equipment. AT&T continued to operate the long distance network assets and
provide long distance services.
Long distance competition has increased significantly since the AT&T
divestiture. MCI, Sprint Corp. and Williams created nationwide fiber optic
networks to compete with AT&T.
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Other long distance providers purchased services primarily from these three new
networks or AT&T in order to compete for long distance market share. According
to the Federal Communications Commission, AT&T's market share fell from
approximately 90% in 1984 to approximately 45% in 1997. In 1997, MCI, Sprint and
LDDS, which acquired Williams' original fiber optic network in 1995, had
approximately 19%, 10%, and 7% market share respectively. All other long
distance providers accounted for the remaining 20% market share.
Similarly, supplying telecommunications equipment has become highly
competitive. Following the AT&T divestiture, the regional Bell operating
companies were no longer required to purchase from AT&T's equipment division
(now Lucent Technologies Inc.). As a result, other equipment providers,
including Nortel, Siemens AG, and Alcatel S.A. gained market share in both the
carrier and business markets. Increasing competition in all telecommunications
segments encouraged innovation in equipment features and helped the market grow.
Until 1997, virtually all of AT&T/Lucent's equipment sales to businesses were
direct sales through AT&T/ Lucent's sales employees. Lucent is increasingly
using independent vendors to sell its products. Likewise, in 1997, Nortel
shifted virtually all of its business equipment sales to independent vendors.
Among other things, the Telecommunications Act replaced the restrictions on
the regional Bell operating companies from the 1982 consent decree and enhanced
the development of competition in telecommunications services. The
Telecommunications Act:
- prohibits states from enforcing barriers to entry
- requires local Bell operating companies to interconnect with competing
carriers on non-discriminatory terms
- requires local Bell operating companies to lease parts of their networks,
including the telephone lines that connect an end-user to a local Bell
operating company's device for opening, closing or completing
connections, to competing carriers at cost-based prices
- requires local Bell operating companies to provide service at wholesale
rates to competing carriers for resale to end-users
- allows a regional Bell operating company to provide long distance
services originating from wireless equipment or from non-wireless
equipment outside of the regional Bell operating companies' historical
local service areas. A regional Bell operating company will be allowed to
provide long distance service originating from non-wireless equipment
within its historical local service areas if the FCC finds that the
regional Bell operating company has complied with certain requirements.
See the section of this prospectus entitled "Regulation -- General
regulatory environment" for more information.
By allowing providers to offer additional services, the Telecommunications
Act also stimulated competition for virtually all communications services,
including local service, long distance service and enhanced services. Providers
are increasingly bundling these services and providing one-stop shopping for
end-user customers.
In the telecommunications market, a new industry model is replacing the
original model of a single regulated monopolist building and operating
end-to-end assets and providing all products and services. In this market,
carriers who do not operate their own nationwide transmission network serve an
increasing percentage of the market. The Telecommunications Act requirement that
regional Bell operating companies provide carrier services has led a large
number of providers to offer local services without owning local assets.
Increasingly, providers are offering telecommunications customers end-to-end
services without having to own and operate the end-to-end assets. Other
companies are focusing on operating the assets as efficiently and effectively as
possible. In the equipment market, independent network integrators are providing
an increasing share of products to businesses.
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RELEVANT MARKET SEGMENTS
THE MARKET FOR INTEREXCHANGE VOICE, DATA, INTERNET AND VIDEO SERVICES
Interexchange carriers provide telecommunications services between
exchanges. An exchange is a franchised geographical area within which a call
between any two exchange customers is considered a local call. Many
interexchange carriers offer some mix of retail services, which are those
provided directly to an end-user, and carrier services, which are those provided
to other carriers. Carriers provide interexchange services over their own
facilities, over the facilities of other carriers, or over a combination of
both.
The market for interexchange services has been growing rapidly due to lower
rates and increased transport of data. According to the President's Council of
Economic Advisers, in 1997 long distance usage was 500 billion minutes, up from
370 billion minutes in 1993. FCC statistics show that total operating revenues
for interexchange carriers increased to about $89 billion in 1997 from less than
$45 billion in 1987. Although much of the decline in AT&T's market share is
attributable to gains by MCI WorldCom and Sprint, the numerous interexchange
carriers with small individual market shares accounted for approximately 20% of
the market in 1997.
There has also been strong demand for increasing capacity in long distance
networks to accommodate the growth in Internet traffic. According to the
President's Council of Economic Advisers, the number of Internet host computers
was estimated at 35 million in early 1998, up from 20 million only six months
earlier and from fewer than 3 million in 1993. The U.S. Department of Commerce
in 1998 cited estimates that Internet traffic doubles every 100 days.
High-volume, high-speed and high-capacity interexchange services are almost
exclusively provided by facilities-based interexchange carriers such as AT&T,
MCI WorldCom and Sprint, which operate networks principally using their own
transmission facilities and extensive geographically dispersed switching
equipment. Recently, other interexchange carriers have been building national or
regional networks to provide service using primarily their own fiber optic
transmission facilities, including ourselves, Qwest, Level 3, IXC, GTE and
Frontier Corp.
All interexchange carriers lease some of their transmission facilities from
other carriers. The dependence of an interexchange carrier on leased facilities
varies widely:
- interexchange carriers with national networks that provide services
primarily using their own facilities still lease some amount of
transmission capacity from other carriers to back up their service
routing, augment areas where they may have traffic bottlenecks or cover a
particular geographic area not covered by their own networks
- many other interexchange carriers own switches but obtain transmission
capacity primarily by leasing other interexchange carriers' transmission
services
- other interexchange carriers depend entirely on leasing transmission and
switching services from other interexchange carriers
The types of high-volume interexchange services purchased by carriers also
vary widely. High-volume interexchange services can be priced based on minutes
of usage or amount of capacity leased. These leases can vary in duration from
one day to many years.
THE MARKET FOR EQUIPMENT MANUFACTURING AND DISTRIBUTION
The telecommunications equipment industry in the U.S. has grown
substantially in the last several years through sales to local and long distance
carriers, end-users, Internet and other data service providers. The President's
Council of Economic Advisers reports that total sales of
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telecommunications equipment in 1997 exceeded $70 billion and are estimated to
have reached $120 billion in 1998, up from a total of $40 billion in 1993. The
dramatic growth of the telecommunications and data networking equipment industry
stems in part from the development of new technologies, including technologies
which allow systems to provide integrated voice and data services, and from
increased capacity demands, which require both established and new carriers to
expand and upgrade their facilities. Manufacturers distribute telecommunications
equipment through their own sales forces as well as through agents.
THE MARKET FOR COMMUNICATIONS AND DATA SOLUTIONS
Businesses seek solutions to the challenges of selecting, maintaining and
upgrading information and communications technologies and services amid rapid
technological advances. Under these conditions, the demand for consultants'
services in systems integration and communications networks has been growing
strongly. Businesses such as our solutions unit, Norstan, Inc. and International
Network Services assess customers' communications and information technology
needs, evaluate equipment and services options, procure equipment and services,
implement efficient network solutions and manage the combination of
technologies.
THE MARKET FOR EXCHANGE SERVICES
Today, local Bell operating companies continue to provide the vast majority
of local telephone services within their markets. However, as a result of
regulatory and technological changes over the past few years, a number of
competitive local exchange carriers, have begun to compete with the local Bell
operating companies.
The FCC reports that in 1996 local service revenues totaled approximately
$97 billion, with 109 competitive local exchange carriers accounting for about
$1 billion in revenues. The market share of competitive local exchange carriers
has grown rapidly in the last few years. According to the President's Council of
Economic Advisers, at the end of 1998 competitive local exchange carriers served
about five million lines, or 2% to 3% of local lines in the U.S.; because
competitive local exchange carriers have focused on serving the largest and most
profitable customers, competitive local exchange carriers accounted for about 5%
of the local telephone services market by revenue in 1998.
Leading competitive local exchange carriers include MCI WorldCom (through
its MFS Network Technologies, Inc. and Brooks Fiber Properties, Inc.
subsidiaries), AT&T (through its Teleport Communications Group, Inc.
subsidiary), WinStar, Intermedia and ICG Communications, Inc. Often, in addition
to local telephone services, competitive local exchange carriers provide
interexchange services and other services such as mobile telecommunications,
video and/or Internet-related services. Cable television systems provide local
telecommunications services in many areas. Cellular and other wireless service
providers also provide local telephone services.
THE U.S. MARKET FOR INTERNATIONAL LONG DISTANCE SERVICES
The U.S. international long distance market is growing due to increased
competition (including through World Trade Organization agreements),
deregulation, price decreases, growth in usage and revenues and development of
new services. According to the FCC, total international services revenues of
U.S. carriers exceeded $19 billion in 1997, up from about $5 billion in 1987.
The largest U.S. international carriers by market share in 1997 were AT&T, MCI
WorldCom and Sprint. Carriers with small individual market shares accounted for
a total market share of 21.8%.
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RELEVANT FOREIGN TELECOMMUNICATIONS MARKETS
We have significant investments and operations in foreign communications
carriers. For information regarding our investments in Brazil, Australia and
Chile, see the section of this prospectus entitled "Business -- Strategic
investments -- International."
Canada. Supplying telecommunications equipment and services is open to
competition in Canada. Competitive long distance carriers have been operating in
Canada since 1990 as resellers and since 1992 with their own facilities. The
national Canadian regulatory agency, CRTC, opened the local telecommunications
markets to competition in 1997, and allowed competition in the international
services market in 1998.
In addition to our solutions unit, leading providers of communications
equipment to businesses in Canada include Bell Canada, BCT. Telus Communications
Inc., Lucent Technologies Canada Inc. and Mitel Corporation.
Brazil. Until a few years ago, almost all telecommunications services in
Brazil were provided by government-owned monopoly carriers, the largest of which
were Telecomunicacoes Brasileiras S.A., known as Telebras, in local services,
and Empresa Brasileira de Telecomunicacoes S.A., known as Embratel, in long
distance services.
In recent years, the telecommunications sector in Brazil has been
progressively opened to competition and privatized. The Brazilian
telecommunications market experienced a sharp increase in demand in the 1990s,
which outstripped the capacity of the telecommunications infrastructure. The
desire to improve the networks' capacity to handle this increased demand,
accompanied by advances in telecommunications technology, led the government in
1998 to privatize the incumbent carriers. Buyers paid approximately $19 billion
to purchase these carriers. The twelve new carriers provide local, long distance
and cellular services and cover separate geographic regions. In addition, the
government is allowing private Brazilian and foreign companies to compete in the
telecommunications market through competitive wireless and non-wireless
licenses.
The Brazilian government auctioned additional regional licenses in 1997;
the new carriers began cellular service in 1998 and 1999. The government has
indicated that after 2000 it may sell additional licenses for wireless voice and
data services.
In 1997, Brazil had 2.75 mobile telephone subscribers per 100 inhabitants
and 10.66 non-wireless telephone access lines per 100 inhabitants for a total of
17 million access lines, according to the International Telecommunication Union.
We expect that the market for telecommunications services in Brazil will grow
rapidly as the private carriers expand their networks, improve service quality
and drive down prices through competition.
Australia. The Australian government has pursued a staged transition from
a government-owned monopoly of telecommunications services and infrastructure to
open competition. Between 1991 and 1997, the Australian government established a
duopoly between Telstra Corporation Limited and Cable & Wireless Optus Ltd. for
the provision of fixed telecommunications infrastructure. The Australian
government also established an oligopoly among Telstra, Optus and a subsidiary
of Vodafone Group PLC for the provision of mobile telephony services. On July 1,
1997, the Australian government opened all sectors of the Australian
telecommunications industry to competition. Telstra continues to be the dominant
non-wireless carrier.
The International Telecommunication Union reports that in 1997 Australia,
with a total of approximately 9 million non-wireless telephone access lines, had
50.45 telephone lines and 26.40 mobile telephone subscribers per 100
inhabitants.
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Chile. Chile was the first Latin American country to eliminate the state
monopoly provision of telecommunications services and today has the most
competitive telecommunications sector in Latin America. The process of
privatization and opening up of monopoly telecommunications markets in Chile
began in 1982 with the General Telecommunications Law, which allowed companies
to provide service and develop telecommunications infrastructure without
geographic restriction or exclusive rights to serve. There has been competition
in non-wireless services since 1994.
With privatization and competition, telecommunications has been one of the
most dynamic sectors in Chile's economy. By 1997, according to the International
Telecommunication Union, Chile's non-wireless network consisted of approximately
2.7 million lines, for a penetration rate of approximately 17.98 telephone lines
for every 100 inhabitants; Chile had a mobile telephone penetration of 2.80
cellular subscribers per 100 inhabitants.
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BUSINESS
WILLIAMS COMMUNICATIONS GROUP, INC.
We own or lease, operate and are extending a nationwide fiber optic network
focused on providing voice, data, Internet and video services to communications
service providers. We also sell, install and maintain communications equipment
and network services that provide solutions for the comprehensive voice and data
needs of organizations of all sizes. Our business units are our network unit,
our solutions unit and our strategic investments unit.
Our network unit offers voice, data, Internet and video services as well as
rights of use in dark fiber on our low-cost, high-capacity nationwide network,
which is based on a high-quality transmission technology using packet switching.
The communications companies we serve include long distance carriers, local
service providers, Internet service providers, international carriers and
utilities. Long distance carriers include providers which sell services on their
own networks or utilize other providers' networks to sell services. We plan to
extend the Williams network to encompass a total of over 33,000 route miles of
fiber optic cable, utilizing pipeline and other rights of way, to connect 125
cities by the end of the year 2000. The Williams network currently consists of
approximately 21,650 route miles of installed fiber optic cable, with 19,490 of
those miles in operation, or lit.
Our solutions unit distributes and integrates communications equipment from
leading vendors for the voice and data networks of businesses of all sizes as
well as governmental, educational and non-profit institutions. We provide
planning, design, implementation, management, maintenance and optimization
services for the full life cycle of these networks. We also sell the
communications services of select customers of our network unit and other
carriers to our solutions unit's customers. We serve an installed base of
approximately 100,000 customer sites in the U.S. and Canada. Our solutions unit
has approximately 1,200 sales personnel, approximately 2,400 technicians and
approximately 800 engineering personnel in 110 offices.
Through our strategic investments unit, we make investments in, or own and
operate, domestic and foreign businesses that create demand for capacity on the
Williams network, increase our service capabilities, strengthen our customer
relationships, develop our expertise in advanced transmission electronics or
extend our reach. Our domestic strategic investments include ownership interests
in Concentric, UniDial and UtiliCom. Our international strategic investments
include ownership interests in communications companies located in Brazil,
Australia and Chile. Businesses we own and operate include Vyvx, a leading video
transmission service for major broadcasters and advertisers, and other
communications businesses.
Our solutions unit contributed approximately 78.9% of our total revenues
during 1998, approximately 83.3% of our total revenues during 1997 and
approximately 80.6% of our total revenues during 1996. Our strategic investments
unit contributed approximately 12.8% of our total revenues during 1998,
approximately 15.3% of our total revenues during 1997 and approximately 18.8% of
our total revenues during 1996. Our network unit contributed approximately 11.2%
of our total revenues during 1998, approximately 3.0% of our total revenues
during 1997 and approximately 1.6% of our total revenues during 1996.
As a result of the expansion of the Williams network, we expect our network
unit to contribute an increasing percentage of our total consolidated revenues
and by 2000 we expect our network unit to contribute the largest percentage of
our revenues and to be the primary source of our income from operations on a
consolidated basis. Over the next few years, revenue increases
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in our solutions unit are expected to be modest, with higher growth expected
during the same period in our strategic investments unit.
We enter into strategic alliances with communications companies to secure
long-term, high-capacity commitments for traffic on the Williams network and to
enhance our service offerings. We currently have strategic relationships with
SBC, Intel, Telefonos de Mexico, Metromedia Fiber Network, WinStar, Intermedia
and U S WEST. We will continue to pursue additional strategic alliances.
HISTORY OF BUILDING NETWORKS
Williams began building gas and petroleum pipeline networks more than 80
years ago and is currently one of the largest volume transporters of natural gas
in the U.S. Over the years, Williams has constructed, acquired and managed over
100,000 miles of energy pipelines. In 1985, Williams entered the communications
business by pioneering the placement of fiber optic cables in pipelines no
longer in use. Williams also pioneered the strategy of providing services solely
to other communications providers. By 1989, through a combination of
construction projects and acquisitions, Williams had completed the fourth
nationwide digital fiber optic network, consisting of approximately 9,700 route
miles. The first three networks were constructed by AT&T, MCI WorldCom and
Sprint. By 1994, WilTel, Williams' communications subsidiary, was one of the top
four providers of high capacity data services, one of the top five providers of
long distance voice services and the first provider to offer nationwide frame
relay transmission capacity, a high-speed form of packet switching, well-suited
for connecting computers to each other, which supports data units of variable
lengths. In 1994, WilTel had approximately $1.3 billion in revenues and
approximately 5,000 employees.
In January 1995, Williams sold the WilTel network business to LDDS (now MCI
WorldCom) for approximately $2.5 billion. The sale included the nationwide fiber
optic network and the associated consumer, business and carrier customers.
Williams excluded from the sale an approximately 9,700 route-mile single-fiber
network comprised of a single fiber optic strand and associated equipment along
the original nationwide network, WilTel's telecommunications equipment
distribution business and Vyvx. Under agreements with MCI WorldCom, this fiber
strand can only be used to transmit video and multimedia services, including
Internet services, until July 1, 2001. Multimedia services integrate various
forms of media, including audio, video, text, graphics, fax and Internet. After
July 1, 2001, this fiber strand can be used for any purpose, including voice and
data services provided in accordance with a tariff filed with a regulatory
agency detailing the terms, conditions and pricing of the services.
As part of the sale to LDDS, Williams agreed not to reenter the
communications network business until January 1998. In January 1998, Williams
reentered the communications network business, announcing its plans to develop
the Williams network.
INDUSTRY AND MARKET OPPORTUNITIES
We believe we are uniquely positioned to take advantage of changes and
developments in the communications industry. These anticipated changes and
developments include:
- Innovations in technology. Technological innovations are increasing both
the supply of and demand for telecommunications transmission capacity
while also driving increased integration in voice and data networks.
Innovations in optics technologies, consisting of both higher quality
fiber optic cable and improved transmission electronics, have increased
the capacity and speed of advanced fiber optic networks while decreasing
the unit cost of transmission. This increased capacity and speed,
combined with continuing advancements in the power of microprocessors,
have resulted in the development of bandwidth-intensive
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applications, growth in Internet usage and increases in the number of
network users. We are developing our advanced fiber optic network to meet
the increasing demand for transmission capacity.
- Increasing demand for communications services. We believe that there is
and will continue to be a significant growth in demand for long distance
data, Internet, voice and video services. The increase in computing
power, number of computers networked over the Internet and connection
speeds of networked computers are driving tremendous increases in
communications use for Internet and data services. Prices for cellular
and long distance voice services have decreased, resulting in increased
demand for these services. We believe video conferencing, digital
television and other multimedia applications being developed will
continue to increase demand for transmission capacity. We believe the
Williams network is well positioned to capture this growing demand.
- Deregulation within the communications industry. Around the world, the
communications industry is experiencing liberalization. In the U.S., the
long distance market became highly competitive in the 1980s following the
break up of AT&T, and the Telecommunications Act was designed to open
local markets to competition. Many new companies have formed to compete
for markets that have been traditionally dominated by a very small number
of providers. Our full-service platform enables both new entrants to
compete in this market and existing service providers to expand into new
markets. The Williams network will offer an attractive alternative to
network ownership for these carriers.
- Increasing specialization within the communications industry. We believe
industry specialization will continue to occur as communications
companies focus on their core competencies and outsource non-core
activities. In the long distance services market, we anticipate that many
new entrants will focus on branding and retail distribution while
outsourcing the development of network infrastructure and services.
Similarly, we believe that some communications providers, such as
Internet service providers, will focus on developing value-added services
and will outsource long distance transmission services. As a result, we
believe there will be significant demand for a provider of advanced,
high-quality, low-cost communications services to other communications
companies. The Williams network is well positioned to benefit from this
market opportunity.
OUR NETWORK UNIT
We own or lease, operate and are extending a nationwide fiber optic
network. We offer services over the Williams network to communications
companies, including regional Bell operating companies, long distance carriers,
competitive local exchange carriers, Internet service providers, international
carriers and utilities.
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STRATEGY
Our objective is to become the leading nationwide provider of voice, data,
Internet and video services to national and international communications
providers. To achieve this objective, we intend to:
- Become the leading provider to communications carriers. We focus on
providing high-quality communications services to other carriers as they
seek to benefit from the growth in communications demand. We also offer
our customers the flexibility to control their own service platforms so
that they choose to buy services from us rather than build these
capabilities themselves. Since our network unit targets the carrier
market, we do not compete with our customers for retail end-users. By not
competing with our customers, we believe we can become the provider of
choice to other carriers.
- Deploy a technologically advanced network. We are combining advanced
optical and electronic transmission equipment with our innovative network
design to offer highly flexible, efficient and reliable network services
to our customers. Our innovative network design provides high-quality
network services to support voice, data, Internet and video traffic at a
lower investment than other currently deployed network designs due to the
elimination of several layers of costly equipment. The Williams network
design also provides our customers with control over the quality of
service they receive and provides us with the flexibility to introduce
new services.
- Pursue strategic alliances. We pursue strategic alliances with
communications providers which offer the potential for long-term,
high-capacity commitments for traffic on the Williams network, resulting
in increased revenues and decreased unit costs. To date, we have entered
into strategic alliances with SBC, Intel, Telefonos de Mexico, Metromedia
Fiber Network, WinStar, Intermedia and U S WEST and others to provide
network services. Our strategic alliances also allow us to combine our
capabilities with those of our alliance partners and thereby offer our
customers a more complete product set, including local and international
capacity and Internet access services.
- Leverage network construction, operation and management experience. We
are utilizing Williams' long history of constructing, operating and
managing communications and energy networks to develop the Williams
network. By the time Williams sold the WilTel network in 1995 for
approximately $2.5 billion, WilTel had approximately $1.3 billion in
revenues, approximately 5,000 employees and operated approximately 9,700
route miles. Many of our current employees worked with Williams in
various capacities during the WilTel network build until its subsequent
sale to LDDS. This experience translates into expertise in planning,
designing, constructing and managing a cross-country network.
- Utilize pipeline rights of way. Where feasible, we construct the
Williams network along the rights of way of Williams and other pipeline
companies. We believe that use of pipeline rights of way gives us
inherent advantages over other systems built over more public rights of
way, such as railroads, highways, telephone poles or overhead power
transmission lines. These advantages include greater physical protection
of the fiber system, lower construction costs and lower operational
costs.
- Establish international connectivity. We pursue strategic relationships
that allow us to exchange capacity on the Williams network for
cost-effective access and capacity on international networks or that
allow us to use our network construction and management experience to
construct international networks. We intend to establish alliances with
international carriers that will expand our capabilities throughout
Europe and other key markets. Select domestic alliances will also allow
us to provide international capabilities
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such as cost-effective use of SBC's capacity on China-U.S. and Japan-U.S.
submarine fiber optic cable systems.
- Establish low-cost position. Our carrier market focus, network design
and strategic alliances as well as dark fiber leases enable us to
establish and maintain a low-cost position. Our carrier services focus
enables us to maintain small, focused marketing and customer service
departments, reducing our operating costs. Our advanced network design
eliminates several unnecessary layers of costly equipment. Our strategic
alliances drive our unit costs lower due to the purchases of large
volumes of services on the Williams network and reduced cost access to
the services of our strategic alliance partners. Dark fiber leases allow
us to reduce the capital investment in the Williams network and share
future operating and maintenance costs with those companies to which we
have sold capacity.
NETWORK INFRASTRUCTURE
We anticipate that the Williams network will total over 33,000 route miles
connecting 125 cities when completed by the end of the year 2000. For the period
from June 30, 1999 through December 31, 2000, we anticipate that we will spend
approximately $2.9 billion developing the Williams network.
We have constructed and plan to construct, including through our asset
defeasance program, as agent for the trust, approximately 72% of the Williams
network in terms of network route miles and we have obtained and plan to obtain
the remaining 28% through acquisitions of rights in dark fiber. We manage the
transmission equipment on the fiber optic strands we obtain through acquisitions
of rights in dark fiber and we typically pay maintenance fees to other network
providers to maintain the fiber optic strands and rights of way.
The following table describes our network infrastructure (numbers are
approximate):
<TABLE>
<CAPTION>
AVERAGE AVERAGE
MILES IN NUMBER NUMBER OF AVERAGE NUMBER
ROUTE MILES OPERATION OF FIBERS FIBERS RETAINED OF SPARE CONDUITS
----------- --------- --------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Single-fiber network(1).......... 9,700 9,700 1 1 N/A
Fiber builds in construction..... 9,500 2,060 100 21.5 1.8
Fiber builds under our asset
defeasance program(2).......... 3,270 1,790 127 24 1.9
Fiber builds jointly
constructed(3)................. 1,520 1,320 43 12 0
Acquired new fiber(4)............ 9,130 4,620 11 9.5 0.3
------ ------
Total.................. 33,120 19,490
====== ======
</TABLE>
- -------------------------
(1) We have the right to acquire from MCI WorldCom approximately 7,700
additional route miles of a single fiber optic strand which is restricted to
multimedia purposes until July 2001.
(2) This category consists of builds which have been constructed under our asset
defeasance program, as agent for the trust, and which are, or when completed
will be, leased by us.
(3) This category consists of our fiber rights in builds which have been jointly
constructed, or rights in dark fiber acquired by, us, Enron Communications,
Inc. and Touch America, Inc.
(4) This category consists of rights in dark fiber and conduits which we have
acquired or intend to acquire through leases other than through our asset
defeasance program, as agent for the trust, purchases or exchanges. We have
already acquired approximately 7,130 route miles from IXC and other
carriers, of which 5,300 route miles have had fiber optic cable installed.
We intend to acquire an additional 2,000 route miles by the end of 2000.
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We currently have approximately 21,630 route miles of fiber optic cable
primarily installed in the ground, with approximately 19,490 of those miles
currently in operation. Of the approximately 19,490 route miles currently in
operation, approximately 9,700 route miles consist of the single-fiber network.
We are currently installing new transmission equipment on the single-fiber
network to increase its transmission capacity and ensure its compatibility with
the newer portions of the Williams network. Due to advances in transmission
electronics, it is now possible to carry as much traffic on this single fiber
optic strand as on 128 fiber optic strands four years ago. In addition, the
single-fiber network will provide additional routes for the Williams network
into select major markets.
We began building the newer portions of the Williams network in January
1998 following the expiration of the non-compete agreement with MCI WorldCom. We
will expand the Williams network through both new network construction and
acquisition of capacity on networks owned and to be constructed by others.
We lease capacity from both long distance and local telecommunications
carriers, including our competitors, in order to meet the needs of our
customers. We lease approximately 23% of our network capacity currently in use.
However, the leased capacity we currently use constitutes approximately 7% of
the total capacity currently available on our network. These leases are for
areas where we do not have on-network portions, or our on-network is not
currently sufficient to meet the expected capacity. This includes capacity to
provide service from our facility to another provider's facility. These leases
of capacity may contain minimum commitments that we will make in order to obtain
better pricing. We attempt to balance our off-network commitments with the
expected requirements of our customers.
Network design and infrastructure. The newer portions of the Williams
network we are constructing have the following characteristics:
- Multi-service platform. A multi-service operating system allows
traditional voice, data, Internet and video services to be provided on a
single asynchronous transfer mode, or "ATM," operating system. Most other
carriers use multiple platforms, or operating systems, which create
distinct networks and organizations for each service provided. Due to our
unified platform approach, we have greater efficiency and lower costs.
- ATM core switching. ATM core switching is a packet switching and
transmission technology based on sending various types of information,
including voice, data and video, in fixed-size cells. Packet-based
networks transport information compressed as "packets" over circuits
shared simultaneously by several users. Newly developed equipment based
on advanced communications standards enable packet-based networks to
carry voice and data more efficiently and at a lower cost than the
traditional telephone networks. We believe that utilizing ATM enables us
to provide higher-quality services than other packet technologies such as
Internet protocol, which do not currently send information in packets
with predictable characteristics.
- Advanced fiber optic cable. Fiber optic cable, including Corning's
LEAF(TM) fiber and Lucent TruWave(TM) fiber, which has a wider range of
spectrum than previously deployed fibers over which to send wavelengths
of light, enabling a greater number of wavelengths to be sent over long
distances.
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- DWDM. Dense wave division multiplexing is a technology which allows
transmission of multiple waves of light over a single fiber optic strand,
thereby increasing network capacity. By using DWDM, we are able to derive
sixteen wavelengths, at OC-192 capacity per wavelength, which is a
capacity of 9.953 gigabits per second, over a single fiber optic strand
with current technology and plan to derive up to thirty-two wavelengths
over a single fiber optic strand by the end of 1999.
- Use of meshed SONET instead of SONET rings. Use of meshed SONET, which
allows every location on the Williams network to be connected to multiple
other locations. Meshed SONET provides for more recovery options in the
case of a network failure, permits rapid provisioning of customer
services and allows for full utilization of capacity. Most other networks
use SONET rings, which automatically reverse signals at a specific point
along a network in the event of a network failure, providing for only one
recovery option. A SONET ring design also requires installation of up to
twice as much capacity for the same amount of traffic as compared to our
meshed SONET design.
- Closer spacing of transmission electronics. Spacing of transmission
electronics at 40-mile intervals. Most other fiber networks space their
electronics at 60-mile intervals. Our 40-mile spacing allows us to take
advantage of the latest advances in DWDM and other advances in optical
technology by reducing the distance over which light has to travel.
- Elimination of digital cross connect system. Exclusion of this system, a
high-cost, high-maintenance switching technology designed for
circuit-based systems. Circuit-based systems are the predecessor to the
ATM packet technologies we employ.
- Nortel DMS 250 switches. We will use the latest Nortel switching
technology to efficiently carry traditional voice services on our ATM
core network. At least seven Nortel DMS 250 voice switches will be
deployed on the Williams network. We will install the new switches in
Anaheim, San Francisco, Kansas City, Houston, Chicago, Atlanta and New
York City.
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As illustrated in the diagram below and in the accompanying text, the
design of the Williams network is simpler than the design of the traditional
circuit-based network. This simpler design results in lower costs and faster
development and delivery of services by the Williams network as compared to a
network with the traditional design.
[NETWORK DESIGN FLOW CHART]
- - CONTAINS MULTIPLE LAYERS OF EQUIPMENT, EACH DESIGNED FOR A SPECIFIC FUNCTION
- - DEVELOPMENT OF NEW SERVICES MAY TAKE LONGER BECAUSE OF COMPLEXITY AND AMOUNT
OF EQUIPMENT
- - DIGITAL CROSS CONNECT SYSTEMS SPECIFIC TO EACH TYPE OF EQUIPMENT
- - DEDICATED FRAME RELAY SWITCH EQUIPMENT AND ROUTER EQUIPMENT PROVIDING
SPECIALIZED DATA SERVICES
- - DEDICATED VOICE SWITCH EQUIPMENT
- - EACH EQUIPMENT MUST INTERFACE WITH SONET EQUIPMENT THEREBY LIMITING USE OF
DWDM EQUIPMENT
- - MAXIMUM USE OF FIBER
- - INCREASED INITIAL INVESTMENT, OPERATING/ MAINTENANCE EXPENSES AND COMPLEXITY
- - CAPACITY POTENTIAL OF EQUIPMENT IS LIMITED
- CONTAINS FEWER LAYERS OF EQUIPMENT DESIGNED TO PROVIDE MULTIPLE SERVICE
OFFERINGS
- ELIMINATES DEDICATED LAYERS OF EQUIPMENT SIMPLIFYING THE NETWORK AND
INCREASING FLEXIBILITY FOR QUICKER DEVELOPMENT OF NEW SERVICES
- ELIMINATES NEED FOR DIGITAL CROSS CONNECT SYSTEM
- USE OF MULTI-SERVICE AGGREGATION SWITCH ALLOWS FOR PROVISION OF MULTIPLE
PACKET-BASED DATA SERVICES
- USE OF ATM PACKETS TO PROVIDE VOICE SERVICES
- ATM INTERACTS DIRECTLY WITH DWDM, THEREBY BYPASSING EXTENSIVE SONET
EQUIPMENT USE
- DECREASED USE OF FIBER
- LOWER INITIAL INVESTMENT, OPERATING/MAINTENANCE EXPENSES AND COMPLEXITY
- CAPACITY POTENTIAL OF EQUIPMENT IS GREATER
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Conduit and fiber optic cable. The newer portions of the Williams network
that we are constructing are designed for expandability and flexibility and will
contain multiple conduits along approximately 70% of our routes. To construct
our fiber optic cable, fiber optic strands are placed inside small plastic tubes
and bundles of these tubes are wrapped with plastic and strengthened with metal.
We then place these bundles inside conduit, which is high-density polyethylene
hollow tubing 1 1/2 to 2 inches in diameter. Our conduit is generally pulled
through pipelines which are no longer used or it is buried approximately 42
inches underground along pipeline or other rights of way. We also use steel
casing in high-risk areas, including railroad crossings and high-population
areas, thereby providing for greater protection. The first conduit contains a
cable generally housing between 96 to 144 fibers, and the second conduit, or
third where constructed, serves as a spare. The spare conduit or conduits allows
for future technology upgrades, potential conduit sales and expansion of
capacity at costs significantly below the cost of new construction. After
existing and anticipated leases of dark fiber, we generally plan to retain
approximately 24 fibers for our own use on the constructed portions of the
Williams network.
Points of presence. As of June 30, 1999, we had 38 points of presence or
POPs, which are environmentally-controlled, secure sites designed to house our
transmission, routing and switching equipment and local operational staff. We
plan to grow to 125 POPs by the end of 2000. A POP allows us to place customers'
traffic onto the Williams network. We are designing our POPs with up to 50,000
square feet in order to provide colocation services, which give our customers
direct access to the Williams network. Colocation services provide our customers
with access and space to install their own equipment in our POPs. We intend to
expand our network to include multiple POPs within select major metropolitan
areas in order to provide end-to-end service offerings for our carrier
customers.
Rights of way. The Williams network is primarily constructed by digging
trenches along rights of way, rights to use the property of others which we
obtain throughout the U.S. from various landowners. Where feasible, we construct
along Williams' pipeline rights of way and the rights of way of other pipeline
companies. Approximately 27% of our rights of way are along Williams' pipeline
rights of way and the remainder are along the rights of way of third parties.
Rights of way from unaffiliated parties are generally for terms of at least 20
years and most cover distances of less than one mile. Where necessary or
economically preferable, we have other right of way agreements in place with
highway commissions, utilities, political subdivisions and others. As of June
30, 1999, we had agreements in place for approximately 90% of the rights of way
needed to complete the Williams network. As of June 30, 1999, the remaining
rights of way needed for completion of the Williams network consisted of
approximately 3,300 route miles located primarily in the Western U.S. Almost all
of our rights of way extend through at least 2018.
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The following table sets forth our current and future plans as of July 31,
1999 for the Williams network build. This table does not include the routes of
the single-fiber network.
<TABLE>
<CAPTION>
APPROXIMATE
ESTIMATED APPROXIMATE MILES IN
ROUTES COMPLETION DATE ROUTE MILES OPERATION
- ------ ------------------- ----------- -----------
<S> <C> <C> <C>
Atlanta -- Jacksonville(1) Completed 370 370
Dallas -- Houston(2) Completed 250 250
Houston -- Atlanta -- Washington, D.C. Completed 1,830 1,830
Jacksonville -- Miami(1) Completed 330 330
Kansas City -- Denver(1) Completed 640 640
Los Angeles -- New York City(2) Completed 4,370 4,370
Los Angeles -- San Diego(3) Completed 150 150
Minneapolis -- Kansas City(1) Completed 450 450
Portland -- Salt Lake City -- Los Angeles(4) Completed 1,320 1,320
Daytona -- Orlando -- Tampa 3rd quarter 1999 160 80
Detroit -- Cleveland(4) 3rd quarter 1999 200 --
Los Angeles -- Sacramento -- Oakland -- San
Jose(5) 3rd quarter 1999 800 --
Portland -- Seattle(3) 3rd quarter 1999 180 --
Washington, D.C. -- New York City(1) 3rd quarter 1999 370 --
Bakersfield -- San Luis Obispo -- Fresno 4th quarter 1999 270 --
Bandon, Oregon -- Eugene, Oregon 4th quarter 1999 250 --
Corpus Christi -- Houston -- Laredo -- San
Antonio(2) 4th quarter 1999 740 --
Denver -- Salt Lake City(1) 4th quarter 1999 570 --
Miami -- Tampa -- Tallahassee(1) 4th quarter 1999 540 --
New Orleans -- Tallahassee 4th quarter 1999 480 --
Albany -- Boston 1st quarter 2000 180 --
Sacramento -- Portland(5) 1st quarter 2000 690 --
Los Angeles -- Phoenix -- San Antonio -- Houston 2nd quarter 2000 1,630 --
New York -- Boston 2nd quarter 2000 250 --
Salt Lake City -- Sacramento -- San Francisco 2nd quarter 2000 850 --
Atlanta -- Nashville -- Cincinnati -- Chicago 4th quarter 2000 850 --
Chicago -- Cleveland -- Pittsburgh -- Washington,
D.C. 4th quarter 2000 800 --
Chicago -- Detroit(2) 4th quarter 2000 280 --
Dallas -- Charlotte(2) 4th quarter 2000 1,250 --
Denver -- El Paso(2) 4th quarter 2000 750 --
Houston -- Kansas City -- St. Louis -- Chicago 4th quarter 2000 1,300 --
Minneapolis -- Milwaukee -- Chicago(3) 4th quarter 2000 320 --
------ -----
TOTAL: 23,420 9,790
====== =====
</TABLE>
- -------------------------
(1) These routes were constructed under our asset defeasance program, as agent
for the trust, and are, or when completed will be, leased to us.
(2) We acquired rights in fiber with no spare conduits along these routes.
(3) In addition to constructing one route with 2 spare conduits, we intend to
acquire rights in 12 fibers along a diverse route between these cities.
(4) These routes were jointly constructed or acquired by us, Enron and Touch
America with no spare conduits.
(5) We intend to acquire rights in 12 fibers on these routes along with two
spare conduits.
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Monitoring. We monitor the Williams network 24 hours a day, seven days a
week from our network management centers in Tulsa, Oklahoma and St. Louis,
Missouri. Each network management center provides centralized network
surveillance, troubleshooting and customer service. The system currently allows
our technicians to detect a component malfunction in the Williams network,
quickly reroute the customer's traffic to an available alternate path and effect
an expedited repair. Upon completion of the Williams network, the rerouting
function will be fully automated and nearly instantaneous so that customers will
not experience any disruptions in service quality. We expect this will reduce
service costs and customer downtime. We have also implemented a program which
encourages people to phone a toll-free number prior to breaking ground, backed
up by Williams' "call before you dig" group to reduce the risk of damage to our
conduit or fiber system. Additionally, we place above-ground markers at frequent
intervals along the route of the Williams network.
PRODUCTS AND SERVICES
Our network products and services fall into seven categories:
- packet-based data services
- private line services
- voice services
- local services
- dark fiber and conduit rights
- optical wave services
- network design and operational support
Packet-based data services. These services provide efficient connectivity
for data, Internet, voice and video networks at variable capacities across the
Williams network to connect two or more points. Specific packet-based data
services include ATM, frame relay and Internet transport services. These
services primarily operate over the Williams network and enable billing based on
quality of service and usage.
Private line services. We provide customers with fixed amounts of
point-to-point capacity across the Williams network. We offer these services
both across the Williams network and by purchasing capacity on other providers'
networks. As we complete the Williams network, we will increase the percentage
of these services we provide on our network.
Voice services. We currently provide connectivity across the Williams
network for our customers to complete long distance telephone calls using
capacity on other providers' networks. Our customers can use the Williams
network to handle origination and termination of long distance phone calls. As
we complete deployment of our voice switches and obtain the necessary regulatory
approvals, we will provide these and other voice services on the Williams
network and decrease our usage of others' networks. Other voice services will
include calling card, directory assistance, operator assistance, international
and toll-free services. As the traditional geographic boundaries for voice
services diminish, our voice platform will provide local, long distance and
international voice services.
Local services. We currently provide local connectivity for our carrier
customers through the resale of other providers' services. We have obtained
local capacity through our agreements with WinStar and Metromedia Fiber Network
and can obtain local capacity from SBC. We will develop specific products using
this capacity to meet our customers' local networking needs.
Dark fiber and conduit rights. We sell rights for dark fiber and related
services and may sell rights to conduit in the future. Sales of dark fiber
rights and conduit rights are accounted for as leases. Dark fiber consists of
fiber strands contained within a fiber optic cable which has
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been laid but does not yet have its transmission electronics installed. A sale
of dark fiber rights typically has a term which approximates the economic life
of a fiber optic strand (generally 20 to 30 years). Purchasers of dark fiber
rights typically install their own electrical and optical transmission
equipment. Substantially all of our current and planned builds include laying
two spare conduits, and we may sell rights to use at least one of them. A
purchaser of conduit rights typically lays its own cable inside the conduit.
Related services for both sales of rights for dark fiber and conduits include
colocation of customer equipment at our POPs and network equipment locations and
maintenance of the purchased fiber or conduit. We have entered into agreements
for sales of dark fiber rights with Frontier, IXC, WinStar and others. Payment
for dark fiber rights is generally made at the time of delivery and acceptance
of the fiber although other payment options may be available. In addition,
ongoing payments for maintenance services are required. These transactions
typically involve sales of contractual rights to use the fiber or conduit,
rather than sales of ownership interests.
Optical wave services. The packet-based DWDM technology used in the
Williams network allows us to offer optical wave services to our customers.
These services allow a customer exclusive long-term use of a portion of the
transmission capacity of a fiber optic strand rather than the entire fiber
strand. This capacity we use to provide optical wave services is in addition to
the capacity used by us to provide our other services. We are able to derive
sixteen wavelengths from a single fiber strand with current technology and plan
to derive up to thirty-two wavelengths from a single fiber strand by the end of
1999. A purchaser of wavelength will install its own electrical interface,
switching and routing equipment and will share the fiber and optical
transmission equipment with other optical wave services users. We believe that
many potential customers will be interested in optical wave services because
they allow a customer to purchase capacity in smaller increments while retaining
the added control advantages of dark fiber.
Network design and operational support. We help our customers design and
operate their networks. We use our network management centers to monitor and
operate portions of their networks and use our solutions unit's resources to
expand and support our customers' networks. We are deploying new management
tools, including our customer network management system, which will give our
customers the ability to monitor network performance and reconfigure their
capacity from their own network management centers on an essentially real-time
basis and the ability to increase or reduce bandwidth rapidly to better match
their needs. Our customer network management system features equipment inventory
management, bandwidth inventory management, configuration management, fault
isolation management and alarm monitoring. In 1998, we provided network design
and operational support services primarily to Concentric and Savvis
Communications Corporation, an Internet service provider.
CUSTOMERS
We provide dedicated line and switched services to other communications
providers over our owned or leased fiber optic network facilities. Our customers
currently include regional Bell operating companies, Internet service providers,
long distance carriers, international carriers, utilities and other providers
who desire high-speed connectivity on a carrier services basis. We have entered
into strategic alliances with SBC, Intel, Telefonos de Mexico, Metromedia Fiber
Network, WinStar, Intermedia and U S WEST and others and have strategic
investments in UniDial, Concentric and UtiliCom, as well as international
strategic investments in communications companies located in Brazil, Australia
and Chile. These alliances and investments help to increase our volume of
business and provide additional customers for our network and solutions units.
We do not believe these alliances and investments will adversely impact our
relationships with our other customers. For more information about our strategic
alliances, see "-- Strategic alliances" below.
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Sales to Intermedia accounted for approximately 31.2% of our network unit's
revenues from external customers in 1998. Sales to Qwest accounted for
approximately 26.2% of our network unit's revenues from external customers in
1998. Sales to our next three largest customers, Hyperion, Concentric and
Frontier, together accounted for approximately 29.0% of our network unit's
revenues from external customers in 1998. Our remaining customers each accounted
for less than 3% of our network unit's revenues from external customers in 1998.
We anticipate that over the next several years the distribution of our
revenues will shift in part as a result of increased usage of our services by
the companies with whom we have entered into strategic alliances. We anticipate
that at least through the end of 2000, SBC, Intel, Intermedia, WinStar and
Concentric will be among our top customers. Other factors affecting our revenue
mix include the installation of Nortel DMS 250 switches, which will allow us to
offer additional voice services for increased revenues, and the timing of
regulatory approval of SBC's ability to provide long distance services inside
its operating regions. In addition, we have entered into dark fiber agreements
for segments of the Williams network which we have not yet completed.
SALES AND MARKETING
We sell services and products to carriers through our sales organization.
Since we only sell to other communications carriers, our sales and marketing
department is small and focused, resulting in strong customer relationships and
lower operating costs. This organization consists of senior level management
personnel and experienced sales representatives with extensive knowledge of the
industry and our products and key contacts within the industry at various levels
in the carrier organizations. We position ourselves as the provider of choice
for communications carriers due to the quality of our service, the control we
provide customers over their service platforms, the reliability of our services
and our low cost position. We believe our cost advantages allow us to sell our
services on the Williams network at prices which represent potentially
significant savings for our large-volume customers relative to their other
alternatives.
COMPETITION
The communications industry is highly competitive. Some competitors in the
markets of carrier services and fiber optic network providers may have
personnel, financial and other competitive advantages. New competitors may enter
the market because of increased consolidation and strategic alliances resulting
from the Telecommunications Act, as well as technological advances and further
deregulation. In the market for carrier services, we compete primarily with the
three traditional nationwide carriers, AT&T, MCI WorldCom and Sprint, and other
coast-to-coast and regional fiber optic network providers, such as Qwest, Level
3 and IXC. We compete primarily on the basis of pricing, transmission quality,
network reliability and customer service and support. We have only recently
begun to offer some of our services and products and as a result we may have
fewer and less well-established customer relationships than some of our
competitors.
We believe that we have advantages over our competitors. AT&T, MCI WorldCom
and Sprint utilize systems that were constructed for the most part prior to
1990. We believe that the older systems operated by these carriers generally
face disadvantages when compared to the Williams network, such as:
- lower transmission speeds
- lower overall capacity
- more costly maintenance requirements
- inefficiency due to design and competing traffic requirements
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- greater susceptibility to systems interruption from physical damage to
the network infrastructure
Many older systems will face greater difficulty in upgrading to more
advanced fiber due to lack of a spare conduit. We are aware that other
competitors may employ advanced technology that is similar to that of the
Williams network. Additional capacity that is expected to be available over the
next several years from competitors may cause significant decreases in prices
overall.
The prices we can charge our customers for transmission capacity on the
Williams network could decline due to installation by us and our competitors,
some of which are expanding capacity on their existing networks or developing
new networks, of fiber and related equipment that provides substantially more
transmission capacity than needed. If prices for network services significantly
decline, we may experience a decline in revenues which would have a material
adverse effect on our operations.
We believe that our strategy of selling products and services to other
communications carriers gives us an advantage over other fiber optic network
providers who compete with their customers. We believe that communications
carriers prefer not to buy products and services from a competitor. We also do
not need a large sales, marketing and customer service staff in order to support
the retail markets that our competitors serve. We can effectively reach and
serve a relatively small group of large customers with our smaller, efficient
and focused team, resulting in reduced costs.
RELATIONSHIP WITH MCI WORLDCOM
As part of our agreements with MCI WorldCom relating to the sale of the
majority of Williams' communications network business to LDDS, MCI WorldCom
granted us an option to purchase one fiber optic strand over approximately 7,700
miles of selected MCI WorldCom routes. In addition, we granted MCI WorldCom an
option to purchase one fiber optic strand over approximately 9,700 miles of
selected Williams network routes on the portions of the Williams network which
we began to develop in January 1998. The exercise price for each option is equal
to the capitalized cost attributable to the sold fiber plus a slight markup. Any
fiber optic strand we purchase pursuant to the option may only be used to
transmit video or multimedia services, including Internet services, until July
1, 2001. MCI WorldCom has agreed to provide private line, frame relay and
switched voice services for our and Williams' internal use through 2034. We have
agreed to pay MCI WorldCom its costs to unrelated third parties for these
services. Until July 1, 2003, we and MCI WorldCom have agreed not to directly
solicit the other's employees located in the Tulsa metropolitan area.
OUR SOLUTIONS UNIT
We sell, install and maintain network services and the communications
equipment of leading vendors to address our customers' comprehensive voice and
data needs. Our expertise in communications and data networks permits us to
offer customers a wide range of professional services, including network
planning, design, implementation, management, maintenance and optimization. We
also distribute the products and services of select communications service
providers, including some of our network's customers. In April 1997, we
purchased Nortel's equipment distribution business, which we then combined with
our equipment distribution business to create Williams Communications Solutions,
LLC. We own 70% of Solutions LLC and Nortel owns the remaining 30%. Our
solutions unit consists primarily of Solutions LLC.
Our broad range of voice and data solutions allows us to serve as a
single-source provider for our customers' communications needs. We distribute
the products and services of a number
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of communications suppliers, primarily Nortel, as well as Cisco, Octel (a
division of Lucent), NEC, 3COM, Bell Atlantic, SBC and U S WEST, and are
therefore able to provide our customers with multiple options. By offering
equipment from a variety of vendors, we help businesses optimize the
productivity and reduce the cost of their communications systems. We have
expertise in the most complex network technologies to ensure that products from
various suppliers operate together effectively.
Selected statistics of our solutions unit as of June 30, 1999 include
(numbers are approximate):
<TABLE>
<S> <C>
Sales personnel........................ 1,200
Technicians............................ 2,400
Engineering personnel.................. 800
Operations support staff............... 1,400
Total customer sites................... 100,000
Sales and service locations............ 110
</TABLE>
STRATEGY
Our objective is to be the premier provider of advanced, integrated
communications solutions to businesses. To achieve this objective, we intend to:
- Capitalize on converging voice, data, Internet and video needs. We
capitalize on the increased demand for new technologies as businesses
replace and upgrade existing communications infrastructure as a result of
an industry trend called convergence. Whereas in the past voice and data
equipment and networks were separate, convergence is the integration of
these separate technologies into a single communications environment. We
believe that our strong customer relationships, product portfolio and
technical experience provide us with an ideal platform to capitalize on
this trend.
- Leverage our engineering and technical resources. We have an experienced
staff of approximately 2,400 technicians and approximately 800
engineering personnel to design, install, manage and maintain our
customers' communications infrastructures. Our employees are trained to
address our customers' converged and complex communications needs, such
as Internet-connected call centers and voice over Internet protocol. As
technologies become more complex, the need for advanced communications
solutions such as these will continue to grow. Our engineering personnel
and technicians provide us with a competitive advantage in offering these
services.
- Provide advanced professional services. We provide comprehensive
services to assist customers in the design, engineering and operation of
their communications networks. Our services include advanced call center
applications, outsourcing, network engineering and network consulting. We
intend to continue to expand the professional services portion of our
business as customer demand for advanced communications and data network
solutions continues to grow.
- Utilize our nationwide presence and large, installed customer base. We
have approximately 110 sales and service locations throughout the U.S.
and Canada and approximately 100,000 customer sites. Our nationwide
presence allows us to better serve multi-location customers and makes us
a very attractive partner for leading communications equipment and
service providers. Our large, installed customer base provides us and
leading communications equipment and service providers with an existing
market to sell new products and services.
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- Extend the reach of our network unit's carrier customers. We are able to
distribute the products and services of our network unit's customers to
our solutions unit's customer base. We are currently using our solutions
unit's 1,200 sales personnel to sell Concentric's Internet services and
UniDial's long distance services. In addition, we have agreed to offer
SBC's network services as they are made available to us. We believe that
our ability to extend the reach of our network unit's carrier customers
provides our network unit with a valuable point of differentiation.
PRODUCTS AND SERVICES
We provide a comprehensive array of communications products and services.
Our products and services fall into three categories:
- equipment sales and service
- professional services
- sale of carrier services
Equipment sales and services provided approximately 78% of total
consolidated revenues for 1998, 83% of total consolidated revenues for 1997 and
79% of total consolidated revenues for 1996.
Equipment sales and service. We sell and install voice and data
communications equipment and provide service, maintenance and support for our
customers' communications networks.
- Voice and video equipment. We offer our customers a variety of voice and
video equipment, which enables our customers to communicate more
effectively. We also install, configure and integrate all of the
equipment they purchase. The voice systems we sell range from systems for
small businesses to systems for large enterprise sites, requiring
anywhere between 15 and 50,000 internal telephone lines. This equipment
includes private branch exchange systems, key systems, building wiring,
call centers, voice mail systems and premise (as opposed to mobile)
wireless systems.
- Data equipment. We design, build and operate data networks as well as
integrated voice and data networks. To meet our customers' needs, we
evaluate technologies such as Internet protocol, frame relay and ATM and
then we select, integrate and deploy the appropriate routers, switches,
access devices and other required equipment. The networks we build range
from small local area networks, which are communications networks over
small areas supporting less than 50 users, to wide area networks
supporting thousands of users and multiple technologies.
- Service and maintenance. We maintain and service our customers' networks
primarily through annual maintenance plans or through job-specific plans
based on time and materials. We remotely monitor and manage the voice and
data equipment and network connectivity of our customers 365 days a year,
24 hours a day through our advanced network management center. We are
able to resolve over 85% of all potential problems relating to data
equipment and over 25% relating to voice equipment without having to
dispatch a technician to the customer's site. When a skilled technician
is required, we have a staff of over 2,400 technicians available to meet
our customers' on-site service needs.
Professional services. We design, build and operate advanced voice, data
and integrated networks. Our professional services offerings include
outsourcing, advanced call center applications, network engineering and network
consulting. We will continue to expand these services as customer demand for
advanced communications solutions continues to grow.
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- Outsourcing. We have over 400 engineers and on-site technicians to
support several large U.S. corporations which have elected to turn over
to us the management and operation of all or substantial portions of
their communications environments. Increasingly, these clients are
outsourcing their data networking requirements in addition to their
traditional voice communications requirements to expand network
capability, improve productivity and decrease costs.
- Advanced call center applications. Our call center applications team
consists of approximately 50 software applications developers and
engineers who design and implement customized call center solutions for
customers with complex requirements. We also maintain a computer
telecommunications integration lab with 30 specialists to test and
develop custom call center solutions.
- Network engineering. We have approximately 175 network engineers with
expertise in data as well as integrated voice and data networking. This
group designs networking solutions, implements those solutions and
provides ongoing operational support utilizing standard technologies. We
also provide engineers on a fee-for-service basis for customers who seek
to augment their own resources.
- Network consulting. Our network consultants coordinate the operational
plans of our customers with their existing network capacity and
capability in order to determine the communications environment necessary
to meet their business needs. Our consultants provide a complete analysis
of existing network status and predict the impact of future changes on a
network and also develop sophisticated Internet applications.
Sale of carrier services. Our customers are increasingly demanding
"one-stop shopping" for communications services. We sell long distance, local
and Internet services offered by other carriers who are generally customers of
the Williams network. This enables us to provide a complete communications
solution for our customers. We currently have agreements with SBC, Bell
Atlantic, U S WEST (in Arizona only), UniDial and Concentric to sell their
services.
ISSUES RELATING TO OUR SOLUTIONS UNIT'S PERFORMANCE
In 1997, we and Nortel combined our equipment distribution businesses to
create what is now Solutions LLC. The rationale for the combination was to
achieve the benefits of increasing the scale and national reach of our sales,
engineering and technical support staffs and our installed customer base and to
strengthen our relationship with our primary vendor. The combination was also
expected to provide the cost benefits of eliminating redundant operating and
overhead expenses. However, we have experienced difficulties in integrating
Nortel's equipment distribution business with ours and in managing the increased
complexity of our business. These difficulties have prevented us from fully
realizing the expected benefits of the combination and have adversely impacted
our financial results. For a detailed discussion of these issues, see the
section of this prospectus entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview -- Our solutions
unit."
VENDOR RELATIONSHIPS
We have agreements with the suppliers of the products and providers of the
services we sell to our customers. These agreements provide for our
distribution, resale or integration of products or our acting as agents for the
provider of services. Normally, we receive volume discounts off the list price
of the product or service we purchase from our vendors. We estimate that sales
of Nortel's products, consisting of primarily voice equipment, accounted for
approximately 40% of our solutions unit's revenues in 1998. We estimate that
product sales from the next three largest vendors accounted for approximately 6%
of our solutions unit's revenues in 1998.
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Nortel. We distribute Nortel's voice, data and video products. We are the
largest U.S. distributor of Nortel's end-user voice products. The discounts we
receive vary based on our volume of purchases of a particular product line up to
a maximum discount. We have a commitment from Nortel that we may remain a
distributor of Nortel's products through at least 2002. While we have no
commitment to purchase a minimum number of products from Nortel, if we do not
maintain a minimum percentage of Nortel's products in our product mix, each
party has the option to change the ownership structure of Solutions LLC. See the
section below entitled "-- LLC Agreement with Nortel" for more information.
Cisco. We are a large U.S. distributor of Cisco's full line of data
networking products. We also distribute Cisco's voice over Internet protocol
products.
Lucent. We are one of the largest U.S. distributors of the voicemail
products of Lucent's Octel messaging division. We also distribute Lucent's
advanced premises wiring products.
NEC. We are one of the largest non-affiliated U.S. distributors of NEC
voice equipment. We have an agreement with NEC that requires us to purchase from
April 1, 1999 through March 31, 2001 annual minimum amounts which aggregate to a
minimum of $44 million of their products. If we do not fulfill our commitment to
NEC, we are required to pay 30% of any amounts we do not purchase.
CUSTOMERS
We have approximately 100,000 customer sites across a broad range of
industries, including businesses as well as educational, governmental and
non-profit institutions. These customers consist of small businesses (ten or
more employees), small sites of larger companies and large enterprise campus
sites (e.g., AT&T and the University of Dayton). We are one of the largest
providers in the U.S. of installation and maintenance services of communications
systems to business sites of over 10,000 telephone lines. We believe that our
customer service will enable us to capture an increasing portion of each
customer's communications budget in the future. We are not dependent on any one
customer or group of customers to achieve our desired results. Our top 25
customers combined accounted for less than 10% of revenue during 1998, with no
one customer accounting for more than 1%. Our customers include: AT&T, Bankers
Trust Corporation, BP Amoco P.L.C., Countrywide Credit Industries, Inc., Hewlett
Packard Company, Johnson & Johnson, Kaiser Permanente, Lockheed Martin
Corporation, Merrill Lynch & Co., Pfizer, Inc., Prudential Individual Insurance
Group, Shell Exploration and Production Technology Company, Staples, Inc., T.
Rowe Price International Technologies, Inc. and Texaco Inc.
SALES
We operate approximately 110 sales and service offices in the U.S. and
Canada staffed with approximately 1,200 sales personnel. Approximately 100 of
our sales personnel focus on large, national and government accounts. In
addition, we have representatives dedicated to making regular telephone contact
with our existing customers, providing enhanced customer service and a channel
for merchandise sales.
COMPETITION
Our competition comes from communications equipment distributors, network
integrators and manufacturers of equipment (including in some instances those
manufacturers whose products we also sell). Our competitors include Norstan,
Inc., Anixter Inc., Integrated Network Services, Lucent, Siemens, Cisco Systems
and the equipment divisions of GTE, Sprint and the regional Bell operating
companies. Most equipment distributors tend to be regionally focused and do not
have our capability to service a nationwide customer base. We believe our
expertise
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in voice technologies and our ability to provide comprehensive solutions give us
an advantage over network integrators. We realize that we operate in a highly
competitive industry and face competition from companies that may have
significantly greater financial technical and marketing resources. Some of our
competitors have strong existing relationships with our customers and potential
customers resulting in a competitive disadvantage for us. We are also at a
disadvantage in that our costs exceed those of manufacturers, limiting our
ability to engage in price competition with such manufacturers. However, most
manufacturers of equipment are focused on selling their own equipment and do not
provide converged solutions.
By having relationships with multiple vendors, we believe we can provide
the best solution for each customer's specific needs. We realize that an
interruption, or substantial modification, of our distribution relationships
could have a material adverse effect on our business.
LLC AGREEMENT WITH NORTEL
In April 1997, we purchased Nortel's equipment distribution business, which
we then combined with ours to create Solutions LLC. Nortel's equipment
distribution business included the combined net assets of Nortel's direct sales
subsidiary, Nortel Communications Systems, Inc., which includes Bell Atlantic
Meridian Systems, and TTS Meridian Systems, Inc.
We have a 70% interest and Nortel has a 30% interest in Solutions LLC. In
the event of a change of control of either us or Nortel, Nortel may require us
to buy, or we may require Nortel to sell, Nortel's entire interest in Solutions
LLC at market value. If for two consecutive years the percentage of Nortel
products purchased by Solutions LLC compared with all Nortel and similar
products purchased by Solutions LLC falls below approximately 78% and the rate
of growth of the purchase of Nortel products by Solutions LLC during the
two-year period is below that of other Nortel distributors, Nortel may require
us to buy, or we may require Nortel to sell, Nortel's entire interest in
Solutions LLC at market value.
After 1999, Nortel may require us to purchase up to one-third of its
interest in Solutions LLC. Nortel must retain a 20% interest in Solutions LLC
for a period of 5 years after the date on which Nortel's ownership interest is
reduced to 20%. As long as Nortel retains 20%, we must retain at least a 50%
interest in Solutions LLC. Each party has a right of first refusal to purchase
the other party's interest in the event of a sale to a third party of all or any
part of the party's interest. For more information about our relationship with
Nortel, see the section above entitled "-- Vendor relationships."
We and Nortel have representation in proportion to our respective ownership
interest on the management committee of Solutions LLC. We currently appoint
seven representatives and Nortel appoints three representatives to this
committee. As long as Nortel's interest in Solutions LLC is at least 20%, Nortel
must approve, among other things:
- any changes to the scope of Solutions LLC's business
- any non-budgeted capital expenditure over $5 million, non-budgeted
acquisition, divestiture or any other obligation over $20 million
- the incurrence of long-term debt in excess of equity
Until May 2000, we and Nortel will not engage in direct sales to end-users of
Nortel's voice products or any similar voice products in the U.S. and Canada
outside Solutions LLC.
OUR STRATEGIC INVESTMENTS UNIT
We make investments in, or own and operate, domestic and international
businesses that create demand for capacity on the Williams network, increase our
service capabilities, strengthen
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our customer relationships, develop our expertise in advanced transmission
electronics or extend our reach.
STRATEGY
Our objectives for our strategic investments unit are:
- To continue to expand our international presence
- To continue to invest in companies that increase demand for the products
and services of our network and solutions units
- To make and manage and, where appropriate in the case of non core
businesses, dispose of investments to increase profitability
- To secure cost-effective access to needed products and services
DOMESTIC
Vyvx. We own Vyvx, a leading provider of integrated fiber optic, satellite
and teleport video transmission services. Through Vyvx, we have gained
experience in multimedia networks and have established high-speed connectivity
to the major news and sports venues throughout the country. Vyvx's broadcast
customers include all major broadcast and cable television networks, news
services and professional and collegiate sports organizations. In 1998, Vyvx
delivered the video and audio signals from live events to television networks
for approximately 85% of all major league sports events. Vyvx also distributes
advertisements and other media to local television stations.
While Vyvx has over approximately 2,000 active customers, approximately 40%
of its total revenue is derived from its top ten customers. Vyvx's contracts
with its largest customers are for terms which extend up to ten years. Most of
its contracts with its smaller customers are for one-year terms. Vyvx's largest
customer, Fox Entertainment Group, Inc., accounts for approximately 19% of its
total revenues. Competition is based primarily on service quality and
reliability and network reach and, to a lesser extent, on price. Vyvx provides
superior customer service and quality and extensive domestic reach. Our
competitors include some of the largest domestic and international
communications companies, which have greater financial resources and name
recognition. Major competitors are AT&T, GlobeCast North America and Digital
Generation Systems, Inc. We are at a disadvantage in international broadcasting
because our competitors have greater international presence.
Concentric. Concentric Network Corporation is a provider of Internet-based
virtual and private networking services to business customers. We currently own
4,633,716 shares, or 11.5%, of Concentric's common stock, which we acquired over
the past two years for an aggregate of approximately $41.5 million. We also own
warrants to purchase an additional 710,036 shares of Concentric's common stock
at an exercise price of $3 per share by June 2002. Prior to March 31, 2002, we
may also be required to purchase up to 906,679 shares at the current market
price so long as such purchase would not violate any law or regulation or
otherwise have a material adverse effect on our company. Concentric has agreed
to purchase at least $21 million of services and equipment from us prior to
December 1, 2002. Through at least 2007 and for so long as we own at least 5% of
Concentric's common stock, we are Concentric's preferred provider of
communications equipment and long distance multimedia network services. As a
preferred provider, we retain a right of last refusal to provide these services
so long as the equipment and services are competitive to the market in
technology and price. During this period, Concentric must first try to buy all
services and equipment it requires from us if we provide the products Concentric
requires. Our solutions unit has also entered into an agreement
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with Concentric which provides that we will market and resell Concentric's
telecommunications services in the U.S. Our investment in Concentric allows us
to better understand the requirements of Internet service providers so that we
can scale these service offerings to better serve our customers. We are
discussing with Concentric an expansion of our commercial relationship but such
discussions are in preliminary stages.
UniDial. UniDial Communications, Inc. is a reseller of long distance and
other communications products, including frame relay, Internet and conferencing
services. In October 1998, we purchased shares of preferred stock of UniDial for
$27 million. Dividends accrue at the rate of 10% per annum beginning October 1,
1999. The shares are convertible into common stock under certain circumstances,
with our resulting percentage being subject to various formulas and timing
restrictions. We currently estimate that our preferred stock would convert into
approximately 12% of UniDial's common stock. We entered into an agreement with
UniDial which provides for UniDial to buy all of its required carrier services
from us until October 2002, subject to UniDial's commitments existing at the
date of the agreement. We must price our services at competitive market levels.
UniDial may not terminate the carrier services agreement, which automatically
renews for successive two-year periods, as long as we continue to own all of our
UniDial preferred stock or own at least 5% of UniDial's common stock. We also
have an additional agreement with UniDial which provides for our solutions unit
to sell UniDial's products and services and for UniDial to handle the billing
and collection relating to our solutions unit's sales of UniDial's services. Our
investment in UniDial allows us to better understand the reseller market and
enables us to better serve our customers.
UtiliCom. UtiliCom Networks Inc. partners with utilities to create joint
ventures offering local exchange and other communications services. We currently
own 469,154 shares of UtiliCom's common stock, which represents a 14.5% interest
(9.7% on a fully-diluted basis), though we expect our interests to be reduced to
6.7% (5.9% on a fully-diluted basis) in 1999 upon UtiliCom's receipt of
additional financing. We have provided a $1 million loan to UtiliCom that
matures in May 2003, which we may convert to UtiliCom common stock in the event
of an initial public offering of UtiliCom's common stock. We also provided an
additional $4 million loan that matures in ____ 1999. We hold 200,000 warrants
that are exercisable to purchase UtiliCom common stock at $3 per share. In
exchange for our financing and investments, UtiliCom has agreed to use
reasonable best efforts to utilize our communications services and equipment and
to cause each of its joint ventures to designate us as its vendor as long as we
offer the equipment and services on competitive terms. In addition, we and
UtiliCom agreed to market each other's products and services to each other's
customers. UtiliCom's first joint venture partner is a subsidiary of SIGCORP,
Inc., a utility in Evansville, Indiana. The new venture is preparing to provide
telephony and data services, Internet services and cable television services to
business and residential customers.
Other. We also own Telemetry and ChoiceSeat. Telemetry provides wireless
remote monitoring and meter reading equipment and related services to industrial
and commercial customers, including Williams. ChoiceSeat deploys touch-screen
display units installed on stadium seats which provide access to statistics,
different views of the field, player- and venue-related information and access
to current information from other sports events.
INTERNATIONAL
On May 27, 1999, Williams contributed to us interests in communications
ventures in Brazil (ATL), Australia (PowerTel) and Chile (MetroCom). We are
responsible for any capital or other commitments which Williams had related to
these interests. Williams has granted us an option to acquire its interest in a
holding company whose subsidiaries are communications
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service providers in Brazil (Algar Telecom). We may acquire additional interests
in these and other international ventures in the future.
ATL. ATL-Algar Telecom Leste S.A. was formed in March 1998 to acquire the
concession for B-band cellular licenses in the Brazilian states of Rio de
Janeiro and Espirito Santo. Before Williams contributed its interest in ATL to
us, ATL was owned by Williams, SKTI-US LLC and Algar Telecom S/A. We own a 55%
direct interest in ATL and a 10% indirect interest in ATL through our ownership
in SKTI-US LLC. Before Williams contributed its interest to us, SKTI-US LLC was
owned by Williams and SK Telecom Co., Ltd., Korea's largest wireless
telecommunications provider. SK Telecom continues to own an interest in SKTI-US
LLC.
We obtained from Williams its option to acquire SK Telecom's interest in
SKTI-US LLC once permitted under Brazilian regulations. In 1998, Williams
acquired a 20% non-voting economic interest in ATL. Also in 1998, SKTI-US LLC
acquired a 10% economic interest, representing a 30% voting interest, in ATL. In
March, 1999, Williams purchased from Algar Telecom for $265 million an
additional 35% economic interest, representing a 19% voting interest, in ATL.
This investment reduces Algar Telecom's investment to a 35% economic interest,
representing a 51% voting interest, in ATL. Our investment in ATL totals $373
million.
In March, 1999, the shareholders of ATL, including Williams, pledged 49% of
their common ATL stock and all of their preferred ATL stock as collateral for a
U.S. dollar-denominated $521 million loan from Ericsson Project Finance AB to
ATL.
We and Williams have held preliminary discussions concerning the
possibility of our increasing our ownership in ATL through our purchase from
Algar Telecom of its investment in ATL. There is no assurance that these
discussions will result in any agreement.
ATL provides digital cellular services in the Brazilian states of Rio de
Janeiro and Espirito Santo, covering a population of approximately 16.1 million
inhabitants. ATL started commercial operations on January 15, 1999 and had
approximately 545,000 subscribers as of June 30, 1999. ATL's only cellular
competitor in these areas is Tele Sudeste Celular Participacoes S.A., a former
subsidiary of Telebras currently controlled by a consortium led by Telefonica de
Espana. We believe these areas to be particularly attractive because of the high
unsatisfied demand for cellular services, large population base and relatively
high level of income per capita when compared to other Brazilian regions. ATL's
strategy is based on rapidly deploying a high-quality, 100% digital cellular
network, offering a broad range of enhanced services and providing excellent
customer service.
Algar Telecom. Williams currently owns a 20% equity interest in Algar
Telecom. Algar S.A. Empreendimentos e Participacoes, a Brazilian conglomerate,
owns 74% of Algar Telecom. The remaining 6% of Algar Telecom is owned by the
International Finance Corporation.
We have the right during the period from January 1, 2000 through January 1,
2001 to purchase all of Williams' equity and debt investments in Algar Telecom
and any interests in ATL that Williams acquires at the net book value of
Williams' investment in Algar Telecom and ATL at the time of the purchase. At
June 30, 1999, this net book value was approximately $150 million. The purchase
price is payable in shares of Class B common stock valued at the average closing
sale price per share of our common stock over the twenty trading-day period
prior to the purchase.
Williams purchased the 20% economic interest in Algar Telecom, representing
a 5% voting interest, in January 1997 for approximately $65 million. In April
1998, Williams invested an additional $100 million in Algar Telecom in the form
of a redeemable convertible bond. The
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bond bears interest at an annual rate of 10% compounded quarterly in U.S.
dollars and is convertible at any point over the next three years. After the
conversion of the bond, Williams would own an approximately 33% economic
interest, representing a 21% voting interest in Algar Telecom. Beginning in
January 2002 and until an initial public offering of Algar Telecom, Williams has
a right to sell its entire interest in Algar Telecom for at least the amount of
Williams' investment plus interest. Williams has the ability to maintain its
ownership level in Algar Telecom in the event of capital increases.
Algar Telecom's main communications subsidiaries and investments include:
- 35.0% of ATL
- 70.9% of Companhia de Telecomunicacoes do Brasil Central
- 33.7% of Tess S.A.
Other majority-owned subsidiaries of Algar Telecom include companies
involved in cable television services, design, maintenance and construction of
communications networks and provision of long distance services.
Companhia de Telecomunicacoes do Brasil Central provides local telephone
and cellular services in parts of the states of Minas Gerais, Sao Paulo, Goias
and Mato Grosso do Sul, covering 90,000 square kilometers with a population of
approximately 2.5 million people. This area of Brazil has recently experienced
higher rates of economic development than other regions of Brazil. As of
December 31, 1998, Companhia de Telecomunicacoes do Brasil Central had sold
approximately 403,000 fixed telephone lines, had approximately 375,000 lines in
service and had approximately 127,000 cellular subscribers.
Tess provides digital cellular services in Sao Paulo state outside the city
of Sao Paulo, covering a population of approximately 16.3 million inhabitants,
under a concession purchased from Brazil's federal government in 1998. We
believe this to be an attractive area because of the low penetration of fixed
telephone lines and the steady demand for telephone service. Tess's other
stockholders are Telia AB, the largest telecommunications operator in Sweden,
and Eriline Celular, a subsidiary of the Brazilian Eriline group. Tess began to
provide cellular service in December 1998.
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OWNERSHIP STRUCTURE OF STRATEGIC INVESTMENTS IN BRAZIL*
[FLOW CHART OF OWNERSHIP]
- ---------------
* Indicated percentages are for economic interests, which in general are greater
than voting interests.
PowerTel. In August 1998, Williams and a joint venture owned by three
large Australian electric utilities purchased equity interests in PowerTel
Limited (previously known as Spectrum Network Systems Limited), a public company
in Australia. Williams has contributed its interests in PowerTel to us.
PowerTel plans to build, own and operate communications networks serving
the three cities of Brisbane, Melbourne and Sydney and plans to provide local
services in the central business districts of these cities. The three Australian
utilities have entered into a 20-year agreement with PowerTel which allows
PowerTel to use the utilities' ducts and to lay fiber optic cable alongside
their rights-of-way between the cities. PowerTel's strategy is to provide
high-quality, low-cost local voice, data and Internet services to the commercial
and carrier markets commencing in the second half of 1999.
We currently own 159,574,468 shares, or 35%, of the common stock of
PowerTel and 31,914,894 shares, or 100%, of convertible cumulative preferred
stock of PowerTel. Our total investment represents a 36% economic interest in
PowerTel, which Williams purchased for 90 million Australian dollars. The
convertible cumulative preferred stock is convertible into an equivalent number
of shares of common stock at our option at any time until August 2003. We
currently hold a majority of PowerTel's board seats, are entitled to elect the
majority of the directors of PowerTel, to appoint the executive officers of
PowerTel and to operate the company. We are required to invest an additional 60
million Australian dollars in cash by February 2000 in PowerTel for 127,659,574
shares of convertible cumulative preferred stock. Our ownership in PowerTel will
increase to 45% after we have made all of our 60 million Australian dollar cash
contribution. We also have options to purchase 44,680,851 shares of common
stock, which would increase our interest by 2%, at an exercise price of 0.47
Australian dollars per share.
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These options are exercisable at any time until August 2003. We also have a 2%
ownership interest in PowerTel through an earlier investment made by Williams.
MetroCom. On March 30, 1999, Williams acquired a 19.9% equity interest in
MetroCom S.A. which it has contributed to us. MetroCom is a Chilean company
formed to build, own and operate a communications network providing local,
Internet, data and voice services to businesses and residences in the Santiago
metropolitan area. The remaining 80.1% of MetroCom is owned by MetroGas S.A., a
company which is constructing a natural gas distribution system throughout the
Santiago metropolitan area. MetroGas' stockholders are several large
international and Chilean electric utilities and energy companies. MetroGas has
granted MetroCom the right to utilize its rights-of-way throughout Santiago.
MetroCom's strategy is to provide high-quality, low-cost local, Internet, data
and voice services and to focus on the commercial and high-end residential
markets. MetroCom plans to complete its fiber optic network and plans to
commence services in late 1999.
We also have warrants to purchase shares of MetroCom's common stock which
would increase our interest to 50%. Williams purchased the common stock and the
warrants for $24.5 million. Williams employees occupy the chief executive
officer and certain other key management positions.
STRATEGIC ALLIANCES
We enter into strategic alliances with communications companies in order to
secure long-term, high-capacity commitments for traffic on the Williams network
and to enhance our service offerings. The most significant of these alliances
are described briefly below.
SBC
SBC is a communications provider in the U.S. with 1998 revenues of
approximately $28.8 billion. SBC currently provides local services in the south
central region of the U.S. and in California, Nevada and Connecticut. SBC has a
pending agreement to acquire Ameritech, a communications provider in the Midwest
with 1998 revenues of approximately $17.2 billion.
On February 8, 1999, we entered into agreements with SBC under which:
- SBC must first seek to obtain domestic voice and data long distance
services from us for 20 years
- we must first seek to obtain select international wholesale services and
various other services, including toll-free, operator, calling card and
directory assistance services, from SBC for 20 years
- we and SBC will sell each other's products to our respective customers
and provide installation and maintenance of communications equipment and
other services
For the services each must seek to obtain from the other, the prices
generally will be equal to the cost of the product or service plus a specified
rate of return. However, these prices cannot be higher than prices charged to
other customers and in some circumstances cannot be higher than specific rates.
If either party can secure lower prices for comparable services which the other
party will not match, then that party is free to utilize the lowest cost
provider.
Both we and SBC can provide services or products to other persons. Each
party may also sell or utilize the products or services purchased from the other
to provide products or services to other persons. However, if SBC establishes a
wholesale distribution channel to resell the network capacity purchased from us
to another provider of carrier services, we have the right to increase the price
we charge SBC for the services SBC resells in this manner. While the terms of
our agreements with SBC are intended to comply with restrictions on SBC's
provision of long
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distance services, various aspects of these arrangements have not been tested
under the Telecommunications Act.
We and SBC have agreed on a mechanism for the development of projects which
would allow the interconnection of the SBC network with the Williams network
based on the unanimous decision of committees composed of an equal number of
representatives from our company and SBC. If a committee does not approve a
project, both we and SBC have the right, subject to certain exceptions, to
require the other party to develop a project in exchange for payment of the
direct costs and cost of capital required to complete the project or pursue it
on its own. In addition, upon SBC receiving authorization from the FCC to
provide long distance services in any state in its traditional telephone
exchange service region, SBC has the option to purchase from us at net book
value all voice or data switching assets which are physically located in that
state and of which SBC has been the primary user. The option must be exercised
within one year of the receipt of authorization. Williams then has one year
after SBC's exercise of the option to migrate traffic, install replacement
assets and complete other transition activities. This purchase option would not
permit SBC to acquire any rights of way we use for the Williams network or other
transport facilities which we maintain.
Upon termination of the alliance agreements with SBC, SBC has the right in
certain circumstances to purchase voice or data switching assets (including
transport facilities) of which SBC's usage represents 75% or more of the total
usage of these assets.
SBC may terminate the provider agreements if any of the following occurs:
- SBC does not acquire Ameritech or if regulators impose conditions on the
acquisition that SBC refuses to accept
- we begin to offer retail long distance voice transport or local exchange
services on the Williams network except in limited circumstances
- we materially breach our agreements with SBC causing a material adverse
effect on the commercial value of the relationship to SBC
- we have a change of control
- SBC acquires an entity which owns a nationwide fiber optic network in the
U.S. and determines not to sell us long distance transport assets
We may terminate the provider agreements if any of the following occurs:
- SBC has a change of control
- there is a material breach by SBC of the agreements, causing a material
adverse effect on the commercial value of the relationship to us
Either party may terminate a particular provider agreement if the action or
failure to act of any regulatory authority materially frustrates or hinders the
purpose of that agreement. There is no monetary remedy for such a termination.
In the event of termination due to our actions, we could be required to pay
SBC's transition costs of up to $200 million. Similarly, in the event of
termination due to SBC's actions, SBC could be required to pay our transition
costs of up to $200 million, even though our costs may be higher.
On March 23, 1999, the U.S. Department of Justice completed its antitrust
review of the proposed merger of SBC and Ameritech. The Department of Justice
approved the merger subject to a consent decree agreed to by the parties that
the companies would sell one of their overlapping wireless systems in St. Louis,
Chicago and some other portions of Illinois. On April 5, 1999, Ameritech
announced its agreement with GTE to sell GTE these overlapping wireless systems
and thus satisfy the consent decree's condition to completing the merger of SBC
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and Ameritech. On April 8, 1999, the Public Utilities Commission of Ohio
approved the merger, subject to certain conditions agreed to by SBC and
Ameritech. The Indiana Utility Regulatory Commission has asserted its
jurisdiction to approve the proposed merger. On June 4, 1999, SBC and Ameritech
appealed that decision to the Indiana Court of Appeals. The Indiana Supreme
Court on July 30, 1999 ruled that the Indiana Utility Regulatory Commission
lacks authority under state law to assert jurisdiction over the merger. The
merger must still be approved by the FCC and the Illinois Commerce Commission,
which generally have statutory mandates to review competition issues as well as
other aspects of the public interest related to the merger. These regulatory
agencies may either approve, approve subject to certain conditions imposed on
the companies, or deny approval of the merger. Following discussion with the
staff of the FCC, SBC and Ameritech proposed certain conditions to the merger.
On July 1, 1999, the FCC asked for public comment on the conditions and expects
to vote on them in late summer 1999. In addition, on July 29, 1999, the Nevada
Public Service Commission ordered SBC and Ameritech to appear and explain why
they have not sought approval for the proposed merger.
SBC has also entered into a securities purchase agreement with us and
Williams to purchase from us at the closing of the equity offering the number of
shares of our common stock equal to the lesser of:
(a) $500 million divided by the initial public offering price less the
underwriting discount or
(b) 10% of our outstanding common stock immediately following the
consummation of the equity offering and the SBC investment.
Furthermore, if the underwriters in the equity offering exercise their
over-allotment option, SBC will also purchase the number of additional shares of
common stock, if any, it would have been required to purchase if the closing of
the over-allotment option had occurred simultaneously with the closing of the
equity offering. The obligation to make the SBC investment is subject to certain
conditions at closing, including that the agreement under which we provide
network transport services to SBC is in full effect.
In connection with its purchase of common stock SBC has agreed to certain
restrictions and will receive certain privileges, including the following:
- SBC has agreed not to acquire more than 10% of our common stock until at
least 2009
- SBC has agreed not to transfer to anyone except affiliates any of its
shares of common stock for a period of three and a half years, but this
transfer restriction provision will be terminated if we have a change of
control
- SBC has the right to nominate a member of our board of directors so long
as SBC retains more than a 5% equity interest in our common stock and has
obtained and continues to have relief in any state from Section 271 of
the Telecommunications Act
- SBC has a right to increase its interest to 10% of our outstanding common
equity if it does not achieve that limit immediately following the
consummation of the purchase of common stock described above
- SBC has a pre-emptive right to maintain its equity interest in our common
stock, which would be forfeited if it were not exercised more than once.
Following a second failure to exercise, SBC has a pre-emptive right to
maintain its newly diluted position so long as it maintains at least a 3%
interest in our common stock
- SBC also has registration rights in connection with its holdings
We have a call option to purchase all the shares of the common stock
acquired by SBC under the securities purchase agreement in the event of the
termination of certain agreements
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with SBC. Williams, so long as it has a 50% interest in our common stock, has a
right of first purchase with respect to any shares of our common stock that SBC
should decide to offer. We also have a right of first purchase with respect to
any shares of common stock not purchased by Williams.
We are seeking to have SBC agree to reduce its investment from $500 million
to $425 million, in which event Telefonos de Mexico's investment would increase
from $25 million to $100 million.
INTEL
Intel Corporation is a manufacturer of chips and other computer, networking
and communications products. Intel recently announced the formation of its new
business, Intel Internet Data Services, to provide Internet Web-hosting services
by building and managing data centers around the world which will support the
Web sites of third parties.
On May 24, 1999, we and Intel, on behalf of Intel Internet Data Services,
entered into a long-term master alliance agreement. The alliance agreement
provides that we and Intel Internet Data Services will purchase services from
one another pursuant to a service agreement and create a co-marketing
arrangement, each of which will have shorter terms than that of the master
alliance agreement. The services we will provide include domestic transport
services and may also include Internet connectivity. Intel will provide Web
hosting services pursuant to the co-marketing arrangement. Subject to our
meeting pricing, quality of service and other specifications, Intel Internet
Data Services will purchase a significant portion of its yearly domestic
transport requirements from us.
Intel also entered into a securities purchase agreement with us and
Williams to purchase the number of shares of our common stock equal to $200
million divided by the initial public offering price less the underwriting
discount. The parties' obligations under the securities purchase agreement are
subject to closing conditions, including that the alliance agreement is in full
effect, that at least $500 million is raised in the equity offering and that
necessary governmental approvals have been obtained.
In connection with its purchase of common stock, Intel has agreed not to
transfer any of its shares of common stock to anyone except affiliates for a
period of eighteen months, but this transfer restriction provision will be
terminated if we have a change of control. In addition, the transfer restriction
does not prohibit Intel from participating in future registered offerings
initiated by us or from engaging in hedging transactions commencing six months
from the date of the equity offering. Intel also has registration rights in
connection with its holdings.
On August 9, 1999, Intel invested $5 million in CSI Incorporated, a company
in our strategic investments unit which markets Choice Seat(TM), an interactive
sports entertainment network delivered to specially equipped seats in sports
venues. Intel acquired an approximate 15% interest in CSI; we retained the
remaining approximate 85% interest.
TELEFONOS DE MEXICO
Telefonos de Mexico, S.A. de C.V., the largest communications provider in
Mexico, currently provides long distance and local services primarily in Mexico.
On May 25, 1999, we entered into agreements with Telefonos de Mexico under
which, subject to any necessary U.S. and Mexican regulatory requirements:
- Telefonos de Mexico must first seek to obtain select international
wholesale services and various other services from us for 20 years
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- we must first seek to obtain select international wholesale services and
various other services from Telefonos de Mexico for 20 years
- we and Telefonos de Mexico will sell each other's products to our
respective customers and will negotiate the terms under which both
parties will provide installation and maintenance of communications
equipment and other services for the other
For the services each must seek to obtain from the other, the prices
generally will be established to reflect the strategic relationship and
commitments made to each other, subject to any applicable law or regulations
establishing the prices. If either party can secure lower prices for comparable
services which the other party will not match, then that party is free to
utilize the lowest cost provider. Both we and Telefonos de Mexico can provide
services or products to other persons. Each party may also sell or utilize the
products or services purchased from the other to provide products or services to
other persons.
Certain of the provisions relating to the preferred provider relationship
and competitive pricing requirements will not be implemented until changes to
the international settlement system currently in place pursuant to U.S. and
Mexican regulations occur. Due to Telefonos de Mexico's dominant position in
Mexico, the international settlement system requires that Telefonos de Mexico
split its traffic terminating in the U.S. on a basis proportionate to that of
U.S. carriers terminating traffic in Mexico. We anticipate that changes will be
enacted by the end of 2000. See the section of this prospectus entitled
"Regulation -- Settlement costs for international traffic."
We and Telefonos de Mexico have agreed on a mechanism for the development
of mutually beneficial projects intended to interconnect the Williams network
with the Telefonos de Mexico network to provide seamless voice and data on both
a nationwide and international basis. Project decisions will be based on the
unanimous decision of committees composed of an equal number of representatives
from our company and Telefonos de Mexico.
Either party may terminate the alliance agreement if any of the following
occurs:
- the parties cannot execute implementing agreements within a specified
amount of time
- specified agreements to which Telefonos de Mexico is a party are not
terminated prior to the equity offering
- the action, or failure to act, of any regulatory authority or the passage
of a law or regulation materially frustrates or hinders the purpose of
any of our agreements
- either party experiences a change of control
One party may terminate the agreements if the other party materially
breaches them or is no longer able to deliver the products and services for a
period of 30 days.
Telefonos de Mexico has also entered into a securities purchase agreement
with us and Williams to purchase from us the number of shares of our common
stock equal to $25 million divided by the initial public offering price less the
underwriting discount. If SBC agrees to reduce its investment to $425 million,
Telefonos de Mexico's investment would increase to $100 million.
The obligation to make the Telefonos de Mexico investment is subject to
conditions at closing, including that the alliance agreement with Telefonos de
Mexico be in full effect.
In connection with its purchase of our common stock Telefonos de Mexico has
agreed to certain restrictions and will receive certain privileges, including
the following:
- Telefonos de Mexico has agreed not to acquire more than 10% of our common
stock for a period of 10 years
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- Telefonos de Mexico has agreed not to transfer to anyone, except
affiliates, any of its shares of common stock for a period of 3 1/2
years, but this transfer restriction provision will be terminated if we
have a change of control
- Telefonos de Mexico has agreed that we have the right, for a period of
3 1/2 years, to repurchase our stock at market value less the
underwriter's discount if the alliance agreement is terminated for any
reason other than a breach by us
Telefonos de Mexico also has registration rights in connection with its
holdings.
We have a call option to purchase all the shares of the common stock
acquired by Telefonos de Mexico under the securities purchase agreement in the
event of the termination of certain agreements with Telefonos de Mexico.
Williams, for so long as it has a 50% interest in our common stock, has a right
of first purchase with respect to any shares of common stock not purchased by
our company.
METROMEDIA FIBER NETWORK
Metromedia Fiber Network is currently constructing local fiber optic
networks in 11 U.S. cities including New York, Boston, Philadelphia, Chicago,
Washington, D.C., Dallas, Houston, Atlanta, Seattle, Los Angeles and San
Francisco. Metromedia has indicated that it may announce additional cities for
its network during the next year. On May 21, 1999, we entered into two memoranda
of understanding with Metromedia under which we each agree to enter into 20-year
agreements with the other, providing for the following:
- Metromedia will lease to us dark fiber of up to 3,200 route miles on
its local networks, six to 96 fibers per segment, and will provide us
with maintenance services and dark fiber connectivity to approximately
250 points of presence and data centers in exchange for approximately
$317 million payable by us over the duration of the agreement
- we will lease to Metromedia six dark fibers over substantially all of
the Williams network and provide colocation and maintenance services
in exchange for approximately $317 million payable by Metromedia over
the duration of the agreement
Lease and maintenance payments will be based on the number of fiber miles
leased. We will lease fiber from Metromedia in all 11 of its current
metropolitan areas. In addition, we will have the right to select future
Metromedia market areas where we will lease fiber, when and if such cities are
announced. We will begin leasing fiber on constructed segments of the Metromedia
network upon acceptance by us in accordance with acceptance procedures as
provided in the agreement. Leases of fiber on additional segments will begin
following construction and acceptance. We anticipate that we will begin to lease
fiber from Metromedia during 1999.
Metromedia will begin leasing fiber on constructed segments of the Williams
network upon acceptance by it pursuant to the acceptance procedures. Leases of
fiber on additional segments will begin following construction and acceptance.
We anticipate that Metromedia will begin to lease fiber from us during 1999.
WINSTAR
WinStar Communications, Inc. uses wireless technology to provide
high-capacity local exchange and Internet access services to companies located
generally in buildings not served by
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fiber optic cable. On December 17, 1998, we entered into two agreements with
WinStar under which:
- we have a 25-year right to use approximately 2% of WinStar's wireless
local capacity, which is planned to cover the top 50 U.S. markets, in
exchange for payments equal to $400 million over the next four years
- WinStar has a 25-year right to use four strands of our fiber optic cable
over 15,000 route miles on the Williams network, a transmission capacity
agreement with an obligation to lease specified circuits from us for at
least 20-year terms and an agreement for colocation and maintenance
services in exchange for monthly payments equal to an aggregate of
approximately $644 million over the next seven years
WinStar has licenses from the FCC to operate in various frequencies in the
top 50 metropolitan markets in the U.S. WinStar has constructed approximately 60
hubs, or antenna sites, which are currently available to us. WinStar intends to
construct 270 hubs by the end of 2001 and we will have the ability to use all of
these hubs for a period of 25 years. We will pay WinStar the $400 million over
the next four years as WinStar completes construction of the hubs. As of June
30, 1999, we had paid WinStar approximately $120 million.
We anticipate that the network fiber to be used by WinStar will be
completed in 2000. We will also be WinStar's preferred provider of domestic
communications requirements for 25 years. WinStar will pay us the $644 million
in equal monthly installments over the next seven years. As of June 30, 1999, we
had received approximately $44.1 million.
U S WEST
U S WEST, Inc. is a communications provider with operations currently in
the western region of the U.S. We entered into an agreement with U S WEST,
effective January 1998, which provides that our two companies will work together
to provide data networking services to a variety of customers. We also provide
various of our services to U S WEST.
INTERMEDIA
Intermedia Communications Inc. provides a wide range of local, long
distance and Internet services. In April 1998, Intermedia executed an agreement
providing for a 20-year right to use our nationwide transmission capacity for
approximately $450 million payable over 20 years. This amount represents the
present value of the minimum amount Intermedia will pay over the life of the
agreement. To date, we have received approximately $57 million from Intermedia.
PROPERTIES
The Williams network and its component assets are the principal properties
which we currently operate. We lease portions of the network and related
equipment pursuant to our operating lease with a financial institution, which
supplies funds to construct the Williams network and purchase equipment. The
lease term is for five years with possible renewal for two additional one-year
terms. We have the rights to purchase, exchange and sell the leased property
during the lease term as well as to purchase the property at the end of the
lease term. The price at which we may purchase the property approximates its
original cost. In the event we do not purchase the property at the end of the
lease term, we are obligated to pay 89.9% of the original purchase cost of the
property. For more information regarding the operating lease agreement, see the
section of this prospectus entitled "Description of Indebtedness and Other
Financing Arrangements -- Asset defeasance program."
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Our installed fiber optic cable is laid under various rights of way. We
have agreements in place for approximately 90% of the rights of way needed to
complete the Williams network. Almost all of our rights of way extend through at
least 2018. A significant portion of our rights of way are along Williams
pipeline easements.
We own or lease sites in approximately 100 U.S. cities on which we locate
or plan to locate transmission, routing and switching equipment. These sites
range in size from 2,000 square feet to 50,000 square feet and total
approximately 1,700,000 square feet. We also lease office space in various
locations including from Williams. We lease from Williams approximately
1,200,000 square feet of office space in Tulsa, Oklahoma and have entered into a
lease with Williams for an additional 350,000 square feet of office space to be
constructed. Our solutions unit occupies approximately 192,000 square feet of
office space in Houston, Texas which it subleases from Williams.
EMPLOYEES
As of June 30, 1999, excluding our unconsolidated strategic investments, we
had a total of 9,411 employees, 1,050 of whom were served by collective
bargaining agreements. The following shows the number of our employees broken
down by segment:
<TABLE>
<S> <C>
Network 1,199
Solutions 6,211
Strategic Investments 972
Corporate 1,029
-----
Total 9,411
=====
</TABLE>
LEGAL PROCEEDINGS
We are subject to various types of litigation in connection with our
business and operations. However, with the possible exception of the Shrier
lawsuit described below, we do not believe that any of our pending litigation is
material to our business or operations.
Shrier v. Williams was filed on August 4, 1999, in the U.S. District Court
for the Northern District of Oklahoma. The plaintiff seeks to bring a nationwide
class action on behalf of all landowners on whose property we have installed
fiber optic cable without the permission of the landowner. The plaintiff is
seeking a declaratory ruling that we are trespassing, damages resulting from the
alleged trespass, damages based on our profits from use of the property and
damages from alleged fraud. Relief requested by the plaintiff includes
injunction against further trespass, actual and punitive damages and attorneys'
fees.
The plaintiff is an owner of property on which a pipeline right of way used
for the single-fiber network is located. We believe that we have all requisite
permission for our right of way over the plaintiff's land. We also do not
believe that the plaintiff has sufficient basis for certification of a class
action.
Other communications carriers have been successfully challenged with
respect to their rights over railroad rights of way, which are also challenged
by the plaintiff. Approximately 15% of the Williams network is installed on
railroad rights of way. In many areas, the railroad granting us the license
holds full ownership of the land, in which case its license should be sufficient
to give us valid rights to cross the property. In some states where the railroad
is not the property owner but has an easement over the property the law is
unsettled as to whether a landowner's approval is required. We did not generally
obtain landowner approval where our right of way was located on railroad
easements. In most states, we have eminent domain rights which we believe would
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limit our liability for any trespass damages. It is likely that we will be
subject to other purported class action suits challenging our railroad or
pipeline rights of way but we cannot quantify the impact of such claims at this
time. Thus, we cannot be certain that the plaintiff's purported class action or
other purported class actions, if successful, will not have a material adverse
effect on us.
REPORTS TO STOCKHOLDERS
We intend to furnish our stockholders annual reports containing audited
financial statements examined by our independent auditors and quarterly reports
containing unaudited financial statements for each of the first three quarters
of each fiscal year.
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REGULATION
GENERAL REGULATORY ENVIRONMENT
We are subject to federal, state and local regulations that affect our
product offerings, competition, demand, costs and other aspects of our
operations. Federal laws and regulations generally apply to interstate
telecommunications, including international telecommunications that originate or
terminate in the United States, while state laws and regulations apply to
telecommunications terminating within the state of origination. The regulation
of the telecommunications industry is changing rapidly, and varies from state to
state. Our operations are also subject to a variety of environmental, safety,
health and other governmental regulations. We cannot guarantee that future
regulatory, judicial or legislative activities will not have a material adverse
effect on us, or that domestic or international regulators or third parties will
not raise material issues with regard to our compliance or noncompliance with
applicable regulations.
The Telecommunications Act seeks to promote competition in local and long
distance telecommunications services, including by allowing entities affiliated
with power utilities entry into providing telecommunications services and by
allowing GTE and, subject to certain limitations and conditions, the regional
Bell operating companies' entry into providing long distance services. We
believe that the regional Bell operating companies' and other companies' entry
into providing long distance services will provide opportunities for us to sell
fiber or lease high-volume long distance capacity.
The Telecommunications Act allows a regional Bell operating company to
provide long distance services originating outside its traditional exchange
service area or from mobile services, and to own 10% or less of the equity of a
long distance carrier operating in its traditional service area. In addition,
Section 271 of the Telecommunications Act allows a regional Bell operating
company to provide long distance services originating in a state in its
traditional exchange service area if it satisfies several procedural and
substantive requirements. These include obtaining FCC approval upon a showing
that the regional Bell operating company has entered into, or under some
circumstances has offered to enter into, interconnection agreements which
satisfy a 14-point "checklist" of competitive requirements. On February 22,
1999, the United States Supreme Court issued an order confirming the FCC's
authority to adopt requirements for compliance with the checklist. This order
reversed an earlier decision by the U.S. Court of Appeals for the Eighth Circuit
that required the FCC to defer to state determinations as to certain elements of
the checklist. To date, the FCC has not granted any petitions by regional Bell
operating companies for entry and has denied several of these petitions. We
expect that additional petitions for entry will be filed, and that the regional
Bell operating companies will obtain approval to provide long distance services
in some states within the next two years.
Common carrier services to end-users and enhanced services providers are
subject to assessment for the FCC's Universal Service Fund, which assists in
ensuring the universal availability of basic telecommunications services at
affordable prices. The FCC has proposed assessments for the second quarter of
1999 of approximately 3.6% of gross interstate and 0.6% of gross intrastate
end-user revenues, which are slightly lower than previous assessments. These
assessments may be higher in subsequent years. On July 30, 1999, the U.S. Court
of Appeals for the Fifth Circuit upheld in part the FCC's order, but determined
that assessments must be limited to interstate revenues, which could have an
adverse impact on interstate carriers, including us. Certain of our services may
be subject to those assessments, which would increase our costs, and we may also
be liable for assessments by state commissions for state universal service
programs.
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FEDERAL REGULATION
Under the FCC's rules, we are a non-dominant carrier. Generally, the FCC
has chosen not to closely regulate the charges or practices of non-dominant
carriers. Although the FCC has the power to impose more stringent regulatory
requirements on us, we believe that the FCC is unlikely to do so. We are subject
to the regulatory requirements applicable to all common carriers, such as
providing services without unreasonable discrimination and charging reasonable
rates.
Federal regulation affects the cost and thus the demand for long distance
services through regulation of interstate access charges, which are the local
Bell operating companies' charges for use of their exchange facilities in
originating or terminating interstate transmissions. The FCC ordered a
multi-year transition in the structure of interstate access charges, leading to
lower per-minute charges. The FCC may adopt further changes in the structure of
interstate access charges in the future. The FCC also regulates the levels of
interstate access charges through price caps for larger local Bell operating
companies and other rate regulation for smaller local Bell operating companies.
On August 5, 1999, the FCC adopted an order and further notice of proposed
rulemaking to allow local Bell operating companies further flexibility in
setting interstate access charges in the future, especially for high-speed data
lines. On May 21, 1999, the U.S. Court of Appeals for the District of Columbia
Circuit reversed and remanded for reconsideration by the FCC the 6.5% inflation
offset in the current price cap rules.
The FCC has adopted rules for pricing the local Bell operating companies'
unbundled network elements and services to competitive local exchange carriers,
which use these network elements and services to interconnect with long distance
carriers. These regulations affect the growth opportunities for some of our
customers and thus demand for our services. In January 1999, the United States
Supreme Court upheld the FCC's authority to adopt pricing rules for unbundled
network elements and resale by competitive local exchange carriers. However, the
Supreme Court instructed the FCC to reconsider an earlier determination
regarding the extent to which local Bell operating companies are required to
unbundle elements of their networks and provide those unbundled networks to
competitive local exchange carriers. In addition, certain local Bell operating
companies have indicated in papers filed with the U.S. Court of Appeals for the
Eighth Circuit that they will seek additional judicial review of the FCC's
pricing rules on substantive grounds.
The FCC has to date treated Internet service providers as enhanced service
providers rather than common carriers. As such, Internet service providers have
been exempt from various federal and state regulations, including the obligation
to pay access charges and contribute to universal service funds. On February 25,
1999, the FCC adopted an order in which it determined that calls to Internet
service providers are interstate in nature and proposed rules to govern
compensation to carriers for transmitting these calls. Although the FCC does not
intend to require Internet service providers to pay access charges or to
contribute to universal service funds, the FCC's order could affect the costs
incurred by Internet service providers and the demand for the offerings of some
of our customers. Several appeals of the order have been filed in the U.S. Court
of Appeals for the District of Columbia Circuit.
The FCC has adopted rules for a multi-year transition to lower
international settlements payments by U.S. common carriers. We believe that
these rules are likely to lead to lower rates for certain international services
and increased demand for these services provided by certain of our customers.
The result is likely to be increased demand for capacity on the U.S. facilities,
including the Williams network, which provide these services.
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Rules adopted by the FCC in 1996 and 1997, which are subject to pending
appeals and a stay, could impose significant limits on the ability of carriers
to maintain tariffs for interstate long distance services and to rely on tariffs
to state the prices, terms and conditions under which they offer interstate
services. Additional rules, adopted by the FCC on March 18, 1999, will require
long distance carriers to make specified public disclosures of their rates,
terms and conditions for domestic interstate services, with the effective date
for these rules delayed until a court decision on the appeal of the FCC's 1996
detariffing order. These regulations could affect how some of our customers
provide services and the demand for their offerings.
STATE REGULATION
The Telecommunications Act prohibits state and local governments from
enforcing any law, rule or legal requirement that prohibits or has the effect of
prohibiting any person from providing any interstate or intrastate
telecommunications service. However, states retain jurisdiction to adopt
regulations necessary to preserve universal service, protect public safety and
welfare, ensure the continued quality of communications services and safeguard
the rights of consumers.
Generally, we must obtain and maintain certificates of authority from
regulatory bodies in states in which we offer intrastate services. In most
states, we must also file and obtain prior regulatory approval of tariffs for
our intrastate services. Certificates of authority can generally be conditioned,
modified or revoked by state regulatory authorities for failure to comply with
state law or regulations. Fines and other penalties also may be imposed for such
violations. We are currently authorized to provide intrastate services in 37
states. We believe that most states do not regulate our provision of dark fiber.
If a state did regulate our provision of dark fiber, we could be required to
provide dark fiber in that state pursuant to tariffs, and at regulated rates.
State regulatory commissions generally regulate the rates local Bell
operating companies charge for intrastate services, including intrastate access
services paid by providers of intrastate long distance services. Intrastate
access rates affect the costs of carriers providing intrastate long distance
services and demand for the services we and other carriers provide. Under the
Telecommunications Act, state commissions have jurisdiction to arbitrate and
review negotiations between local Bell operating companies and competitive local
exchange carriers regarding the prices local Bell operating companies charge for
interconnection of network elements with, and resale of, services by competitive
local exchange carriers; however, the U.S. Supreme Court has upheld the FCC's
authority to adopt rules which the states must apply when setting these prices.
A state may also impose telecommunications taxes, and fees related to the
support for universal service, on providers of services within that state.
LOCAL REGULATION
We are occasionally required to obtain street use and construction permits
and licenses and/or franchises to install and expand our fiber optic network
using municipal rights of way. Termination or failure to renew our existing
franchise or license agreements could have a material adverse effect on us. In
some municipalities where we have installed or anticipate constructing networks,
we are required to pay license or franchise fees based on a percentage of gross
revenue or on a per linear foot basis. We cannot guarantee that fees will remain
at their current levels following the expiration of existing franchises. In
addition, we could be at a competitive disadvantage if our competitors do not
pay the same level of fees as we do. However, the Telecommunications Act
requires municipalities to manage public rights of way in a competitively
neutral and non-discriminatory manner.
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OTHER
Our operations are subject to a variety of federal, state, local and
foreign environmental, safety and health laws and governmental regulations.
These laws and regulations govern matters such as the generation, storage,
handling, use and transportation of hazardous materials, the emission and
discharge of hazardous materials into the atmosphere, the emission of
electromagnetic radiation, the protection of wetlands, historic sites and
endangered species and the health and safety of our employees.
Although we monitor compliance with environmental, safety and health laws
and regulations, we cannot assure you that we have been or will be in complete
compliance with these laws and regulations. We may be subject to fines or other
sanctions imposed by governmental authorities if we fail to obtain certain
permits or violate the laws and regulations. We do not expect any capital or
other expenditures for compliance with laws, regulations or permits relating to
the environment, safety and health to be material in 1999 or 2000.
In addition, we may be subject to environmental laws requiring the
investigation and cleanup of contamination at sites we own or operate or at
third party waste disposal sites. These laws often impose liability even if the
owner or operator did not know of, or was not responsible for, the
contamination. Although we own or operate numerous sites in connection with our
operations, we are not aware of any liability relating to contamination at these
sites or third party waste disposal sites that could have a material adverse
effect on our company.
FOREIGN REGULATION
BRAZIL
Communications service in Brazil has until recently been primarily provided
by operating subsidiaries of Telebras, a state-owned holding company. In 1997,
the General Telecommunications Act provided for the restructuring and
privatization of the communications industry in Brazil. In 1998, Telebras was
split into 12 different holding companies -- one long distance carrier, three
local landline companies, and eight cellular companies. A governmental
regulatory agency, Agencia Nacional de Telecomunicacoes, known as Anatel, was
created to regulate the newly privatized industry and to facilitate competition.
One aspect of the restructuring and privatization process is the issuance
of licenses, through a bid process, to competing privately-owned carriers.
Licenses for "B-Band" cellular companies, including ATL and Tess, were issued in
1997 and 1998. Each cellular concession is a specific grant of authority to
supply cellular services within a defined region. In the case of ATL, this
region consists of the states of Rio de Janeiro and Espirito Santo. In the case
of Tess, this region consists of the state of Sao Paulo outside the city of Sao
Paulo.
A cellular concession has been granted to each of ATL and Tess for an
initial term of 15 years which may be renewed for equal periods at the
discretion of Anatel. Currently within each area only one cellular company may
operate in Band A and one in Band B; there are no personal communications
service carriers. The cellular concessions and other regulations impose a range
of restrictions on the companies' operations, corporate governance and
shareholders, with penalties for noncompliance, including loss of license and
monetary fines.
Long distance service is regulated pursuant to the General
Telecommunications Act. In April 1998, the government issued a general granting
plan for licenses, which split the country into four telecommunications areas.
Areas I and II include most of the states of the country. Area III corresponds
to the state of Sao Paulo. Area IV covers international calls and long distance
calls throughout the whole country. The operators in Areas I and II are also
able to provide long distance calls but only within the boundaries of the states
inside each area.
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During 1999, the government of Brazil awarded through bid processes
licenses for other companies that will compete against the former Telebras
subsidiaries. Each company will be able to provide service in one of the four
areas. In 2000, the government may sell additional licenses in each wireless
market for personal communications service.
Each concession agreement establishes the service obligations for the
operator, based on the applicable legislation determined by Anatel. Anatel
defines maximum rates, but an operator can charge users lower rates. The rates
can be readjusted periodically but not less often than every 12 months. ATL and
Tess are subject to the rate parameters set out in their concession agreements,
based upon the bids they submitted to obtain the concessions. Cellular service
in Brazil is offered on a "calling party pays" basis, where the cellular
subscriber pays usage charges only for outgoing calls. Roaming agreements
between cellular carriers apply to services for subscribers outside of their
home regions.
Anatel also regulates cable television in Brazil. Each license is granted
for 15 years and renewable for equal periods. The service must be rendered
without discrimination, at reasonable prices and conditions and on a
non-exclusive basis. There is no specific regulation of rates for cable
services. There is a basic group of channels that must be provided to customers.
Competition for cable comes from microwave multichannel systems and satellite
television. Recently, bidding procedures took place for new licenses for both
cable and the microwave multichannel systems.
AUSTRALIA
On July 1, 1997, the Australian government opened all sectors of the
Australian communications industry to competition. Central elements of the new
regulatory regime include an unrestricted number of carrier licenses, increased
reliance on certain elements of the Australian Trade Practices Act and industry
self-regulation and retention of some carrier land access rights and statutory
immunities in relation to the construction of network facilities.
The Australian Competition and Consumer Commission is charged with most
competition-related regulatory functions and price control arrangements. The
Australian Communications Authority is responsible for regulating the
non-competition aspects of the telecommunications industry, including carrier
licensing, technical regulation, preselection, and enforcing industry standards,
universal service, spectrum management and numbering. There also are self-
regulatory authorities that recommend telecommunications services for regulation
to the Australian Competition and Consumer Commission and that develop industry
consumer, technical and operational codes.
A carrier license is required for the ownership of most transmission
infrastructure used to provide telecommunications services to the public.
PowerTel holds a carrier license and is subject to regulation by the Australian
Competition and Consumer Commission and the Australian Communications Authority.
PowerTel does not have any service coverage obligations. PowerTel does not
require any further regulatory approval for new services, except when new
services require new spectrum or equipment licenses for operating radio
communication facilities such as mobile services or microwave links. Each
licensed carrier pays an annual fee to cover the costs of industry regulation
based on a portion of the carrier's revenues.
Under the regulations, access to particular regulated carriage services and
other services which facilitate the supply of those regulated services must be
provided between operators on non-discriminatory technical and operational terms
and, in some circumstances, at cost-based prices. The Australian Competition and
Consumer Commission determines which services are regulated. Other services may
be supplied on commercially negotiated terms subject to the
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Australian Trade Practices Act. Any transmission capacity of 2 or more megabits
per second is regulated on all routes except between Sydney, Canberra and
Melbourne.
The Australian Competition and Consumer Commission is currently considering
regulating local call resale and local network unbundling. Regulation of
switched interconnection at the local exchange level would allow PowerTel and
other competitors to reduce their access costs by interconnecting with the
Telstra Corporation Limited network closer to the customer. The Australian
Competition and Consumer Commission has issued a draft report in favor of
regulating noncompetitive access services with pricing based on total service
long-run incremental cost.
Prior to July 1, 1997, carriers had extensive rights to install facilities
on land without the consent of the owner and with immunity from state and
territory environmental and planning laws. Under the new regulatory regime,
carriers, including PowerTel, must now generally comply with state and territory
environmental planning and property laws.
Telstra, the current national universal service provider, is required to
ensure that the standard telephone services, pay phones and any other regulated
services are reasonably accessible to all Australians on an equitable basis. All
carriers are required to contribute to the costs of providing universal service.
The Australian Communications Authority has required all carriers and carriage
service providers to guarantee timely service to customers. The Australian
government has proposed amendments to the communications legislation to
strengthen competitive and consumer safeguards. The proposals include enabling
the Australian Competition and Consumer Commission to make binding legal
directions to parties to facilitate access negotiations, to publicly disclose or
require the disclosure of cost information and to specify the terms on which
carriers must disclose network planning information to each other. There are
also proposals to streamline the Australian Competition and Consumer
Commission's ability to act when it believes that anti-competitive conduct is
taking place. There can be no assurance that the proposed amendments will be
enacted in their current form or at all.
PowerTel currently has entered into a facilities access agreement with
Telstra for access to Telstra's ducts, underground facilities and equipment
buildings. PowerTel also obtains services from Telstra through wholesale/resale
products, and is in the process of negotiating an agreement covering Telstra's
wireline and mobile originating and terminating access services.
Although the regulatory regime is structured to encourage new entrants,
PowerTel as well as other industry participants and the Australian Competition
and Consumer Commission have expressed the view that Telstra's interconnect and
wholesale pricing is too high. The Australian Competition and Consumer
Commission does not currently have power to set interconnect prices generally.
The Australian Competition and Consumer Commission is only empowered to settle
disputes between specific parties in relation to a limited number of services.
Even where the Australian Competition and Consumer Commission is able to
arbitrate, in practice to date it has been a lengthy process. The consequence of
the current pricing structure is to encourage new entrants such as PowerTel to
construct alternative infrastructures. The current pricing also adversely
impacts the ability of new entrants without significant infrastructure to
substantially discount prices below those of incumbent network owners.
PowerTel has entered into an asset use agreement with three electric
utilities which are indirect stockholders of PowerTel. Each agreement provides
PowerTel with access to each utility's facilities (ducts, poles, fiber optic
cable, towers, etc.) for the installation of telecommunications equipment.
PowerTel also has entered into a reseller agreement with each of these utilities
under which each utility is appointed a non-exclusive reseller of PowerTel's
telecommunications services to certain customers. The agreement provides for the
utility to be
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able to resell the full range of PowerTel's services, including new services
which become available from time to time, subject to any prohibitions on resale
in third-party agreements.
There are two marketing database agreements between each of the utilities
and PowerTel. The first provides PowerTel with access to each utility's database
of electricity customers to market telecommunications services. The second
provides each utility access to PowerTel's customer database to market
electricity. These agreements are subject to any applicable privacy laws.
CHILE
The process of privatization and opening up of monopoly telecommunications
markets in Chile began in 1982 with the General Telecommunications Law, which
allowed companies to provide service and develop telecommunications
infrastructure without geographic restriction or exclusive rights to serve.
Chile currently has a competitive, multi-carrier system for long distance
and local services. There is no regulatory limit on the number of concessions
that could be granted to companies that would compete against MetroCom.
Currently, there are five local service providers in Santiago. The largest
providers of local telecommunications services in Santiago are Compania de
Telecomunicaciones de Chile, Telefonica Manquehue and CMET.
MetroCom holds an intermediate service concession for the installation,
operation, and exploitation of a high-capacity fiber optic cable network in
Santiago and the towns surrounding it. Intermediate services are provided via
networks to satisfy the transmission or exchange service requirements of other
telecommunications providers. The concession is for a renewable 30-year term.
MetroCom's concession provides for network construction to end on December 23,
1998 and service to begin on January 23, 1999. The company requested an
extension of these terms, which was granted by the telecommunications authority
but is pending before the Republic Comptrollership's Office for formal amendment
of the concession.
The telecommunications law states that prices should be determined by
market forces in competitive markets; in markets with one dominant firm, maximum
rates are determined by the regulatory authorities. The regulatory authority has
declared that the conditions prevailing in the local (including Santiago) and
long distance markets, as well as in the market for intermediate services,
require rates to be determined by the regulatory authority. The maximum rate
structure is determined every five years.
Local service providers with concessions are obligated to provide service
to any customer who requests service within their service area, or to any
customer outside the service area of all concessionaires who is willing to pay
for an extension to get service. Local providers must also give long distance
service providers equal access to their network connections.
SETTLEMENT COSTS FOR INTERNATIONAL TRAFFIC
International switched long distance traffic between two countries
typically is exchanged under correspondent agreements between carriers each
owning network transmission facilities in their respective countries.
Correspondent agreements generally provide for, among other things, the
termination of traffic in, and return traffic to, the carriers' respective
countries at a negotiated accounting rate. Settlement costs, typically one-half
of the accounting rate, are reciprocal fees owed by one international carrier to
another for transporting traffic on its facilities and terminating that traffic
in the other country. The FCC and regulators in foreign countries may regulate
agreements between U.S. and foreign carriers.
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The FCC's international settlements policy governs the settlements between
U.S. carriers and their foreign corespondents and prevents foreign carriers from
discriminating among U.S. carriers in bilateral accounting rate negotiations.
The policy requires
- the equal division of accounting rates
- non-discriminatory treatment of U.S. carriers
- proportionate return of inbound traffic
Agreements governed under the policy must be filed publicly with and
approved by the FCC. Recently, the FCC limited application of the policy, which
now applies only to U.S. carrier arrangements with certain foreign carriers with
market power in their respective countries. For example, U.S. carrier
arrangements with Telefonos de Mexico continue to be subject to the policy, but
U.S. carrier arrangements with a Telefonos de Mexico competitor in Mexico are
not subject to the policy. The FCC also recently decided to exempt certain
foreign routes from the policy, depending upon the ability of U.S. carriers to
terminate traffic on those routes at rates substantially below benchmarks set by
the agency. However, Mexico is not currently an exempted route. Other countries
have policies similar to that of the FCC.
Resale of international private lines allows carriers to bypass the
settlement rate system, and, therefore, the need to negotiate accounting rates
with foreign carriers with market power and obtain termination of international
traffic in the United States and foreign countries at substantially reduced
rates. The FCC's private line resale policy currently prohibits a carrier from
reselling international private leased circuits to provide switched services to
or from a country unless certain conditions are met.
Currently, Mexican carriers other than Telefonos de Mexico can engage in
such resales under FCC rules, but the Mexican regulator has not permitted such
resales. If Mexico approves such resales but the FCC continues to restrict
Telefonos de Mexico from engaging in such resales, competitors of Telefonos de
Mexico would be permitted to engage in low-cost termination of traffic between
the United States and Mexico, but Telefonos de Mexico would be precluded from
doing so. Recently, AT&T and Telefonos de Mexico agreed to an accounting rate of
$.38 per minute, which falls within the FCC's prescribed benchmark for Mexico.
Accordingly, it is possible that the FCC will soon permit such resales by
Telefonos de Mexico on the U.S.-Mexico route, which would allow Telefonos de
Mexico and its competitors to terminate traffic in Mexico and, through their
U.S. correspondents, the United States once Mexico allows such resales.
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MANAGEMENT
OUR DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of the date of this
prospectus concerning our directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Keith E. Bailey........................ 56 Director
John C. Bumgarner, Jr. ................ 56 Director and Senior Vice President, Strategic
Investments
James R. Herbster...................... 57 Director
Howard E. Janzen....................... 45 President, Chief Executive Officer and Director
Michael P. Johnson, Sr................. 51 Director
Steven J. Malcolm...................... 50 Director
Jack D. McCarthy....................... 56 Director
Brian E. O'Neill....................... 63 Director
H. Brian Thompson...................... 60 Director (upon completion of the equity offering)
Roy A. Wilkens......................... 56 Director (upon completion of the equity offering)
David P. Batow......................... 47 General Counsel
Mark A. Bender......................... 34 Vice President and Chief Information Officer
Delwin L. Bothof....................... 54 Senior Vice President, Domestic Strategic Investments
Matthew W. Bross....................... 38 Senior Vice President and Chief Technology Officer
Gerald L. Carson....................... 59 Senior Vice President, Human Resources
Kenneth R. Epps........................ 42 Senior Vice President, Strategic Marketing
Lawrence C. Littlefield, Jr. .......... 61 Senior Vice President and Group Executive
Patti L. Schmigle...................... 40 Senior Vice President, Solutions
Scott E. Schubert...................... 46 Senior Vice President and Chief Financial Officer
Frank M. Semple........................ 47 Senior Vice President, Network
William G. von Glahn................... 55 Senior Vice President, Law
S. Miller Williams..................... 47 Senior Vice President and Senior Managing Director of
International Strategic Investments
</TABLE>
OUR DIRECTORS
Our restated certificate of incorporation provides that the number of
directors may be altered from time to time by a resolution adopted by our board
of directors. However, the number of directors may not be less than three.
Currently, we have eight directors on our board. Concurrently with the
completion of the offerings, we intend to add two independent directors to our
board of directors so that our board will consist of ten members. SBC will be
entitled to designate a director for our board after the closing of the SBC
investment so long as SBC retains more than a 5% equity interest in our common
stock and has obtained and continues to provide long distance services in states
within its traditional exchange service area.
Our restated certificate of incorporation provides for a classified board
of directors, consisting of three classes as nearly equal in size as
practicable. Each class holds office until the third annual stockholders'
meeting for election of directors following the most recent election of that
class, except that the initial terms of the three classes expire in 2000, 2001
and 2002.
The following individuals are our directors. Each director holds office
until his successor is duly elected and qualified or until his resignation or
removal, if earlier.
Keith E. Bailey is the Chairman of the Board, President and Chief Executive
Officer of Williams. Mr. Bailey has held various officer level positions with
Williams and its subsidiaries since 1975 and has served as a director of
Williams since 1988. Mr. Bailey has been a director
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of our company since 1994. Mr. Bailey's term as a director expires at the annual
stockholders' meeting in 2002.
John C. Bumgarner, Jr. is the Senior Vice President of Corporate
Development and Planning of Williams and President of Williams International
Company, a subsidiary of Williams. Mr. Bumgarner has held various officer level
positions with Williams since 1977. Mr. Bumgarner has been a director of our
company since 1997 and was named Senior Vice President, Strategic Investments of
our company in May 1999. Mr. Bumgarner's term as a director expires at the
annual stockholders' meeting in 2001.
James R. Herbster is the Senior Vice President of Administration of
Williams. Mr. Herbster has held various officer level positions with Williams
since 1981. Mr. Herbster has been a director of our company since 1997. Mr.
Herbster's term as a director expires at the annual stockholders' meeting in
2000.
Howard E. Janzen has been a director and the President and Chief Executive
Officer of our company since 1994. From April 1993 to December 1994, Mr. Janzen
served as Senior Vice President and General Manager of Williams Gas Pipelines
Central, Inc., an affiliate of Williams. Mr. Janzen has also held various other
management and officer level positions with Williams since 1979. Mr. Janzen also
serves on the board of directors of BOK Financial Corporation. Mr. Janzen's term
as a director expires at the annual stockholders' meeting in 2002.
Michael P. Johnson, Sr. is the Senior Vice President of Human Resources of
Williams and has been since May 1, 1999. Prior to joining Williams in December
1998 as Vice President of Human Resources, Mr. Johnson was a vice president of
human resources with Amoco Corporation, where he held various officer level
positions since 1991. Mr. Johnson has been a director of our company since May
1, 1999. Mr. Johnson's term as a director expires at the annual shareholders'
meeting in 2000.
Steven J. Malcolm is the President and Chief Executive Officer of Williams
Energy Services, a subsidiary of Williams. Mr. Malcolm has held various
management and officer level positions with subsidiaries of Williams since 1984.
Mr. Malcolm has been a director of our company since 1998. Mr. Malcolm's term as
a director expires at the annual stockholders' meeting in 2001.
Jack D. McCarthy is the Senior Vice President and Chief Financial Officer
of Williams. Mr. McCarthy has held various officer level positions with Williams
since 1986. Mr. McCarthy has been a director of our company since 1997. Mr.
McCarthy's term as a director expires at the annual stockholders' meeting in
2001.
Brian E. O'Neill is the President and Chief Executive Officer of each of
the interstate natural gas pipeline companies owned by Williams. Mr. O'Neill has
held various officer level positions with subsidiaries of Williams since 1988.
Mr. O'Neill also serves on the board of directors of Daniel Industries, Inc. Mr.
O'Neill has been a director of our company since 1997. Mr. O'Neill's term as a
director expires at the annual stockholders' meeting in 2000.
H. Brian Thompson will be appointed as an independent director of our board
concurrently with the completion of the offerings. Mr. Thompson has been
Chairman and Chief Executive Officer of Global TeleSystems Group, Inc. since
March 1999. From January to March 1999, he served as non-executive chairman of
Telecom Eireann, Ireland's incumbent telephone company. From June to December
1998, Mr. Thompson served as Vice Chairman of Qwest Communications International
Inc. after its merger with LCI International. From 1991 to June 1998, Mr.
Thompson served as Chairman and Chief Executive Officer of LCI International.
Mr. Thompson also serves as a member of the board of directors of Bell Canada
International Inc. and PageNet
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do Brazil, as co-chairman of the Global Information Infrastructure Commission,
and as chairman of the Advisory Committee for Telecommunications for Ireland's
Department of Public Enterprise. Mr. Thompson's term as a director will expire
at the annual stockholders' meeting in 2001.
Roy A. Wilkens will be appointed as an independent director and
non-executive chairman of the board of our company concurrently with completion
of the offerings. Mr. Wilkens is a member of the board of directors of UniDial
Inc., Invensys Corporation Inc., Splitrock Services, Inc. and McLeod USA
Incorporated. He is a former director of Qwest Communications and Paging Network
Inc. He was President of Williams Pipeline Company, a subsidiary of Williams,
when he founded WilTel, Inc., then a subsidiary of Williams, in 1985. He served
as Chief Executive Officer of WilTel from 1985 to 1997. In 1995, LDDS
Communications, which now operates under the name MCI WorldCom, acquired WilTel
from Williams. In 1997, Mr. Wilkens retired from WorldCom as Vice Chairman. In
1992, President George Bush appointed Mr. Wilkens to the National Security
Telecommunications Advisory Council. He has also served as chairman of both the
Competitive Telecommunications Association and the National Telecommunications
Network. Mr. Wilkens' term as a director of our company will expire at the
annual stockholders' meeting in 2002.
BOARD COMPENSATION AND BENEFITS
Messrs. Janzen and Bumgarner will not receive additional compensation for
serving on our board of directors or committees of the board. Directors who are
not our employees but who are employees of Williams will receive one time grants
of ten-year, fully exercisable options to purchase 50,000 shares of our common
stock, or in the case of Mr. Bailey, 100,000 shares of our common stock, at an
exercise price equal to the initial public offering of our common stock in the
equity offering. These individuals will not receive additional compensation for
serving on our board of directors or our committees.
Independent directors elected who are in office at the time of completion
of the equity offering will receive a one-time grant of options to purchase
10,000 shares of our common stock. Independent directors will also receive an
annual retainer of $12,000, shares of our common stock equal in value to $40,000
and an annual grant of ten-year, fully exercisable options to purchase 8,000
shares of our common stock for so long as they are directors of our company. The
exercise price per share for these options will be set at the market price of
our common stock on the date of grant, which in the case of the independent
directors elected at the time of completion of the offerings will be deemed to
be the initial public offering price. Non-employee directors will also receive a
committee retainer of $4,000 for each committee assignment held and an
additional fee for attending board and committee meetings of $1,000 and $500,
respectively. Chairpersons of the audit/affiliated transactions and compensation
committees will be paid an additional annual fee of $2,500.
We expect that directors may elect to receive all or part of their cash
fees in the form of common stock or deferred stock. Individuals may defer stock
to any subsequent year or until that individual ceases to be a director. We will
pay dividend equivalents on deferred shares to the extent that dividends are
declared and paid on our common stock, and directors may elect to receive the
dividend equivalents in cash or in additional deferred shares.
We will reimburse all directors for reasonable out-of-pocket expenses
incurred in attending meetings of the board or any committee or otherwise
because of service as a director.
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COMMITTEES OF THE BOARD
To date, our board has not had either an audit/affiliated transactions
committee or a compensation committee. The Williams compensation committee
determines the compensation for senior Williams officers and the presidents of
Williams' operating subsidiaries. Messrs. Janzen, Bumgarner and von Glahn are
the only named executive officers that fall into this category. The compensation
of the other named executive officers for 1998 was determined by Mr. Janzen and
Gerald Carson, our Senior Vice President for Human Resources, with input from
Williams' human resources department and was based upon compensation survey
information relevant to companies of similar size in the communications
industry.
Prior to the completion of the offerings, our board will establish an
audit/affiliated transactions committee and a compensation committee. Each
committee will be comprised solely of independent directors.
AUDIT/AFFILIATED TRANSACTIONS COMMITTEE RESPONSIBILITIES
Our audit/affiliated transactions committee will:
- - recommend to the board the selection, retention or termination of our
independent auditors
- - approve the level of non-audit services provided by the independent auditors
- - review the scope and results of the work of our internal auditors
- - review the scope and approve the estimated cost of the annual audit
- - review the annual financial statements and the results of the audit with
management and the independent auditors
- - review with management and the independent auditors the adequacy of our
internal accounting controls
- - review with management and the independent auditors the significant
recommendations made by the auditors with respect to changes in accounting
procedures and internal accounting controls
- - review and approve any transaction between us and Williams, or any entity in
which Williams has a 20% or greater ownership interest, where the transaction
is other than in the ordinary course of business and has a value of more than
$10 million
- - report to the board on its review and make such recommendations as it deems
appropriate
COMPENSATION COMMITTEE RESPONSIBILITIES
Our compensation committee will:
- - administer our stock plans and related programs
- - approve, or refer to the board of directors for approval, changes in these
plans and the compensation programs to which they relate
- - review and approve the compensation and development of our senior executives
OUR EXECUTIVE OFFICERS
In addition to Mr. Janzen and Mr. Bumgarner, the following persons are our
executive officers:
David P. Batow has been the general counsel of our company since 1996.
Prior to that time, he served as general counsel to Williams Gas Pipelines
Central, Inc., an affiliate of Williams, from 1993 to 1996. Mr. Batow joined
Williams in 1987.
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<PAGE> 114
Mark A. Bender has been Vice President and Chief Information Officer of our
company since March 1999. He has held various positions with other affiliates of
Williams since November 1993.
Delwin L. Bothof has been Senior Vice President, Domestic Strategic
Investments since May 1999 and was Senior Vice President, Applications of our
company since 1997. Mr. Bothof served as President of Vyvx, Inc., now known as
Williams Communications, Inc., from 1989 to 1997.
Matthew W. Bross has been Senior Vice President and Chief Technology
Officer of our company since May 1999 and was Vice President and Chief
Technology Officer of our company from 1998 to 1999. He joined our company in
1997 when our company acquired Critical Technologies, Inc., a company he founded
in 1991, that focused on large-scale, global telecommunications infrastructures
with an emphasis on the Internet. Mr. Bross served as Chief Executive Officer of
Critical Technologies from 1991 until its acquisition by our company and has
more than 20 years of experience in the telecommunications industry.
Gerald L. Carson has been Senior Vice President, Human Resources of our
company since May 1999 and Vice President Human Resources of our company from
1997 to 1999. Prior to that time, Mr. Carson held various management and human
resources positions with Williams since 1985.
Kenneth R. Epps has been Senior Vice President, Strategic Marketing of our
company since February 1999. Before joining Williams in February 1999, Mr. Epps
served as a vice president of Emerald Solutions, Inc., a start-up information
technology firm, from 1998 to 1999. Prior to that he was with AT&T for 13 years.
Lawrence C. Littlefield, Jr. Effective June 7, 1999, Mr. Littlefield became
Senior Vice President and Group Executive of our company. Since 1997, Mr.
Littlefield had been Senior Vice President and Chief Financial Officer of our
company. Prior to that, Mr. Littlefield served as Senior Vice President,
Marketing, Strategic Sales and Operations and as Vice President, Finance and
Administration for a predecessor of Solutions. From 1990 to 1995, he served as
Vice President, Finance and Administration and Chief Financial Officer of
Williams Telecommunications Group, Inc., which was then an affiliate of
Williams.
Patti L. Schmigle has been Senior Vice President of our company since 1997
and has been Senior Vice President, Solutions since June 30, 1999. Ms. Schmigle
has held various management and officer level positions with Williams since
1980, including Vice President of Performance Management of Williams from June
1996 to November 1997, Vice President of Operations and Engineering of Williams
Gas Pipeline Central, Inc., an affiliate of Williams, from 1995 to June 1996,
and Director of Engineering of Williams Pipe Line Company, also an affiliate of
Williams, from 1994 to 1995.
Scott E. Schubert became Senior Vice President and Chief Financial Officer
of our company on June 7, 1999. Before joining our company, Mr. Schubert was
vice president of global accounting services and finance of BP Amoco. He had 23
years of experience with Amoco, including the past six years as an officer of
Amoco prior to its merger with British Petroleum.
Frank M. Semple has been Senior Vice President, Network of our company
since 1997. From 1995 to 1997, Mr. Semple served as Senior Vice President and
General Manager of Williams Gas Pipelines Central, Inc., an affiliate of
Williams. From 1994 to 1995, Mr. Semple served as Vice President of Operations
and Marketing for Northwest Pipeline Corporation, also an affiliate of Williams.
Mr. Semple has held various management and officer level positions with Williams
since 1979.
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William G. von Glahn has been Senior Vice President, Law of our company
since March 1999. Mr. von Glahn has been the general counsel of Williams since
1996. Mr. von Glahn joined Williams in 1984 as associate general counsel.
S. Miller Williams has been Senior Vice President and Senior Managing
Director of International Strategic Investments since May 1999 and was Senior
Vice President, Corporate Development of our company since 1996. From 1992
through 1996, Mr. Williams held various officer level positions with
predecessors of our company and WilTel, Inc.
STOCK OWNERSHIP OF OUR DIRECTORS AND EXECUTIVE OFFICERS
All of our capital stock is currently owned by Williams and therefore none
of our executive officers or directors own any of our capital stock. All of our
executive officers and directors will be granted options to purchase shares of
our common stock at the time of completion of the equity offering. In addition,
those individuals who were granted deferred shares or options under the Williams
Communications stock plan will have the right to receive deferred shares or
options to purchase our common stock in cancellation of deferred Williams shares
or options to purchase Williams common stock held by them. Mr. Janzen will have
the right to receive deferred shares in exchange for deferred shares of Williams
common stock held by him. Messrs. Littlefield and Schubert will receive grants
of deferred shares at the time of completion of the equity offering. In
addition, some or all of our executive officers and directors may purchase
shares of our common stock in the equity offering from the shares reserved for
employees and directors of our company and Williams. For more information, see
"New stock-based and incentive plans of our company" below and "Principal
Stockholders -- Ownership of our common stock and Class B common stock." At the
time of completion of the equity offering, no director or executive officer will
own or have options to purchase in excess of 1% of our common stock.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by our company to our
chief executive officer and four other most highly compensated executive
officers during the three years ending December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS AWARDS(1)(2) OPTIONS(3) COMPENSATION(4)
- --------------------------- -------- -------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Howard E. Janzen.............. 1998 $400,000 $126,000 $2,574,000(5) 30,000 $12,050
President, Chief Executive 1997 300,000 105,000 45,000 60,000 10,131
Officer and Director 1996 250,000 108,282 46,406 60,002 9,496
Delwin L. Bothof.............. 1998 $210,000 $ 46,857 $ 650,082 15,000 $12,800
Senior Vice President, 1997 184,000 55,956 26,530(6) 30,000 10,131
Domestic Strategic 1996 176,200 55,096 23,613 45,000 9,496
Investments
Lawrence C. Littlefield,
Jr.......................... 1998 $190,000 $ 42,394 $ 207,169 15,000 $12,800
Senior Vice President and 1997 175,000 53,219 22,808 30,000 10,131
Group Executive 1996 165,000 24,948 306,943(7) 81,000 9,496
Garry K. McGuire.............. 1998 $290,000 $ 30,441 $ 643,046 15,000 $ 9,600
Senior Vice President, 1997 100,000 105,308 318,695(8) 50,000 0
Solutions (until June 30,
1999)
Frank M. Semple............... 1998 $240,000 $ 91,350 $ 669,150 15,000 $12,800
Senior Vice President, 1997 210,717 95,404 40,888 50,000 10,131
Network 1996 196,820 82,664 35,428 45,000 9,496
</TABLE>
- -------------------------
(1) Amounts reported in this column include the dollar value as of the date of
grant of Williams deferred stock awards under the terms of The Williams
Companies, Inc. 1996 stock plan and The Williams Companies, Inc. stock plan
for nonofficer employees. Amounts represent the value of awards granted
pursuant to the executive incentive compensation program. Valuation of the
awards is based on the 52-week average stock price for the award year as
follows: Mr. Janzen -- for 1998, 1,769 shares valued at $54,000, for 1997,
1,963 shares valued at $45,000 and for 1996, 2,776 shares valued at $46,406;
Mr. Bothof -- for 1998, 658 shares valued at $20,082, for 1997, 1,047 shares
valued at $23,981 and for 1996, 1,414 shares valued at $23,613; Mr.
Littlefield -- for 1998, 596 shares valued at $18,169, for 1997, 995 shares
valued at $22,808 and for 1996, 640 shares valued at $10,693; Mr.
McGuire -- for 1998, 428 shares valued at $13,046, for 1997, 1,970 shares
valued at $45,132 and for 1996, no shares; and Mr. Semple -- for 1998, 1,283
shares valued at $39,150, for 1997, 1,784 shares valued at $40,888 and for
1996, 2,120 shares valued at $35,428. Receipt of deferred stock under the
executive incentive compensation program is approximately three years after
the date of grant. Dividend equivalents are paid on deferred stock at the
same time and at the same rate as dividends paid to stockholders generally.
(2) Amounts reported in this column include the dollar value as of the date of
grant of Williams deferred stock under the terms of the Williams
Communications stock plan. Amounts represent the value of stock awards
granted on May 21, 1998 as follows: Mr. Bothof, 20,000 shares valued at
$630,000, Mr. Littlefield, 6,000 shares valued at $189,000, Mr. McGuire,
20,000 shares valued at $630,000, and Mr. Semple, 20,000 shares valued at
$630,000. Receipt of deferred stock under the Williams Communications Stock
Plan is approximately five years after the date of grant. Dividend
equivalents are paid on deferred
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stock at the same time and at the same rate as dividends paid to
stockholders generally. Each individual will have the right to receive
deferred shares of our common stock in exchange for deferred shares of
Williams common stock as described in "-- New stock-based and incentive
plans of our company -- Treatment of specified Williams stock awards" below.
(3) Adjusted to reflect stock splits.
(4) Amounts reported in this column represent the value of contributions made by
Williams to defined contribution pension plans, on behalf of each of our
executive officers named in the table.
(5) This amount includes a Williams deferred stock award of 80,000 shares
granted for retention purposes on May 21, 1998 under The Williams Companies,
Inc. 1996 stock plan. One-half of the shares vest five years after the date
of grant and one-half of the shares vest ten years after the date of grant.
The value of the award at the time of grant was $2,520,000. Dividend
equivalents are paid on deferred stock at the same time and at the same rate
as dividends paid to stockholders generally. Mr. Janzen will have the right
to receive deferred shares of our common stock in exchange for deferred
shares of Williams common stock as described in "-- New stock-based and
incentive plans of our company -- Treatment of specified Williams stock
awards" below.
(6) Amounts include the dollar value as of the date of grant of 138 shares of
Williams deferred stock awards under the terms of The Williams Companies,
Inc. stock plan for nonofficer employees. The value of the award at the date
of grant was $2,549.
(7) Amounts include the dollar value as of the date of grant of 18,000 shares of
Williams deferred stock awards under the terms of The Williams Companies,
Inc. stock plan for nonofficer employees. The value of the award at the date
of grant was $296,250.
(8) Amounts include the dollar value as of the date of grant of 12,000 shares of
Williams deferred stock awards under the terms of The Williams Companies,
Inc. stock plan for nonofficer employees. The value of the award at the date
of grant was $273,563.
Messrs. Janzen, Bothof and Littlefield will have the right to receive
deferred shares of our common stock in exchange for deferred shares of Williams
common stock as described in "-- New stock-based and incentive plans of our
company -- Treatment of specified Williams stock awards" below.
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STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding grants of stock options
made to the named executive officers during the 1998 fiscal year. All grants
relate to Williams common stock.
WILLIAMS OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
----------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES EXERCISE PRICE EXPIRATION GRANT DATE
NAME OPTIONS GRANTED IN FISCAL YEAR (PER SHARE) DATE PRESENT VALUE(2)
- ---- --------------- --------------- -------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Howard E. Janzen...... 10,000 0.20% $31.5625 03/30/08 $107,600
10,000 0.20 $34.3750 07/25/08 117,300
10,000 0.20 $30.0000 11/19/08 103,900
------ ---- --------
30,000 0.60% $328,800
Delwin L. Bothof...... 5,000 0.10% $31.5625 03/30/08 $ 53,800
5,000 0.10 $34.3750 07/25/08 58,650
5,000 0.10 $30.0000 11/19/08 51,950
------ ---- --------
15,000 0.30% $164,400
Lawrence C.
Littlefield, Jr..... 5,000 0.10% $31.5625 03/30/08 $ 53,800
5,000 0.10 $34.3750 07/25/08 58,650
5,000 0.10 $30.0000 11/19/08 51,950
------ ---- --------
15,000 0.30% $164,400
Garry K. McGuire...... 5,000 0.10% $31.5625 03/30/08 $ 53,800
5,000 0.10 $34.3750 07/25/08 58,650
5,000 0.10 $30.0000 11/19/08 51,950
------ ---- --------
15,000 0.30% $164,400
Frank M. Semple....... 5,000 0.10% $31.5625 03/30/08 $ 53,800
5,000 0.10 $34.3750 07/25/08 58,650
5,000 0.10 $30.0000 11/19/08 51,950
------ ---- --------
15,000 0.30% $164,400
</TABLE>
- -------------------------
(1) Options granted in 1998 vested pursuant to an accelerated vesting provision
that accelerates vesting if the average price of Williams common stock
reaches and maintains a specified target price for five out of ten
consecutive business days. Williams granted these options under The Williams
Companies, Inc. 1996 stock plan and The Williams Companies, Inc. stock plan
for nonofficer employees.
(2) The grant date present value is determined using the Black-Scholes option
pricing model and is based on assumptions about future stock price
volatility and dividend yield. The model does not take into account that the
stock options are subject to vesting restrictions and that executives cannot
sell their options. The calculations assume an expected volatility of 25%
"weighted-average," a risk-free rate of return of 5.3% "weighted-average," a
dividend yield of 2% and an exercise date at the end of the contractual term
in 2008. The actual value, if any, that may be realized by an executive will
depend on the market price of Williams common stock on the date of exercise.
The dollar amounts shown are not intended to forecast possible future
appreciation in Williams stock price.
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<PAGE> 119
WILLIAMS OPTION EXERCISES IN 1998
The following table provides certain information on stock option exercises
with respect to Williams common stock by our executive officers named in the
table above during our fiscal year ended December 31, 1998.
AGGREGATED WILLIAMS OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Howard E. Janzen...... 52,194 $1,160,176 214,812 30,000 $3,214,637 $11,875
Delwin L. Bothof...... 76,000 $ 789,563 30,000 15,000 $ 205,000 $ 5,938
Lawrence C.
Littlefield, Jr..... 25,000 $ 415,625 86,000 15,000 $1,019,500 $ 5,938
Garry K. McGuire...... -- $ -- 50,000 15,000 $ 390,625 $ 5,938
Frank M. Semple....... 92,810 $1,278,281 140,000 15,000 $1,904,375 $ 5,938
</TABLE>
- -------------------------
(1) Based on the closing price of $31.1375 per share of Williams common stock at
December 31, 1998, less the exercise price. The values shown reflect the
value of options accumulated over periods of up to ten years. The values
reflected in the table had not been realized at that date and may not be
realized. In the event the options are exercised, their value will depend
upon the value of Williams common stock on the date of exercise.
Williams has extended to each of our directors and to some of our executive
officers loans in order to enable them to exercise stock options to purchase
Williams common stock. As of May 10, 1999, loans aggregating approximately $30.8
million were outstanding to these directors and executive officers.
PENSION PLANS
At the time of the offerings, we will make available the same pension plans
in which eligible employees were participating immediately prior to the
offerings. Mr. Janzen, Mr. Bothof, Mr. Littlefield and Mr. Semple will continue
to participate in the Williams pension plan. Mr. McGuire will continue to
participate in the Solutions LLC pension plan.
WILLIAMS PENSION PLAN
The Williams pension plan is a non-contributory, tax-qualified cash balance
pension plan subject to the Employee Retirement Income Security Act of 1974. The
plan generally includes all of our salaried employees who are employed outside
of Solutions LLC and who have completed one year of service. Except as noted
below, our executive officers participate in the plan on the same terms as other
full-time employees.
Effective April 1, 1998, Williams converted the plan from a final average
pay plan to a cash balance pension plan. Each participant's accrued benefit as
of that date was converted to a beginning account balance. Account balances are
credited with an annual employer contribution and quarterly interest
allocations. Each year an employer contribution equal to a percentage of
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<PAGE> 120
eligible compensation is allocated to each employee's pension account. This
percentage is based upon each employee's age according to the following table:
<TABLE>
<CAPTION>
PERCENTAGE OF ELIGIBLE PAY
PERCENTAGE OF ALL GREATER THAN THE SOCIAL
AGE ELIGIBLE PAY SECURITY WAGE BASE
- --- ----------------- --------------------------
<S> <C> <C>
30 4.5% 1%
30-39 6% 2%
40-49 8% 3%
50+ 10% 5%
</TABLE>
For employees, including the executive officers who participate in the
plan, who were active employees and plan participants on March 31, 1998 and
April 1, 1998, the percentage of all eligible pay is increased by an amount
equal to the product of 0.3% multiplied by the participant's total years of
service prior to March 31, 1998. Interest is credited to account balances
quarterly at a rate determined annually in accordance with the terms of the
plan. The normal retirement benefit is a monthly annuity based on an
individual's account balance as of benefit commencement. The plan defines
eligible compensation to include salary and bonuses. Normal retirement age is
65. Early retirement may begin as early as age 55. At retirement, employees are
entitled to receive a single-life annuity or one of several optional forms of
payment having an equivalent actuarial value to the single-life annuity.
Participants who were age 50 or older as of March 31, 1998, were
grandfathered under a transitional provision that gives them the greater of the
benefit payable under the cash balance formula or the final average pay formula
based on all years of service and compensation. Mr. Bothof and Mr. Littlefield
are covered under this grandfather provision.
The Internal Revenue Code of 1986, as amended, currently limits the pension
benefits that can be paid from a tax-qualified pension plan to highly
compensated individuals. These limits prevent such individuals from receiving
the full pension benefit based on the same formula as is applicable to other
employees. As a result, Williams has adopted an unfunded supplemental retirement
plan to provide a supplemental retirement benefit equal to the amount of such
reduction to every employee whose benefit payable under the plan is reduced
because of these limitations, including the executive officers who participate
in this plan.
Total estimated annual benefits payable at normal retirement age under the
cash balance formula from both the tax qualified and the supplemental retirement
plans are as follows:
<TABLE>
<S> <C>
Howard E. Janzen............................................ $504,840
Delwin L. Bothof............................................ 92,319
Lawrence C. Littlefield, Jr................................. 44,394
Frank M. Semple............................................. 259,410
</TABLE>
The following table illustrates projected annual retirement benefits for
employees grandfathered under the final average pay formula, payable as a single
life annuity amount from both the tax-qualified and the supplemental retirement
plans based on various levels of final
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<PAGE> 121
average annual compensation and years of service. The benefits are not subject
to deduction for any offset amounts.
WILLIAMS PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------------------
REMUNERATION 10 15 20 25 30 35
- ------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 125,000 $ 20,966 $ 31,448 $ 41,931 $ 52,414 $ 62,897 $ 73,379
$ 175,000 $ 30,216 $ 45,323 $ 60,431 $ 75,539 $ 90,647 $105,754
$ 200,000 $ 34,840 $ 52,260 $ 69,680 $ 87,100 $104,520 $121,940
$ 250,000 $ 44,090 $ 66,135 $ 88,180 $110,225 $132,270 $154,315
$ 300,000 $ 53,340 $ 80,010 $106,681 $133,351 $160,022 $186,692
$ 400,000 $ 72,681 $109,022 $145,363 $181,703 $218,044 $254,385
$ 450,000 $ 81,090 $121,636 $162,181 $202,726 $243,272 $289,244
$ 500,000 $ 90,340 $135,510 $180,680 $225,850 $271,020 $316,190
</TABLE>
The estimated annual benefits payable at normal retirement age from both
the tax-qualified and the supplemental retirement plans as of December 31, 1998
would be based on average compensation of $267,705 for Mr. Bothof with 8 years
of credited service and $218,657 for Mr. Littlefield with 9 years of credited
service.
SOLUTIONS LLC PENSION PLAN
The Solutions LLC pension plan is a non-contributory, tax-qualified defined
benefit plan subject to ERISA. The plan generally includes all of our salaried
employees who work for Solutions LLC and who have completed one year of service.
Except as noted below, executive officers participate in the plan on the same
terms as other full-time employees.
The normal retirement benefit is a monthly annuity determined by averaging
compensation during the four calendar years of employment with the highest
compensation within the ten calendar years preceding retirement. Compensation
includes salary and bonuses. Normal retirement age is 65. Early retirement may
be taken with reduced benefits beginning as early as age 55. At retirement,
employees are entitled to receive a single-life annuity or one of several
optional forms of settlement having an equivalent actuarial value to the
single-life annuity.
The Internal Revenue Code currently limits the pension benefits that can be
paid from a tax-qualified defined benefit plan to highly compensated
individuals. These limits prevent such individuals from receiving the full
pension benefit based on the same formula as is applicable to other employees.
As a result, we have adopted an unfunded supplemental retirement plan to provide
a supplemental retirement benefit equal to the amount of such reduction to every
employee whose benefit payable under the plan is reduced by these limitations,
including the executive officers who participate in the plan.
The following table illustrates projected annual retirement benefits
payable as a single life annuity amount under both the tax-qualified and the
supplemental retirement plans based on
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<PAGE> 122
various levels of final average annual compensation and years of service. The
benefits are not subject to deduction for any offset amounts.
SOLUTIONS LLC PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 125,000 $17,340 $23,120 $ 28,900 $ 34,680 $ 40,460
$ 175,000 $25,012 $33,350 $ 41,687 $ 50,025 $ 58,362
$ 200,000 $28,849 $38,465 $ 48,081 $ 57,697 $ 67,313
$ 250,000 $36,521 $48,695 $ 60,869 $ 73,042 $ 85,216
$ 300,000 $44,194 $58,925 $ 73,042 $ 88,387 $103,118
$ 400,000 $59,539 $79,385 $ 99,231 $119,077 $138,923
$ 450,000 $67,211 $89,615 $112,019 $134,422 $156,826
$ 500,000 $74,884 $99,845 $124,806 $149,767 $174,728
</TABLE>
The estimated annual benefits payable from both the tax-qualified and the
supplemental retirement plans as of December 31, 1998 would be based on average
compensation of $267,239 for Mr. McGuire with 16 years of credited service.
WILLIAMS' PLANS
Prior to the offerings, stock options and deferred stock awards relating to
Williams common stock were made to our employees under The Williams Companies,
Inc. 1996 stock plan, The Williams Companies, Inc. stock plan for nonofficer
employees and the Williams Communications stock plan. These plans permit the
compensation committee of Williams' board of directors to grant different types
of stock-based awards, including deferred stock awards. They also provide for
stock option awards giving employees the right to purchase common stock over a
ten-year period at the market value per share of Williams common stock, as
defined by the plan, as of the date the option is granted. Stock options granted
under The Williams Companies, Inc. 1996 stock plan and The Williams Companies,
Inc. stock plan for nonofficer employees are subject to three-year vesting from
January 20 of the year the options are granted. Both plans provide for
accelerated vesting if the average price of Williams common stock reaches and
maintains a specified target price for five out of ten consecutive business
days. Options granted under the Williams Communications stock plan are generally
subject to five-year vesting, but provide for accelerated vesting based on the
attainment of various performance targets.
The compensation committee's objective with respect to stock option awards
is to provide a long-term component to overall compensation which aligns the
interests of executives with the interests of stockholders through stock
ownership. Compensation opportunities in the form of stock options serve this
purpose. The compensation committee has established stock option award targets
for each level of management participating in the stock option program. The
target levels for annual stock option grants have been established based on
competitive market practices and range from 50,000 shares for the chairman,
president and chief executive officer of Williams to 1,500 shares for
manager-level employees. In making decisions on stock option awards, the
compensation committee has available to it information on previous stock option
awards granted under the plans. Stock option awards are not tied to
preestablished performance targets.
The Williams stock plans also provide for awards of deferred stock which
the employee cannot otherwise dispose of prior to vesting. Williams' annual
incentive program requires that 30% of an executive's award be deferred in
Williams common stock. Deferred stock is normally forfeited if the executive
terminates employment for any reason other than retirement, disability
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<PAGE> 123
or death prior to the end of the deferral period. Executive officers also have
the option to defer all or a portion of the cash award. Participants who elect
to defer all or a portion of the cash award may elect to defer for up to five
years from the award date. Deferred stock cannot be sold or otherwise disposed
of until the applicable deferral period lapses. Dividend equivalents are paid on
deferred stock. The value of the deferred award is at risk during the deferral
period since the value is tied to the stock price. The compensation committee
also uses deferred stock awards to provide, on a selective basis, a vehicle for
tying an element of compensation to the employee's willingness to remain with
Williams in a way that aligns the employee's interests with those of the other
stockholders.
NEW CHANGE IN CONTROL SEVERANCE PLAN OF OUR COMPANY
We have established a change in control severance plan which covers our
executives, including the executive officers named in the summary compensation
table. The plan provides severance benefits if, within two years following a
change in control of Williams or our company, a participant's employment is
terminated either involuntarily, other than for cause, death, disability or the
sale of a business, or voluntarily for good reason. The severance benefit is a
lump sum payment equal to 100% of the participant's annual base salary, plus
100% of the participant's monthly base salary for each completed year of
service, subject to a maximum severance benefit equal to 200% of the
participant's annual base salary.
If necessary, a participant is entitled to receive a corresponding gross-up
payment sufficient to compensate for the amount of any excise tax imposed by
Section 4999 of the Internal Revenue Code and for any taxes imposed on the
additional payment. Amounts payable under the plan are in lieu of any payments
which may otherwise be payable under any other severance plan or program.
NEW STOCK-BASED AND INCENTIVE PLANS OF OUR COMPANY
Prior to the completion of the equity offering, we expect to adopt stock
plans which will authorize the grant of different types of stock-based awards to
our employees. The total number of shares of our common stock to be authorized
for issuance under these plans is expected to be approximately 36,000,000.
The terms of the plans will be substantially similar to those of the
Williams stock plans described above, except that stock option grants will
generally be subject to a three-year graded (one-third per year) vesting
requirement, and will not provide for performance-based accelerated vesting. The
plans will be administered by our compensation committee. Award agreements with
respect to awards granted under the plans to our employees are expected to
provide that in the event of certain terminations of a participant's employment
following a change in control of Williams, or of our company, awards will become
fully vested and exercisable and generally remain exercisable for a period of 18
months. Award agreements with respect to awards granted under the plan to
Williams' independent directors, Williams' executive officers and certain other
Williams employees are expected to provide that in the event of a change in
control of our company awards will become fully vested and exercisable and
generally remain exercisable for a period of 18 months.
STOCK OPTION AND DEFERRED SHARE GRANTS
As of the completion of the equity offering, we intend to make stock option
grants under a new stock plan to employees. These awards and subsequent awards
under the plan will be made to selected employees and will be targeted to be
competitive with equity-based awards of similar companies in our industry. The
initial options will have an exercise price equal to the initial
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<PAGE> 124
public offering price, the other options will have an exercise price equal to
the market price of the common stock on the date of grant and all of these
options will be subject to three-year graded vesting, which means that these
options will vest in three equal installments over three years. The total number
of shares covered by the initial awards is expected to be approximately
2,800,000.
We intend to make one-time stock option grants to our independent
directors, executive officers and other key employees as of the completion of
the equity offering. These options will have an exercise price equal to the
initial public offering price and, except for grants to independent directors
that will vest upon grant, be subject to five-year cliff vesting, which means
that all of these options will vest after five years. The total number of shares
covered by these one-time grants is expected to be approximately 2,700,000.
We also intend to make one-time stock option grants to Williams'
independent directors, Williams' executive officers and certain other Williams
employees. These options will have an exercise price equal to the initial public
offering price and, except for grants to independent directors that will vest
upon grant, be subject to five-year cliff vesting. The total number of shares
covered by these grants is expected to be approximately 750,000.
We also intend to make a one-time option grant to purchase shares of our
common stock to each of our regular employees who are not eligible to receive
annual grants under our stock plans. These options will have an exercise price
equal to the initial public offering price and be subject to three-year cliff
vesting. The total number of shares covered by these grants is expected to be
approximately 800,000.
Effective as of the completion of the equity offering, Mr. Littlefield will
receive an additional grant of 9,200 deferred shares and Mr. Schubert will
receive a grant of deferred shares with a value of $500,000 based on the initial
public offering price.
TREATMENT OF SPECIFIED WILLIAMS STOCK AWARDS
Prior to the closing of the equity offering, individuals who are actively
employed by us or Williams and who hold deferred shares of Williams common stock
or options to purchase shares of Williams common stock granted under the
Williams Communications stock plan will have the right to surrender for
cancellation each deferred Williams share or Williams option, whether or not
vested or exercisable, and, upon cancellation, we will issue or grant to these
individuals a deferred share or stock option in our company. Mr. Janzen will
also have the right to receive deferred shares in exchange for Williams deferred
shares held by him under The Williams Companies, Inc. 1996 stock plan. Except
for one-fourth of the shares issued in exchange which will vest at the closing
of the equity offering, all of these deferred shares or options will have the
same deferral, vesting and exercisability features as the deferred Williams
share or Williams option cancelled. The number of deferred shares that we issue
or the number of shares subject to each of the stock options that we grant and
the exercise price per share of our stock options will be determined in a manner
that will reflect the relative value between the Williams common stock and our
common stock giving the participant approximately equal value before and after
the exchange.
As of the date of this prospectus, there are outstanding under the Williams
Communications stock plan approximately 175,000 deferred Williams shares and
approximately 510,000 Williams shares issuable under existing options which are
eligible to be exchanged for deferred shares or options to purchase our common
stock. Mr. Janzen holds 80,000 deferred shares under The Williams Companies,
Inc. 1996 stock plan. If all of the eligible employees were to exercise their
rights to exchange existing Williams awards for deferred shares or options to
purchase our
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<PAGE> 125
common stock, we would issue approximately ______ deferred shares and we would
grant options to purchase approximately ______ shares of our common stock.
DIRECTED STOCK PROGRAM
We intend to provide all regular domestic Williams employees, all of our
regular domestic employees, the independent directors of both companies and
selected suppliers and customers of our company with the opportunity to purchase
shares of our common stock. Employees who participate in certain 401(k) plans
will have the option to execute this purchase through the 401(k) plan. Up to
7.0% of the common stock constituting the equity offering will be available for
purchase under this program, with no more than 0.7% of the common stock
constituting the equity offering to be available for purchase under this program
by independent directors of our company and Williams or our suppliers and
customers. See the section of this prospectus entitled "Underwriting" for more
information.
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<PAGE> 126
PRINCIPAL STOCKHOLDERS
OWNERSHIP OF OUR COMMON STOCK AND CLASS B COMMON STOCK
Prior to the equity offering, Williams owned 100% of our capital stock. In
the equity offering, we will be selling ____ shares, or __%, of common stock,
and in the concurrent investments we will be selling ____ shares, or __%, of
common stock. Following the equity offering and the concurrent investments,
Williams will own 100% of our outstanding Class B common stock.
In connection with the offerings, we will grant directors and executive
officers options to purchase common stock and will grant some of the executive
officers deferred shares of our common stock. See the section of this prospectus
entitled "Management" for more information.
The following table first sets forth the expected ownership of class B
common stock by Williams, which is expected to be the only beneficial owner of
at least 5% of our common stock upon completion of the equity offering and the
concurrent investments. The table also sets forth the expected ownership by our
directors and executive officers of our common stock, or of options to purchase
our common stock as of the completion of the equity offering, based on the
assumption that all directors and executive officers elect to fully exchange
current Williams deferred share and option awards for our deferred share and
option awards to the extent that they are eligible to do so, but excluding
shares that executive officers and directors may purchase under the directed
stock program. For those individuals who hold deferred shares or options to
purchase Williams common stock that are eligible to be exchanged for deferred
shares or options to purchase our common stock, and for stock options
denominated as dollar amount awards, the number of shares indicated below have
been determined based on an assumed initial offering price of $____ per share
and a price per share of Williams common stock of $49.00, which was the trading
price of Williams common stock on June 21, 1999. Other than for Messrs. Thompson
and Wilkens, a significant percentage of the options to purchase common stock
indicated for each individual will not be exercisable at the time of, or within
60 days following, the completion of the equity offering. Subject to applicable
community property laws, these persons have sole voting and investment power
with respect to all shares of our common stock shown as beneficially owned by
them. The address for Williams is The Williams Companies, Inc., One Williams
Center, Tulsa, Oklahoma 74172 and for the other stockholders is c/o Williams
Communications Group, Inc., One Williams Center, Tulsa, Oklahoma 74172. The
percent of class after the equity offering has been calculated with our common
stock and Class B common stock treated as the share class and without giving
effect to the issuance of any shares of our common stock upon exercise of the
underwriters' overallotment option.
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<PAGE> 127
<TABLE>
<CAPTION>
PERCENT OF CLASS
SHARES OF SHARES ---------------------------------
COMMON UNDERLYING PRIOR TO THE AFTER THE
STOCKHOLDER STOCK OWNED OPTIONS TOTAL EQUITY OFFERING EQUITY OFFERING
- ----------- ----------- ---------- ------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
The Williams Companies, Inc. ........... -- 100% %
SBC Communications, Inc.(1)............. -- --
Intel Corporation....................... -- --
Telefonos de Mexico, S.A. de C.V.(1).... -- -- *
Keith E. Bailey......................... -- 100,000 100,000 * *
John C. Bumgarner, Jr. ................. -- 50,000 50,000 * *
James R. Herbster....................... -- 50,000 50,000 * *
Howard E. Janzen........................ 300,000 * *
Michael P. Johnson, Sr. ................ -- 50,000 50,000 * *
Steven J. Malcolm....................... -- 50,000 50,000 * *
Jack D. McCarthy........................ -- 50,000 50,000 * *
Brian E. O'Neill........................ -- 50,000 50,000 * *
H. Brian Thompson....................... -- 14,000 14,000 * *
Roy A. Wilkens.......................... -- 14,000 14,000 * *
Delwin L. Bothof........................ 70,000 * *
Lawrence C. Littlefield, Jr. ........... 70,000 * *
Frank M. Semple......................... 100,000 * *
All directors and executive officers as
a group (22 persons).................. * *
</TABLE>
- ---------------
* Less than 1%.
(1) If SBC consents to reduce its investment to $425 million so that Telefonos
de Mexico can invest an additional $25 million, SBC would receive ______
shares, or __% of the total shares outstanding, and Telefonos de Mexico
would receive ______ shares, or __% of the total shares outstanding. If SBC
has an investment of $500 million, SBC would receive ______ shares, or __%
of the total shares outstanding, and Telefonos de Mexico would receive
______ shares, or __% of the total shares outstanding.
OWNERSHIP OF WILLIAMS COMMON STOCK
The following table sets forth, as of the date of this prospectus, the
beneficial ownership of Williams common stock, par value $0.01 per share, by
each of our executive officers named in the summary compensation table, each of
our directors and all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules and regulations
of the SEC. Shares of Williams common stock subject to options that are
currently exercisable or exercisable within 60 days of March 31, 1999 are deemed
to be outstanding and beneficially owned by the person holding the options for
the purpose of computing the number of shares beneficially owned and the
percentage ownership of that person, but are not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person. Except as
indicated in the text below this table, and subject to applicable community
property laws, these persons have sole voting and investment power with respect
to all shares of the Williams common stock shown as beneficially owned by them.
The address for the following stockholders is c/o Williams Communications Group,
Inc., One Williams Center, Tulsa, Oklahoma 74172.
Directors and executive officers as a group own less than 2% of outstanding
Williams common stock.
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<PAGE> 128
OWNERSHIP OF WILLIAMS COMMON STOCK BY OUR EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
SHARES
SHARES OF UNDERLYING
COMMON OPTIONS
STOCK OWNED EXERCISABLE
DIRECTLY OR WITHIN 60 PERCENT
NAME INDIRECTLY(1) DAYS(3) TOTAL OF CLASS
---- ------------- ----------- --------- --------
<S> <C> <C> <C> <C>
Keith E. Bailey............................ 1,886,001 325,002 2,211,003 *
John C. Bumgarner, Jr. .................... 977,891 70,000 1,047,891 *
James R. Herbster.......................... 166,085(2) 203,904 369,989 *
Howard E. Janzen........................... 242,717 200,006 442,723 *
Michael P. Johnson, Sr..................... 20,346 5,250 25,596 *
Steven J. Malcolm.......................... 55,114 138,938 194,052 *
Jack D. McCarthy........................... 211,044 30,000 241,044 *
Brian E. O'Neill........................... 123,526 324,404 447,930 *
H. Brian Thompson.......................... -- -- -- *
Roy A. Wilkens............................. 400,000 -- 400,000
Delwin L. Bothof........................... 132,981 52,500 185,481 *
Lawrence C. Littlefield, Jr. .............. 121,840 108,500 230,340 *
Frank M. Semple............................ 61,685 162,500 224,185 *
All directors and executive officers as a
group (22 persons).......................
</TABLE>
- ---------------
* Less than 1%.
(1) Includes shares held under the terms of incentive and investment plans as
follows: Mr. Bailey, 621,287, including 175,873 over which he has sole
voting and investment power; Mr. Bumgarner, 382,824, including 221,863 over
which he has sole voting and investment power; Mr. Herbster, 89,816,
including 44,005 over which he has sole voting and investment power; Mr.
Janzen, 144,802, including 58,294 over which he has sole voting and
investment power; Mr. Johnson, 20,346, including 304 shares over which he
has sole investment and voting power; Mr. Malcolm, 36,138, including 31,662
over which he has sole voting and investment power; Mr. McCarthy, 94,975,
including 42,975 over which he has sole voting and investment power; Mr.
O'Neill, 62,760, including 12,928 over which he has sole voting and
investment power; Mr. Wilkens, 104,524, over all of which he has sole voting
and investment power; Mr. Littlefield, 83,340, including 10,137 over which
he has sole voting and investment power; Mr. Semple, 85,034, including
53,334 over which he has sole voting and investment power; Mr. Bothof,
33,372, including 10,115 over which he has sole voting and investment power;
and all executive officers as a group, , including over
which each has sole voting and investment power as to his or her shares.
(2) Includes 29,996 shares held in trust, over which Mr. Herbster has voting and
investment power.
(3) The SEC deems a person to have beneficial ownership of all shares that the
person has the right to acquire within 60 days. The shares indicated
represent stock options granted under the stock plans of The Williams
Companies, Inc. Shares subject to option cannot be voted.
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RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Included in our revenues are charges to Williams and its subsidiaries and
affiliates for managing their internal telephone operations of $7,710,000,
$5,217,000 and $4,918,000 for 1998, 1997 and 1996, respectively. Charges are for
communications services which we obtain from MCI WorldCom and resell internally.
Our agreement with MCI WorldCom, which we entered into at the time we sold our
business to them, provides us with certain amounts of service on the MCI
WorldCom network for a 35-year term. We are provided services on the portion of
the network which it owns at no cost, and on portions which it leases at its
cost. We resell these communication services to Williams, its subsidiaries and
affiliates at market rates.
In addition, our revenues include charges to Williams' gas pipelines for
managing microwave frequencies of $4,254,000, $3,754,000 and $1,381,000 for
1998, 1997 and 1996, respectively. We own portions of these microwave
frequencies which we acquired from and lease to the gas pipelines. These leases
are for a 10-year term and the rental payments are equal to our purchase cost
plus a market rate of return.
Williams grants our directors and officers fully recourse loans in order to
enable them to exercise stock options to purchase Williams common stock. These
loans use stock certificates as collateral and may be for either a three- or
five-year term. Interest payments are due annually during the term of the loan
and are based on the minimum applicable federal rates required to avoid imputed
income. The principal amount is due at the end of the loan term, provided,
however, that a participant may request, prior to the end of a loan term, a new
loan which may be granted at the discretion of Williams. Participants who leave
Williams during the loan period are required to pay the loan balance and any
accrued interest within 30 days of termination. We anticipate that the loans
made by Williams to our directors and officers will remain outstanding Williams
loans after the offerings. We anticipate that Williams will continue to make
loans to our directors and officers on similar terms to enable them to exercise
Williams stock options. We may make loans to our officers and directors,
including loans to enable them to exercise stock options to purchase our common
stock. We anticipate that the terms of these loans will be fully recourse and
otherwise similar to those for Williams loans.
The following table describes details regarding these loans which have been
made to our directors or officers.
<TABLE>
<CAPTION>
TOTAL LARGEST
INTEREST AMOUNT AMOUNT
INTEREST OVER TERM DUE DURING OUTSTANDING
NAME RATE OF LOAN 1998 5/10/99
- ---- -------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Keith E. Bailey............. 6.28% $ 50,641.92 $ 171,408.39 $ 164,887.37
Keith E. Bailey............. 6.58% $ 71,656.20 $ 232,131.21 $ 222,904.28
Keith E. Bailey............. 6.42% $ 64,200.00 $ 266,050.00 $ 255,716.44
Keith E. Bailey............. 6.80% $ 144,190.19 $ 601,327.51 $ 576,677.18
Keith E. Bailey............. 5.68% $ 406,609.84 $ 1,472,720.00 $ 1,460,688.79
Keith E. Bailey............. 5.57% $1,026,811.18 $ 3,770,204.37 $ 3,760,076.92
Keith E. Bailey............. 5.54% $1,670,829.99 $ 6,143,571.06 $ 6,150,895.25
Total............ $3,434,939.32 $12,657,412.54 $12,591,846.23
John C. Bumgarner, Jr. ..... 5.91% $ 203,927.62 $ 1,218,159.86 $ 1,174,394.59
John C. Bumgarner, Jr. ..... 5.42% $ 559,102.89 $ 3,500,299.27 $ 3,504,894.64
Total............ $ 763,030.51 $ 4,718,459.13 $ 4,679,289.23
James R. Herbster........... 6.74% $ 17,864.37 $ 56,582.87 $ 54,282.53
James R. Herbster........... 6.49% $ 119,416.00 $ 391,883.22 $ 376,506.35
James R. Herbster........... 5.93% $ 77,115.43 $ 274,452.51 $ 265,578.93
Total............ $ 214,395.80 $ 722,918.60 $ 696,367.81
</TABLE>
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<PAGE> 130
<TABLE>
<CAPTION>
TOTAL LARGEST
INTEREST AMOUNT AMOUNT
INTEREST OVER TERM DUE DURING OUTSTANDING
NAME RATE OF LOAN 1998 5/10/99
- ---- -------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Howard E. Janzen............ 5.70% $ 80,997.64 $ 500,521.63 $ 483,286.56
Howard E. Janzen............ 5.69% $ 87,092.51 $ 320,823.16 $ 312,328.65
Howard E. Janzen............ 5.77% $ 38,864.87 $ 139,207.01 $ 137,482.06
Howard E. Janzen............ 4.71% $ 106,851.10 $ 0 $ 459,340.85
Howard E. Janzen............ 4.83% $ 114,621.70 $ 0 $ 477,261.87
Total............ $ 428,427.82 $ 960,551.80 $ 1,869,699.99
Jack D. McCarthy............ 6.23% $ 321,312.50 $ 1,095,763.30 $ 1,054,388.82
Jack D. McCarthy............ 6.42% $ 265,031.98 $ 878,651.17 $ 844,523.79
Jack D. McCarthy............ 5.59% $ 158,731.67 $ 696,532.02 $ 680,189.94
Jack D. McCarthy............ 4.83% $ 301,392.00 $ 0 $ 1,256,752.75
Total............ $1,046,468.15 $ 2,670,946.49 $ 3,835,855.30
William G. von Glahn........ 5.83% $ 73,234.13 $ 443,131.30 $ 427,414.47
William G. von Glahn........ 5.91% $ 6,240.96 $ 37,280.31 $ 35,940.94
William G. von Glahn........ 6.23% $ 23,624.16 $ 134,274.72 $ 129,204.70
William G. von Glahn........ 5.54% $ 56,063.91 $ 353,746.50 $ 343,983.99
William G. von Glahn........ 5.59% $ 39,174.72 $ 182,954.39 $ 178,688.16
William G. von Glahn........ 5.39% $ 11,670.00 $ 102,499.38 $ 100,191.16
William G. von Glahn........ 5.48% $ 76,281.60 $ 474,170.89 $ 473,056.26
William G. von Glahn........ 5.57% $ 55,700.00 $ 203,845.60 $ 203,967.67
William G. von Glahn........ 5.54% $ 113,547.84 $ 417,448.38 $ 418,008.34
William G. von Glahn........ 5.28% $ 36,960.00 $ 0 $ 175,886.03
Total............ $ 492,497.32 $ 2,349,351.47 $ 2,486,341.72
Delwin L. Bothof............ 5.42% $ 241,045.04 $ 1,507,316.76 $ 1,511,059.01
Delwin L. Bothof............ 4.67% $ 70,049.95 $ -- $ 604,298.96
Total............ $ 311,094.99 $ 1,507,316.76 $ 2,115,357.97
Gerald L. Carson............ 5.59% $ 183,874.33 $ 686,281.13 $ 670,966.70
Total............ $ 183,874.33 $ 686,281.13 $ 670,966.70
Lawrence C. Littlefield,
Jr........................ 5.54% $ 109,692.00 $ 691,254.73 $ 673,022.79
Total............ $ 109,692.00 $ 691,254.73 $ 673,022.79
Frank M. Semple............. 5.42% $ 180,664.33 $ 1,131,060.57 $ 1,132,545.47
Total............ $ 180,664.33 $ 1,131,060.57 $ 1,132,545.47
Grand Total...... $7,165,084.57 $28,095,553.22 $30,751,293.21
</TABLE>
In connection with his employment, Williams has agreed to loan Scott E.
Schubert approximately $4,000,000 to provide funds to exercise options granted
by his former employer. Currently Mr. Schubert has two such loans outstanding,
which were made on June 22, 1999, the first in the principal amount of
$1,200,000 and bearing an interest rate of 4.98% and the second in the principal
amount of $800,000 and bearing an interest rate of 5.37%. John C. Bumgarner, one
of our directors and our Senior Vice President, Strategic Investments, owns real
estate and leases a portion of it to subsidiaries of our company for use as
office space. In 1998, payments under these leases approximated $136,782. These
leases remain in place, and we expect our subsidiaries to make similar payments
approximating $60,000 per month for the term of the leases.
Garry McGuire, Senior Vice President, Solutions (until June 30, 1999), has
an interest-free loan outstanding from Solutions LLC in the amount of $350,000.
This loan was made to enable Mr. McGuire to purchase a new principal residence
upon his relocation to Houston.
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<PAGE> 131
RELATIONSHIP BETWEEN OUR COMPANY AND WILLIAMS
Williams is currently the beneficial owner of all of our capital stock.
Following the completion of the equity offering and the concurrent investments,
Williams will continue to be our controlling stockholder and will beneficially
own 100% of the outstanding Class B common stock, which will represent
approximately __% of the combined voting power of all of our outstanding capital
stock and approximately __% of the economic interest in our company.
For so long as Williams continues to beneficially own shares of capital
stock representing more than 50% of the combined voting power of our outstanding
capital stock, it will be able to approve any matter submitted to a vote of our
stockholders without the consent of our other stockholders, including, among
other things, the amendment of our restated certificate of incorporation and
by-laws and the election of all members of the board of directors. Williams has,
however, agreed to elect a director designated by SBC so long as SBC retains
more than a 5% equity interest in our capital stock and satisfies the procedural
and substantive requirements to provide long distance services originating in a
state in its traditional exchange service area. In addition, through its
controlling beneficial ownership of us, as well as certain provisions of
intercompany agreements discussed below, Williams will be able to exercise a
controlling influence over our company, including determinations with respect to
mergers or other business combinations involving us, the acquisition or
disposition of assets by us, our access to the capital markets, the payment of
dividends and any change of control of our company. In these and other
situations, various conflicts of interest between us and Williams could arise.
Furthermore, ownership interests of our directors and officers in Williams'
common stock or service as a director or officer of both us and Williams could
create, or appear to create, potential conflicts of interest when directors and
officers are faced with decisions that could have different implications for us
and Williams. We cannot assure you that conflicts of interest will not arise or
will be resolved in a manner favorable to us.
Williams has advised us that its current intent is to continue to hold all
the Class B common stock beneficially owned by it following the equity offering.
However, Williams has no contractual obligation to retain its shares of Class B
common stock. Williams has agreed, subject to specified exceptions, not to sell
or otherwise dispose of any shares of our Class B common stock for a period of
180 days after the date of this prospectus without the prior written consent of
Salomon Smith Barney Inc. and Lehman Brothers Inc. on behalf of the
underwriters. As a result, there can be no assurance concerning the period of
time during which Williams will maintain its beneficial ownership of our Class B
common stock owned by it following the equity offering. In addition, we have
agreed that we will, upon the request of Williams, use our reasonable best
efforts to effect the registration under applicable federal and state securities
laws of any shares of common stock or Class B common stock held by Williams or
any of its affiliates.
The following are summaries of material provisions of the agreements to be
entered into by our company with Williams by the completion of the offerings,
forms of which we have filed as exhibits to the registration statement.
SEPARATION AGREEMENT
We have entered into a separation agreement with Williams relating to
various aspects of our companies' operations that will govern our relationship
with each other after the equity offering. Under the separation agreement, we
have agreed not to compete with Williams for five years in any area of the
energy industry in which Williams currently has operations and Williams has
agreed not to compete with us for five years in any area of the
telecommunications industry in which we currently have operations, subject to
specified exceptions. We and Williams may,
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<PAGE> 132
however, acquire or invest in an entity engaged in activities reserved to the
other provided such activities represent no more than 30% of its consolidated
revenues or net income. In the event Williams acquires telecommunications
activities reserved to us or we acquire energy activities reserved to Williams
pursuant to this exception, the other has a right of first offer to acquire the
activities should any be disposed of prior to five years following the
consummation of the offerings. Under the separation agreement, if a party
decides not to pursue a business opportunity that it has the right to pursue to
the exclusion of the other party, it must promptly inform the other party of
this decision. The other party would then be free to pursue the opportunity.
Unless terminated by both us and Williams, these arrangements would remain in
place regardless of the level of Williams' continued ownership interest in our
company.
Our restated certificate of incorporation provides that we may not bring
any claim against Williams or any of its officers, directors or other
affiliates, for breach of any duty, including, but not limited to, the duty of
loyalty or fair dealing on account of a diversion of a corporate business
opportunity to Williams, unless that opportunity relates solely to a business
that we have the right to elect to pursue to the exclusion of Williams pursuant
to the separation agreement. Notwithstanding the above, no claim may be made in
any event if our directors who are not employees of Williams disclaim the
opportunity by a unanimous vote.
Other components of the separation agreement provide for the following:
- exchange of participation, service and compensation records of employees
who transfer between Williams and us
- filing of annual reports and compliance with other legal requirements
applicable to the parties' employee benefit plans
- allocation of assets and liabilities under various nonqualified pension
and deferred compensation plans maintained by Williams for the benefit of
employees and non-employee directors
- disposition of outstanding stock options, stock appreciation rights and
long-term incentive awards
- allocation of assets and liabilities pertaining to post-retirement life
insurance and health care benefits
- allocation of liabilities for accrued vacation, paid leave and certain
other benefits
- maintenance of insurance coverage consistent with past practices
- establishment of a separation committee to resolve disputes between us
and Williams and arbitration provisions
Our employees, other than those who work for Solutions, LLC, are jointly
employed by other subsidiaries of Williams which provide administrative services
related to their employment. We have entered into personnel services agreements
providing for reimbursement by us of the actual costs incurred by the services
companies related to our employees. Williams also pays the services companies a
fee for administration. Under the separation agreement, we have agreed to
reimburse Williams for our portion of the fee. A Williams subsidiary also
performs risk management services for us and other Williams subsidiaries.
Williams compensates the risk management subsidiary for its actual costs
incurred, a portion of which is related to our business. Under the separation
agreement, we have agreed to reimburse the risk management subsidiary for our
portion of the costs.
ALGAR TELECOM CALL OPTION
We have entered into an agreement with Williams granting us the option to
acquire Williams' equity and debt interests in Algar Telecom. For more
information, see the section of this prospectus entitled "Business -- Strategic
investments -- International -- Algar Telecom."
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TAX SHARING AGREEMENT
In the past, we have been included in Williams' federal consolidated income
tax group. After the offerings and the closing of the concurrent investments, it
is expected that we will continue to be included in the Williams federal
consolidated income tax group. In this case, our federal income tax liability
would be included in the consolidated federal income tax liability of Williams
and its subsidiaries. We also expect to be included with Williams and/or certain
of its subsidiaries in combined, consolidated or unitary income tax groups for
state income tax purposes. We have entered into a tax sharing agreement with
Williams under which we and Williams will make payments such that, for any
period, the amount of federal income taxes we will pay will, subject to certain
adjustments, generally be determined as though we were filing separate federal
income tax returns (including amounts determined to be due under such agreement
as a result of an audit or otherwise). Under the tax sharing agreement, our
losses or other similar tax attributes realized for periods prior to the equity
offering will be utilized or retained by the Williams group and thus will not be
available to us in order to reduce our hypothetical separate tax liability. We
will be responsible for any increases in federal income tax liabilities
resulting to Williams and its subsidiaries if these losses or attributes are
reduced by audit or otherwise. If, for any period after consummation of the
equity offering, we have a current realized operating loss determined on such a
hypothetical separate tax return basis, we will not owe any payments under the
tax sharing agreement for that tax year, and, in general, we will be allowed to
carry over the loss to other tax years in which we are a member of the Williams
federal consolidated income tax group in order to offset our income determined
on this hypothetical separate tax return basis for other tax years. However, if
we are unable to utilize any loss on a hypothetical separate tax return basis,
Williams will be entitled to utilize the loss without paying us for it. If we
cease to be included in the Williams federal consolidated income tax group, we
will not be entitled to receive the benefit of any carryforward of any loss to
offset our income for any tax years thereafter where such loss has been utilized
by the Williams group. We will also be required to pay Williams for any tax
attribute that we are entitled to use after leaving the Williams federal
consolidated income tax group if we have already received the benefit of this
tax attribute under the tax sharing agreement. Therefore, we generally will
receive the benefit of a loss only if we are able to offset the loss against our
income while we are a member of the Williams federal consolidated income tax
group. We cannot guarantee that we will earn any income against which we can
offset any loss while we are a member of the Williams federal consolidated
income tax group and, thus, that we will obtain any benefit from losses
generated while we are a member of the Williams group.
Since we expect to continue to be included in the Williams federal
consolidated income tax group, Williams will continue to have all the rights of
a parent of a consolidated group. Williams will have sole and absolute
responsibility for, and sole and absolute discretion with respect to, the
following:
- preparing any of our income and other tax returns, including, without
limitation, amended returns or claims for refunds
- representing us with respect to any tax audit or tax contest, including,
without limitation, settling or compromising any tax controversy
- engaging outside counsel and accountants with respect to tax matters
regarding us
- performing other acts and duties with respect to our tax returns as
Williams determines to be appropriate
- interpreting and applying the tax sharing agreement and determining any
disputes that arise under it
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<PAGE> 134
The general principles of the tax sharing agreement will also apply to
state income taxes (and, in the sole and absolute discretion of Williams, may
also apply to foreign, local, other state and other federal taxes) with respect
to which we are included with Williams and/or certain of its subsidiaries in
consolidated, combined or unitary groups. Thus, we will be responsible for any
foreign tax liability arising from our business activities.
To the extent permitted by applicable state laws, Williams will continue to
have all the rights of a parent of a combined, consolidated or unitary income
tax group. The tax sharing agreement will remain in effect so long as and to the
extent that we are included with Williams and/or any of its subsidiaries in any
combined, consolidated or unitary income tax group in any taxing jurisdiction
and the statute of limitations for these returns remains open.
Under the administrative services agreement, the amounts that we will pay
Williams will encompass reimbursement to Williams for all direct and indirect
costs and expenses incurred with respect to our share of the overall costs and
expenses incurred by Williams with respect to tax-related services.
In general, we will be included in Williams' consolidated group for federal
income tax purposes for so long as Williams beneficially owns at least 80% of
the total voting power and value of our outstanding common stock. Each member of
a consolidated group is jointly and severally liable for the federal income tax
liability of the consolidated group for the period during which it was a member
of this consolidated group. Accordingly, although the tax sharing agreement
allocates tax liabilities between us and Williams during the period in which we
are included in Williams' federal consolidated income tax group and provides
that Williams will indemnify us for any tax liabilities not allocated to us, we
could be liable for any federal income tax liabilities incurred, but not
discharged, by any other member of Williams' federal consolidated income tax
group. Similar principles may apply for combined, consolidated, or unitary state
income tax purposes.
INDEMNIFICATION AGREEMENT
We and Williams have entered into an indemnification agreement which
provides that each party to the agreement will indemnify the other party and its
directors, officers, employees, agents and representatives for liabilities under
federal or state securities laws as a result of the offerings, including
liabilities arising out of or based upon alleged misrepresentations in or
omissions from the registration statements. Each party will indemnify the other
party for liabilities, which also include taxes, that may be incurred by the
other party relating to, resulting from or arising out of the business and
operations conducted or formerly conducted, or assets formerly owned, by the
indemnifying party and its subsidiaries. However, where Williams is the
indemnifying party, it will not indemnify us for any liabilities relating to,
resulting from or arising out of our business and operations and assets. Each
party will indemnify the other party for liabilities, which also include taxes,
that may be incurred by that other party relating to, resulting from or arising
out of the failure by each party to comply with other agreements executed in
connection with the offerings, except to the extent caused by the other party.
The indemnification agreement also provides that we indemnify Williams for
any liabilities incurred by Williams under the guarantees of Williams'
obligations with respect to us or any other of our liabilities that are imposed
on Williams and that we will pay Williams for the direct cost, if any, of
maintaining these guarantees or for the costs of defending a claim asserting any
potentially covered liability.
Williams currently guarantees our obligations under the revolving credit
agreement, the interim loan facility and the asset defeasance program, each of
which we describe in the section of this prospectus entitled "Description of
Indebtedness and Other Financing Arrangements."
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Williams' guarantee of our obligations under the asset defeasance program will
continue following the offerings. Williams' guarantee of the revolving credit
agreement and interim loan facility will continue until these agreements are
terminated and replaced by a new permanent credit facility. Williams also has
guaranteed and entered into other contingent obligations in connection with
financings by ATL in total amount of approximately $53 million.
REGISTRATION RIGHTS AGREEMENT
We and Williams have entered into a registration rights agreement which
provides that, upon the request of Williams, we will use our reasonable efforts
to effect the registration under the applicable federal and state securities
laws of any shares of common stock, and any other securities issued in
connection in respect of or exchange for the common stock, held by Williams and
will take any other action necessary to permit the sale of these securities in
other jurisdictions, subject to certain specified limitations. However, Williams
has advised us that it has no current plan or intention to dispose of its shares
of our Class B common stock. For the foreseeable future, Williams will also have
the right, which it may exercise at any time and from time to time, to include
shares of common stock held by it in certain other registrations of our common
equity securities we initiate on our own behalf or on behalf of other
stockholders. Williams will pay the out-of-pocket costs and expenses of
registration for registrations which it initiates. We have agreed to pay all
out-of-pocket costs and expenses, other than underwriting discounts and
commissions, in connection with the registrations we initiate in which Williams
participates. Our restated certificate of incorporation provides that any shares
of Class B common stock sold or otherwise transferred to any person other than a
Williams affiliate are automatically converted into common stock.
ADMINISTRATIVE SERVICES AGREEMENT
The administrative services agreement provides for Williams to continue to
provide similar financial management services, information services, legal and
contract services, risk management, human resources services, corporate planning
and other management support services to us as it has in the past. Under the
terms of the administrative services agreement, all of the services will be
rendered by Williams or subsidiaries of Williams subject to our oversight,
supervision and approval through our board of directors.
The administrative costs we will pay to Williams and its subsidiaries
pursuant to the administrative services agreement are allocated pursuant to an
established formula based on actual costs and is believed to be equal to or less
than the fees that would be paid if these services were to be provided by an
independent third party.
The administrative services agreement will become effective upon the
completion of the equity offering and shall terminate on December 31, 2005
unless earlier terminated by Williams or us. The administrative services
agreement would be automatically renewed for additional terms of two years
unless either party gives at least six months' written notice prior to a
scheduled termination date. The administrative services agreement can be
terminated upon a material breach by either party and will be terminated upon a
change of control of our company. A change of control shall be deemed to have
occurred if:
(a) Williams or the companies controlled by Williams should own shares
representing less than the majority of the voting power of our
then-outstanding common stock;
(b) the majority of the seats of our board of directors shall be occupied
by persons who are neither nominated by Williams or by our board of
directors, nor appointed by our directors so nominated; or
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<PAGE> 136
(c) any person or group other than Williams and the companies controlled by
Williams shall directly or indirectly have the power to exercise a
controlling influence over us.
Upon a change of control, we will enter into good faith negotiations with
Williams concerning an acceptable form of transition agreement providing for
Williams to make available, at cost, necessary services to us until a time when
we can provide these services for ourselves or obtain them from some other
source.
Williams and its affiliates incur certain costs on our behalf, primarily
insurance coverage and related risk management services provided by
non-affiliates, benefits provided to our employees under Williams' benefit
plans, payroll administration, bank fees, certain utility costs, employee
relocation and other costs. Williams and its affiliates either directly charge
these costs to us or, for a shared service or cost, allocate a portion of these
costs to us based for insurance coverage on various risk exposure factors and
otherwise primarily on actual usage.
The amount paid by us during the year ended December 31, 1998 for all of
the services provided during that year that in the future will be provided under
the administrative services agreement was approximately $25 million.
SERVICE AGREEMENT
We have entered into a service agreement with Williams Information Services
Corporation, a wholly-owned subsidiary of Williams. Under this agreement, WISC
will provide data processing computer-related services to us. These services
include mainframe operations, help desk support, network services, mid-range
operations, general data center operations, technical support, development
services and hardware and software procurement assistance. Services are
generally charged at cost on a usage basis plus a 15% management fee. Any
procured items are transferred at actual cost. The amount paid by us during the
year ended December 31, 1998 for all of the services provided during that year
that in the future will be provided under the service agreement was $4,786,000.
LEASE AGREEMENT
We have leases with various Williams affiliates providing for the leasing
of office and other space. The total charges for leased space during the year
ended December 31, 1998 for leases provided during that year that in the future
will be provided under lease agreements was $3,971,000. The lease charges are
based on occupied square footage and terms approximate market. In addition, we
reimburse Williams affiliates for the cost of leased space utilized by our
employees at these affiliates' locations.
CROSS-LICENSE AGREEMENT
The cross-license agreement addresses Williams' and our respective rights
and obligations after the equity offering with respect to intellectual property,
inventions and trademarks and trade names as well as the use of proprietary
information by employees of Williams and us. Williams and WISC license at no
cost to us certain intellectual property to us, effective as of the equity
offering. Similarly we will cross license at no cost to Williams certain
intellectual property to Williams on the same terms as their license to us.
Among other things, for so long as Williams shall beneficially own at least 50%
of the voting power of our outstanding common stock, we are permitted to
continue our use of the Williams trademark and brand names.
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TECHNICAL, MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT
The technical, management and administrative services agreement provides
for Williams to continue to provide to us the same management services relating
to our international operations and investments after the offerings as it has in
the past. Under the terms of the management agreement, all of the services will
be rendered by Williams or subsidiaries of Williams subject to our oversight,
supervision and approval through our board of directors.
The management costs we will pay to Williams and its subsidiaries pursuant
to the management agreement are allocated pursuant to an established formula
based on actual costs and is believed to be equal to or less than the fees that
would be paid if these services were to be provided by an independent third
party.
CONFLICTS OF INTEREST
Conflicts of interest may arise between us and Williams in a number of
areas relating to our past and ongoing relationships with Williams, including
potential acquisitions of businesses or properties or other corporate
opportunities, potential competitive business activities, the election of new or
additional directors, payment of dividends, incurrence or repayment of debt, tax
matters, financial commitments, marketing functions, indemnity arrangements,
registration rights, administration of benefits plans, service arrangements,
issuances of our capital stock, sales or distributions by Williams of its shares
of our Class B common stock, the exercise of the right to purchase Williams'
investment in Algar and the exercise by Williams of its ability to control our
management and affairs. Although the separation agreement contains certain
non-compete provisions, in many circumstances we and Williams are free to
compete with one another.
We and Williams may enter into material transactions and agreements in the
future in addition to those described above. Our board of directors will utilize
procedures in evaluating the terms and provisions of any material transactions
between us and Williams or its affiliates as our board of directors may deem
appropriate in light of its fiduciary duties under state law. In any evaluation,
our board of directors may rely on management's statements and opinions and may
or may not utilize outside experts or consultants or obtain independent
appraisals or opinions. One of our directors is both a senior officer and
director, and six of our directors are also senior officers, of Williams. These
directors and officers may have conflicts of interest with respect to matters
potentially or actually involving or affecting us or Williams, such as
acquisitions, financing and other corporate opportunities that may be suitable
both for us and for Williams. To the extent that opportunities arise, these
directors may consult with their legal advisors and make a determination after
considering a number of factors, including whether such an opportunity is within
our line of business or consistent with our strategic objectives and whether we
will be able to undertake or benefit from a particular opportunity. In addition,
determinations may be made by our board of directors, and when appropriate, by
the vote of the disinterested directors only. Despite the foregoing, there can
be no assurance that conflicts will be resolved in our favor.
For so long as Williams controls at least 50% of the voting power of our
outstanding capital stock, our directors and officers will, subject to certain
limitations, be indemnified by Williams and insured under insurance policies
maintained by Williams against liability for actions taken, or omitted to be
taken, in their capacities as our directors and officers, including actions or
omissions that may be alleged to constitute breaches of the fiduciary duties
owed by our directors and officers to us and our stockholders. This insurance
may not be applicable to certain of the claims which Williams may have against
us under the indemnification agreement or otherwise.
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DESCRIPTION OF CAPITAL STOCK
Set forth below is a summary of the material provisions of our capital
stock. For a more detailed description, see our restated certificate of
incorporation and by-laws, copies of which we have filed as exhibits to the
registration statement, and the applicable provisions of Delaware law.
Immediately prior to the closing of the equity offering, we will restate
our certificate of incorporation to change our authorized capital stock to
1,000,000,000 shares of Class A common stock (which we refer to as common stock
in this prospectus), 500,000,000 shares of Class B common stock and 500,000,000
shares of preferred stock, par value $0.01 per share, and to convert all 1,000
outstanding shares of our current common stock into a total of ________ shares
of our newly created Class B common stock.
COMMON STOCK AND CLASS B COMMON STOCK
GENERAL
The holders of common stock and Class B common stock have identical rights
except with respect to voting, conversion and transfer.
VOTING RIGHTS
Holders of our common stock are entitled to one vote per share on all
matters to be voted on by stockholders, while holders of Class B common stock
are entitled to ten votes per share. Holders of shares of common stock and Class
B common stock are not entitled to cumulate their votes in the election of
directors. Generally, all matters to be voted on by stockholders must be
approved by a majority of the votes entitled to be cast by all holders of common
stock and Class B common stock present in person or represented by proxy, voting
together as a single class, subject to any voting rights granted to holders of
any preferred stock. Except as otherwise provided by law or in our restated
certificate of incorporation, and subject to any voting rights granted to
holders of any outstanding preferred stock, amendments to our restated
certificate of incorporation must be approved by a majority of the votes
entitled to be cast by all holders of common stock and Class B common stock
present in person or represented by proxy, voting together as a single class.
However, amendments to our restated certificate of incorporation that would
alter or change the powers, preferences or special rights of the common stock so
as to affect them adversely also must be approved by a majority of the votes
entitled to be cast by the holders of the common stock, voting as a separate
class. Any amendment to our restated certificate of incorporation to increase
the authorized shares of any class requires the approval only of a majority of
the votes entitled to be cast by all holders of common stock and Class B common
stock present in person or represented by proxy, voting together as a single
class, subject to the rights set forth in any series of preferred stock created
as described below.
DIVIDENDS
Holders of our common stock and Class B common stock will share equally on
a per share basis in any dividend declared by the board of directors, subject to
any preferential rights of any outstanding preferred stock. Dividends consisting
of shares of common stock and Class B common stock may be paid only as follows:
(a) shares of common stock may be paid only to holders of common stock, and
shares of Class B common stock may be paid only to holders of Class B common
stock; and
(b) the number of shares so paid will be equal on a per share basis with
respect to each outstanding share of common stock and Class B common stock.
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We may not split, reclassify, subdivide or combine shares of either class
of common stock without at the same time proportionally reclassifying,
subdividing or combining shares of the other class.
ISSUANCE OF CLASS B COMMON STOCK, OPTIONS OR WARRANTS
Subject to certain provisions regarding dividends and other distributions
described above and except for payment of the purchase price for the Algar
option, we will not be entitled to issue additional shares of Class B common
stock, or issue options, rights or warrants to subscribe for additional shares
of Class B common stock, except that we may make a pro rata offer to all holders
of common stock of rights to purchase additional shares of the class of common
stock held by them. The common stock and the Class B common stock will be
treated equally with respect to any offer we make to holders of common stock of
options, rights or warrants to subscribe for any of our other capital stock.
MERGER OR CONSOLIDATION
In the event of a merger or consolidation, the holders of common stock and
Class B common stock will be entitled to receive the same per share
consideration, if any, except that if the consideration includes voting
securities, or the right to acquire voting securities or securities exchangeable
for, or convertible into, voting securities, we may, but are not required to,
provide for the holders of Class B common stock to receive consideration
entitling them to ten times the number of votes per share as the consideration
being received by holders of the common stock.
CONVERSION OF CLASS B COMMON STOCK
Our Class B common stock will be convertible into common stock on a
share-for-share basis at the option of the holder at any time, or automatically
upon transfer to a person or entity which is not a permitted transferee. In
general, permitted transferees will include Williams, its direct and indirect
subsidiaries, any person or entity in which Williams or any successor
beneficially owns, directly or indirectly, at least 50% of the equity or the
voting securities, any successor of any of the foregoing and stockholders of
Williams who receive our Class B common stock in a tax-free spin-off. A tax-free
spin-off generally means a transaction in which stockholders of Williams receive
shares of our common stock or Class B common stock as a distribution with
respect to, or in exchange for, stock of Williams without being required to
recognize gain or loss for federal income tax purposes by reason of Section 355
of the Code (or any corresponding provision of any successor statute). Following
any distribution of Class B common stock to stockholders of Williams, shares of
Class B common stock will no longer be convertible into shares of common stock.
Shares of Class B common stock transferred to stockholders of Williams in a
tax-free spin-off will not be converted into shares of common stock and,
following a tax-free spin-off, shares of Class B common stock will be
transferable as Class B common stock, subject to applicable laws.
PREFERRED STOCK
Our board of directors is empowered, without approval of the stockholders,
to cause shares of preferred stock to be issued from time to time in one or more
series, and the board of directors may fix the numbers of shares of each series
and the designation, powers, privileges, preferences and rights and the
qualifications, limitations and restrictions of the shares of each series.
The specific matters that our board of directors may determine include the
following:
- the designation of each series
- the number of shares of each series
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- the rate of any dividends
- whether any dividends shall be cumulative or non-cumulative
- the terms of any redemption
- the amount payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of our company
- rights and terms of any conversion or exchange
- restrictions on the issuance of shares of the same series or any other
series
- any voting rights
The Series A preferred stock described below under "-- Stockholder rights
plan" is a series of preferred stock that has been authorized by our board.
Although no shares of preferred stock are currently outstanding and we have
no current plans to issue preferred stock, the issuance of shares of preferred
stock, or the issuance of rights to purchase shares of preferred stock, could be
used to discourage an unsolicited acquisition proposal. For example, a business
combination could be impeded by issuing a series of preferred stock containing
class voting rights that would enable the holder or holders of this series to
block such a transaction. Alternatively, a business combination could be
facilitated by issuing a series of preferred stock having sufficient voting
rights to provide a required percentage vote of the stockholders. In addition,
under certain circumstances, the issuance of preferred stock could adversely
affect the voting power and other rights of the holders of the common stock.
Although our board is required to make any determination to issue any preferred
stock based on its judgment as to the best interests of our stockholders, it
could act in a manner that would discourage an acquisition attempt or other
transaction that some, or a majority, of the stockholders might believe to be in
their best interests or in which stockholders might receive a premium for their
stock over prevailing market prices of the stock. Our board does not at present
intend to seek stockholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or applicable stock exchange
requirements.
LIMITATION ON LIABILITY OF DIRECTORS
Our restated certificate of incorporation provides, as authorized by
Section 102(b)(7) of the Delaware General Corporation Law, that our directors
will not be personally liable to us or our stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability imposed by law, as
in effect from time to time, for the following:
- any breach of the director's duty of loyalty to our company or our
stockholders
- any act or omission not in good faith or which involved intentional
misconduct or a knowing violation of law
- unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the DGCL
- any transaction from which the director derived an improper personal
benefit
The inclusion of this provision in our restated certificate of
incorporation may have the effect of reducing the likelihood of derivative
litigation against our directors, and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duty of
care, even though such an action, if successful, might otherwise have benefitted
our company and our stockholders.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
We are a Delaware corporation and subject to Section 203 of the DGCL.
Generally, Section 203 prohibits a publicly held Delaware corporation from
engaging in a business combination with an interested stockholder for a period
of three years after the time a
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stockholder became an interested stockholder unless, as described below, certain
conditions are satisfied. Thus, it may make acquisition of control of our
company more difficult. See "-- Limitations on changes of control of our
company" below. The prohibitions in Section 203 of the DGCL do not apply if the
following occur:
- prior to the time the stockholder became an interested stockholder, our
board of directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of our company outstanding at the time the
transaction commenced
- at or subsequent to the time the stockholder became an interested
stockholder, the business combination is approved by our board of
directors and authorized by the affirmative vote of at least 66 2/3% of
the outstanding voting stock that is not owned by the interested
stockholder
Under Section 203 of the DGCL, a business combination includes the
following:
- any merger or consolidation of our company with the interested
stockholder
- any sale, lease, exchange or other disposition, except proportionately as
a stockholder of our company, to or with the interested stockholder of
assets of our company having an aggregate market value equal to 10% or
more of either the aggregate market value of all the assets of our
company or the aggregate market value of all the outstanding stock of our
company
- certain transactions resulting in the issuance or transfer by our company
of our stock to the interested stockholder
- certain transactions involving our company which have the effect of
increasing the proportionate share of the stock of any class or series of
our company which is owned by the interested stockholder
- certain transactions in which the interested stockholder receives
financial benefits provided by us
Under Section 203 of the DGCL, an interested stockholder generally is one
of the following:
- any person that owns 15% or more of the outstanding voting stock of our
company
- any person that is an affiliate or associate of our company and was the
owner of 15% or more of the outstanding voting stock of our company at
any time within the three-year period prior to the date on which it is
sought to be determined whether that person is an interested stockholder
- the affiliates or associates of that person
Because Williams will own more than 15% of our voting stock before we
become a public company and upon completion of the equity offering, Section 203
of the DGCL by its terms is currently not applicable to business combinations
with Williams even though Williams owns 15% or more of our outstanding stock. If
any other person acquires 15% or more of our outstanding stock, that person will
be subject to the provisions of Section 203 of the DGCL.
PROVISIONS OF OUR RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS
Our by-laws contain provisions requiring that advance notice be delivered
to us of any business to be brought by a stockholder before an annual or special
meeting of stockholders and providing for certain procedures to be followed by
stockholders in nominating persons for election
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to our board. Generally, these advance notice provisions require that the
stockholder must give written notice to the secretary of our company:
- in the case of an annual meeting, not less than 90 days nor more than 120
days before the first anniversary of the preceding year's annual meeting
of stockholders
- in the case of a special meeting, not less than 90 days, or, if later, 10
days after the first public announcement of the date of the special
meeting, nor more than 120 days prior to the scheduled date of such
special meeting
In each case, the notice must set forth specific information regarding the
stockholder giving the notice and each director nominee or other business
proposed by the stockholder, as applicable, as provided in our by-laws.
Notwithstanding the foregoing, any stockholder, including Williams, who together
with its affiliates owns capital stock entitled to exercise a majority of the
voting power in an election of directors, may nominate one or more individuals
for election as directors by giving notice to our company not later than five
days before the scheduled date for the election of directors. Generally, only
business set forth in the notice for a special meeting of stockholders may be
conducted at a special meeting.
Our by-laws provide, in accordance with our restated certificate of
incorporation, that except as may be provided in connection with the issuance of
any series of preferred stock, the number of directors shall be fixed from time
to time exclusively pursuant to a resolution adopted by a majority of the whole
board, as that term is defined in our restated certificate of incorporation. Our
restated certificate of incorporation provides for a classified board of
directors, consisting of three classes as nearly equal in size as practicable.
Each class holds office until the third annual stockholders' meeting for
election of directors following the most recent election of that class, except
that the initial terms of the three classes expire in 2000, 2001 and 2002. See
the section of the prospectus entitled "Management -- Our directors" for more
information.
Subject to the rights of the holders of any series of preferred stock to
elect and remove additional directors under specified circumstances, on or after
the time when Williams and its affiliates own less than 50% of the voting power
of our then-outstanding capital stock, a director of our company may be removed
only for cause by affirmative vote of the holders of at least a majority of the
voting power of all of our outstanding shares generally entitled to vote in the
election of directors, voting together as a single class, and vacancies on our
board may only be filled by the affirmative vote of a majority of the remaining
directors. Prior to the time when Williams and its affiliates own less than 50%
of our then-outstanding capital stock, subject to the rights of holders of any
series of preferred stock, a director of our company may be removed, with or
without cause, by the affirmative vote of the holders of at least a majority of
the voting power of all voting stock then outstanding, voting together as a
single class, and vacancies on our board may be filled only by the affirmative
vote of at least 80% of the remaining directors then in office.
Our restated certificate of incorporation provides that, on or after the
time when Williams and its affiliates own less than 50% of our then-outstanding
capital stock, stockholders may not act by written consent in lieu of a meeting.
On or after the time when Williams and its affiliates own less than 50% of our
then-outstanding capital stock, special meetings of the stockholders may be
called only by a majority of the whole board, but may not be called by
stockholders. Before the time when Williams and its affiliates own less than 50%
of our then-outstanding capital stock, the secretary of our company is required
to call a special meeting of the stockholders at the request of Williams or its
affiliates and stockholder action may be taken by written consent in lieu of a
meeting.
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In general, our by-laws may be altered or repealed and new by-laws adopted
by the holders of a majority of the voting stock or by a majority of the whole
board. However, certain provisions, including those relating to the limitation
of actions by stockholders taken by written consent, the calling of special
stockholder meetings, other stockholder actions and proposals and certain
matters related to our board, may be amended only by the affirmative vote of
holders of at least 80% of the total voting stock.
LIMITATIONS ON CHANGES OF CONTROL OF OUR COMPANY
The provisions of our restated certificate of incorporation and by-laws
described above, as well as the stockholder rights plan described below and the
provisions of Section 203 of the DGCL, could have the following effects, among
others:
- delaying, deferring or preventing a change in control
- delaying, deferring or preventing the removal of existing management
- deterring potential acquirors from making an offer to our stockholders
- limiting any opportunity of our stockholders to realize premiums over
prevailing market prices of our common stock in connection with offers by
potential acquirors
Any of the above could occur, notwithstanding that a majority of our
stockholders might benefit from such a change in control or offer.
TRANSACTIONS AND CORPORATE OPPORTUNITIES
Our restated certificate of incorporation includes provisions which
regulate and define the conduct of certain business and affairs of our company
from the time of the completion of the equity offering until the time Williams
ceases to be a significant stockholder of our company. These provisions serve to
determine and delineate the respective rights and duties of our company,
Williams, and some of our directors and officers in anticipation of the
following:
- directors, officers and/or employees of Williams may serve as directors
of our company
- Williams may engage in lines of business that are the same, similar or
related to, overlap or compete with our lines of business, subject to the
separation agreement
- our company and Williams will engage in material business transactions,
including pursuant to the various agreements described above
Our company may, from time to time, enter into and perform agreements with
Williams to engage in any transaction, and to agree to compete or not to compete
with each other, including to allocate, or to cause their respective directors,
officers and employees to allocate, corporate opportunities between themselves.
Our restated certificate of incorporation provides that no such agreement, or
its performance, shall be considered contrary to any fiduciary duty of Williams,
as the controlling stockholder of our company, or of any such director, officer
and/or employee, if any of the following conditions are satisfied:
- the agreement was entered into before our company ceased to be a
wholly-owned subsidiary of Williams and is continued in effect after this
time
- the agreement or transaction was approved, after being made aware of the
material facts of the relationship between our company and Williams and
the material terms and facts of the agreement or transaction, by:
- our board, by affirmative vote of a majority of directors who are not
interested persons
- by a committee of our board consisting of members who are not
interested persons, by affirmative vote of a majority of those members
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- by one or more of our officers or employees who is not an interested
person and who was authorized by our board or a board committee as
specified above or, in the case of an employee, to whom authority has
been delegated by an officer to whom the authority to approve such an
action has been so delegated
- the agreement or transaction was fair to our company as of the time it
was entered into by our company
- the agreement or transaction was approved by affirmative vote of a
majority of the shares of capital stock entitled to vote and who do vote
on the agreement or transaction, excluding Williams and any interested
person in respect of such agreement or transaction
For purposes of these provisions, an interested person is generally an
individual who has a personal financial interest in the relevant transaction.
The provisions of our restated certificate of incorporation with regard to
such transactions and/or corporate opportunities shall terminate when Williams,
together with its affiliates, ceases to be the owner of voting stock
representing 25% or more of the votes entitled to be cast by the holders of all
the then outstanding voting stock; provided, however, that the termination shall
not terminate the effect of these provisions with respect to any agreement
between our company and Williams that was entered into before the time of
termination or any transaction entered into in the performance of such
agreement, whether entered into before or after such time, or any transaction
entered into between our company and Williams or the allocation of any
opportunity between them before such time. These provisions do not alter the
fiduciary duty of loyalty of our directors under applicable Delaware law. By
becoming a stockholder in our company, you will be deemed to have notice of and
have consented to these provisions of our restated certificate of incorporation.
LISTING
We have applied for our common stock to be listed on the New York Stock
Exchange under the symbol "WCG."
TRANSFER AGENT
Our transfer agent and registrar for our common stock is The Bank of New
York.
STOCKHOLDER RIGHTS PLAN
Our board has adopted a stockholder rights plan. Pursuant to the rights
plan, one right will be issued and attached to each outstanding share of capital
stock. Each right will entitle the holder, in circumstances described below, to
purchase from our company a unit consisting of one one-hundredth of a share of
Series A junior preferred stock, par value $0.01 per share, at an exercise price
of $100 per right, subject to adjustment in certain events.
Initially, the rights will be attached to all certificates representing
outstanding shares of capital stock and will be transferred with and only with
these certificates. The rights will become exercisable and separately
certificated only upon the distribution date, which will occur upon the earlier
of the following:
- ten business days following a public announcement that a person or group
other than certain exempt persons has acquired or obtained the right to
acquire beneficial ownership of 15% or more of the shares of common stock
then outstanding
- ten business days, or later if determined by our board prior to any
person acquiring 15% or more of the shares of common stock then
outstanding, following the commencement or
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announcement of an intention to commence a tender offer or exchange offer
that would result in a person or group becoming an acquiring person
As soon as practicable after the distribution date, certificates will be
mailed to holders of record of capital stock as of the close of business on the
distribution date. From and after the distribution date, the separate
certificates alone will represent the rights. Prior to the distribution date,
all shares of capital stock issued will be issued with rights. Shares of capital
stock issued after the distribution date will not be issued with rights, except
that shares issued pursuant to any of the following that exist prior to the
distribution date may be issued with rights:
- the exercise of stock options that exist prior to the distribution date
- under employee plans or arrangements that exist prior to the distribution
date
- upon exercise, conversion or exchange of certain securities
- in other cases as may be deemed appropriate by our board
The final expiration date of the rights will be at the close of business on
June 30, 2009, unless earlier redeemed or exchanged by us as described below.
In the event that a person acquires 15% or more of the shares of common
stock then outstanding, except pursuant to any action or transaction approved by
our board before the person acquires 15% or more of the shares of common stock
then outstanding, each holder of a right other than that person and certain
related parties, whose rights will automatically become null and void, will
thereafter be entitled to receive, upon exercise of the right, a number of
shares of common stock, or, in certain circumstances, cash, property or other
securities of our company, having a current market price averaged over the
previous 30 consecutive trading days equal to two times the exercise price of
the right.
In the event that, at any time on or after a person acquires 15% or more of
the shares of common stock then outstanding, our company effects a merger or
other business combination in which it is not the surviving entity, or any
shares of our capital stock are changed into or exchanged for other securities,
or 50% or more of its assets, cash flow or earning power is sold or transferred,
then each holder of a right, except rights owned by any person who has acquired
15% or more of the shares of common stock then outstanding or certain related
parties, which will have become void as set forth above, shall thereafter have
the right to receive, upon exercise, a number of shares of common stock of the
acquiring company having a fair market value equal to two times the exercise
price of the right.
The exercise price payable, and the number of units of Series A preferred
stock, shares of capital stock or other securities or property issuable, upon
exercise of the rights are subject to adjustment from time to time to prevent
dilution in the event of a stock dividend or distribution on the capital stock,
a grant or distribution to holders of the capital stock of certain subscription
rights, warrants, evidence of indebtedness, cash or other assets, or other
similar events.
No fractional units will be issued. In lieu thereof, an adjustment in cash
will be made based on the market price of the common stock on the last trading
date prior to the date of exercise. Pursuant to the rights plan, we reserve the
right to require prior to the occurrence of one of the events that triggers the
ability to exercise the rights that, upon any exercise of rights, a number of
rights be exercised so that only whole shares of Series A preferred stock will
be issued.
We will also have the option, at any time after a person acquires 15% or
more of our capital stock as described above on and before that person becomes,
or simultaneously with that person becoming, the beneficial owner of 50% or more
or the shares of rights plan voting stock then outstanding, to exchange the
rights, other than rights owned by an acquiring person or certain
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related parties, which will have become void, in whole or in part, at an
exchange ratio of one share of capital stock, and/or other equity securities
deemed to have the same value as one share of capital stock, per right, subject
to adjustment.
At any time prior to the close of business on the tenth business day
following the stock acquisition date, our company, by vote of a majority of our
board, may redeem the rights in whole, but not in part, at a price of $0.01 per
right, payable, at our option, in cash, shares of capital stock or such other
consideration as our board may determine. The rights will terminate at the time
so designated by our board and thereafter the only right of the holders of
rights will be to receive the redemption price.
For as long as the rights are redeemable, our company may, except with
respect to the redemption price, amend the rights plan in any manner, including
to extend the time period in which the rights may be redeemed. After the time
the rights cease to be redeemable, we may amend the rights in any manner that
does not materially adversely affect the interests of holders of the rights as
such. Until a right is exercised, the holder, as such, will have no rights as a
stockholder of our company, including the right to vote or to receive dividends.
Our restated certificate of designations of the Series A preferred stock
provides that each share of Series A preferred stock that may be issued upon
exercise of the rights will be entitled to receive, when, as and if declared,
cash and non-cash dividends equal to:
- a dividend multiple of 100 times the aggregate per share amount of all
cash and non-cash dividends declared or paid on the common stock, subject
to adjustments for stock splits or dividends payable in common stock or
reclassifications of common stock
- preferential quarterly cash dividends of $.01 per share, less any
dividends received
Holders of Series A preferred stock will have a vote multiple of 100 votes
per share, subject to adjustments for stock splits or dividends payable in
common stock or reclassifications of common stock and, except as otherwise
provided by the certificate of designations, our restated certificate of
incorporation or applicable law, shall vote together with holders of capital
stock as a single class. In the event that the preferential quarterly cash
dividends are in arrears for six or more quarterly dividend payment periods,
holders of Series A preferred stock will have the right to elect two additional
members to our board, to serve until the next annual meeting of our company or
until such earlier time as all accrued and unpaid preferential quarterly cash
dividends are paid in full.
In the event of the liquidation, dissolution or winding up of our company,
after provision for liabilities and any preferential amounts payable with
respect to any preferred stock ranking senior to the Series A preferred stock,
the holders of any Series A preferred stock will be entitled to receive
liquidation payments per share in an amount equal to the greater of the
following:
- $100.00 plus an amount equal to accrued and unpaid dividends and
distributions thereon to the date of payment
- a liquidation multiple of 100 times the aggregate amount to be
distributed per share to holders of capital stock, subject to adjustments
for stock splits or dividends payable in common stock or
reclassifications of common stock
The rights of the Series A preferred stock as to dividends, voting and
liquidation are protected by antidilution provisions.
In the event of a consolidation, merger or other transaction in which the
shares of capital stock are exchanged, holders of shares of Series A preferred
stock will be entitled to receive the amount and type of consideration equal to
the per share amount received by the holders of the
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capital stock, multiplied by the highest of the dividend multiple, the vote
multiple or the liquidation multiple as in effect immediately prior to the
event.
Except for the acquisition of shares of Series A preferred stock in any
other manner permitted by law, our certificate of designations or our restated
certificate of incorporation, the shares of Series A preferred stock are not
redeemable at the option of our company or any holder thereof.
The rights will have certain anti-takeover effects. The rights will cause
substantial dilution to any person or group that attempts to acquire our company
without the approval of our board. As a result, the overall effect of the rights
may be to render more difficult or discourage any attempt to acquire our
company, even if such acquisition may be in the interest of our stockholders.
Because our board can redeem the rights or approve a permitted offer, the rights
will not interfere with a merger or other business combination approved by our
board.
The rights plan excludes Williams and its affiliates and associates from
being considered acquiring persons until Williams first ceases to beneficially
own 15% or more of the rights plan voting stock then outstanding.
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DESCRIPTION OF INDEBTEDNESS AND OTHER FINANCING ARRANGEMENTS
The following are summaries of the material provisions of our debt
agreements, copies of which we have filed as exhibits to the registration
statement of which this prospectus forms a part, and by the provisions of
applicable law. See the section of this prospectus entitled "Where You Can Find
Additional Information" for more information.
NOTES
GENERAL
The notes are to be issued under an indenture, to be dated as of
____________, 1999, between us and The Bank of New York, as trustee. The notes
are general unsecured senior obligations of ours, and will rank on a parity with
all our other unsecured senior indebtedness.
The notes will be limited to $1.3 billion aggregate principal amount and
will mature on ____________ , 200_. Interest on the notes will be payable on
____________ and ____________ of each year, commencing ____________ at the rate
of ____% per annum. Prior to ____________, 200_, we may redeem all or part of
the notes at any time at a make-whole price. The make-whole price would be based
upon the present value of the remaining payments to be made with respect to the
notes to be redeemed, plus a premium. In addition, any time or from time to time
prior to ____, 2002, we may redeem up to 35% of the aggregate principal amount
of the notes at a redemption price equal to ______% of the principal amount of
the notes so redeemed, with the net cash proceeds of one or more offerings of
common stock as described in the indenture. The notes will also be redeemable,
at our option, in whole or in part, at any time after ____________, 200__, at
redemption prices starting at ____% of their principal amount and declining to
100% of their principal amount on or after ____________, plus accrued and unpaid
interest. Upon a change of control of our company, each note holder will have
the right to require us to purchase that holder's notes.
COVENANTS
The indenture contains certain restrictive covenants, including, among
others, the following:
- a limitation on our ability and that of our subsidiaries to incur
indebtedness
- a limitation on our ability and that of our subsidiaries to, directly or
indirectly, make certain payments, including payment of dividends,
prepayment of subordinated indebtedness, the repurchase of capital stock
and making of investments
- a limitation on our ability to allow to exist certain dividend and other
payment restrictions affecting our subsidiaries
- a limitation on our ability to sell or to permit any subsidiary to issue
or sell capital stock of a subsidiary
- a limitation on our ability and that of our subsidiaries to consummate
certain asset dispositions unless certain conditions are fulfilled
- limitations on transactions with affiliates
- limitations on our ability and that of our subsidiaries to incur liens
In addition, the indenture limits our ability to merge with or to transfer
all or substantially all of our assets to another person. Except as set forth
above, the indenture does not contain any material quantitative financial
requirements. The notes provide for acceleration upon customary events of
default.
As of the date of the indenture, all of our subsidiaries will be subject to
the restrictive covenants described above. However, if we meet certain
conditions, we have the ability to
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designate subsidiaries as "unrestricted," which means they will no longer be
subject to these covenants.
REVOLVING CREDIT FACILITIES
We currently have available loan commitments under an unsecured revolving
credit facility with various banks which includes as borrowers Williams and some
of its other subsidiaries. This credit facility terminates in July 2002. Our
solutions unit may borrow up to $300 million and we may borrow up to $400
million under this credit facility. Our $400 million commitment is guaranteed by
Williams. We have agreed that our combined borrowings under this commitment will
not exceed $400 million. Borrowings under this credit facility are generally for
30- to 180-day terms and bear interest at LIBOR plus 75 to 87.5 basis points. We
currently have no outstanding borrowings under this credit facility. We expect
to terminate our participation in this facility upon the completion of the
offerings.
INTERIM LOAN FACILITY
In April 1999, we entered into a $1.4 billion unsecured revolving interim
loan facility with four banks which terminates on September 30, 1999. Our
interim loan obligations are guaranteed by Williams. Borrowings under this
interim loan facility are generally for 30- to 90-day terms and bear interest at
LIBOR plus 87.5 basis points. At the date of this prospectus, we have
approximately $750 million in borrowings outstanding under this loan facility.
We intend to repay all of the then-outstanding borrowings under this facility
with the proceeds from the borrowings under the permanent credit facility
described below, which will replace the interim loan facility. The interim loan
facility terminates once the permanent credit facility is in place.
PERMANENT CREDIT FACILITY
Bank of America, N.A. and The Chase Manhattan Bank have committed to
provide a $1.0 billion credit facility for our subsidiary, Williams
Communications, Inc., described below. The commitment requires that the facility
be entered into on or before September 1, 1999. The credit facility will consist
of a $500 million seven-year senior multi-draw amortizing term loan facility and
a $500 million six-year senior reducing revolving credit facility. We may borrow
under the term loan facility during a one-year period beginning on the
commencement date of the credit facility. We may borrow under the revolving
credit facility throughout its six-year term.
The loans will bear interest based on our debt ratings by Standard & Poor's
Investor Services, Inc. and Moody's Investors Services Inc. We expect the
initial annual rate of interest to be LIBOR plus 2.25%.
Term loans must be repaid beginning in the fourth year of the term loan
facility: 15% of the term loans must be repaid during the fourth year, 25%
during the fifth year, 30% during the sixth year and 30% during the seventh
year. The commitments under the revolving credit facility will be permanently
reduced by 20% in the fourth year, by 30% in the fifth year, and by 50% in the
sixth year. We must repay amounts borrowed under the revolving credit facility
to the extent these amounts are in excess of the remaining commitments.
We are required to prepay the loans by an amount equal to:
- 100% of net cash proceeds from sales of assets to the extent these
proceeds are not reinvested in core assets or permitted acquisitions
- 50% of excess cash flow beginning in 2001
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- 100% of net cash proceeds received from the issuance of debt after the
offerings, except permitted debt
Prepayment is not required from excess cash flow and is required from only
50% of the proceeds received from issuing debt if the ratings assigned to the
facilities by Standard & Poor's and Moody's are not less than BBB- and Baa3,
respectively, or if the ratio of total debt to adjusted EBITDA is less than 3.5
to 1.0. The lenders may terminate the permanent credit facility and declare all
loans outstanding under the permanent credit facility due and payable if an
event of default occurs under the permanent credit facility. Events of default
under the permanent credit facility include:
- nonpayment of principal or other amounts due under the facilities
- material misrepresentations
- covenant violations
- a cross-default to our other material debt
- certain bankruptcy and ERISA events
- material judgments
- a downgrade by Standard & Poor's or Moody's of the senior unsecured debt
of Williams to less than BBB- or Baa3, respectively
- a change of control of our company
The loans shall be unsecured except that if at any time the rating for the
permanent credit facility assigned by Standard & Poor's is less than BB- or by
Moody's is less than Ba3, we must provide the lenders with security interests
and liens upon substantially all of our assets.
The credit facility will contain restrictive and financial maintenance
covenants. Restrictive covenants will include limitations on:
- additional debt
- leases
- creation of liens
- guarantees
- sales of assets
- mergers, consolidations, liquidations and dissolutions
- investments, loans and advances
- dividends and other payments with respect to our capital stock and common
stock of our subsidiaries
- material changes to our charter or the indenture for the notes
- sale and leaseback transactions
- material changes in our lines of business
Financial maintenance covenants will include:
- a total debt to contributed capital requirement
- a minimum adjusted EBITDA requirement
- a limitation on capital expenditures
- a total debt to adjusted EBITDA requirement
- a senior debt to adjusted EBITDA requirement
- an adjusted EBITDA to interest expense requirement
The terms of and exceptions to these covenants have not been determined.
The commitment is subject to a number of significant conditions including:
- no material adverse condition or change affecting our business,
operations, conditions or prospects
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- completion of and satisfaction with a due diligence inspection of us
- no material disruption of or adverse change in financial, banking or
capital markets
- negotiation, execution and delivery of definitive loan documentation on
or before September 1, 1999
- receipt of either gross proceeds from the equity offering and the
concurrent investments of not less than $1 billion and gross proceeds
from the notes offering of not less than $1.3 billion, or a Williams
guarantee of our obligations under the permanent credit facility
Our ability to borrow under the permanent credit facility is subject to
additional conditions, many of which require lender satisfaction or are based on
lender determination. The facilities will be guaranteed by us, all of our direct
and indirect restricted subsidiaries, and, in the event the gross proceeds from
the equity offering and concurrent investments are less than $1 billion, or the
gross proceeds from the notes offering are less than $1.3 billion, the
facilities will continue to be guaranteed by Williams.
The lenders intend to syndicate all or part of their commitments to a group
of financial institutions. We have agreed that pricing, structure, amount and
other terms of the facilities may be changed if the lenders determine advisable
to ensure successful syndication or optimal credit structure. We may however
reject such changes and terminate the commitments.
We expect to borrow the amounts necessary under the permanent credit
facility to repay the interim loan facility and as and when needed for our
capital investment plan and for working capital and general corporate purposes.
At the time of the offerings we anticipate that we will have approximately $500
million in borrowings outstanding under the permanent credit facility that we
plan to repay with proceeds from the offerings.
At any time within two years after we enter into the facility, we may
request one or more additional credit facilities from the permanent credit
facility lenders. These facilities would be in an aggregate amount of not less
than $100 million or more than $500 million. The terms and conditions of any
additional facilities have not been agreed to and would have to be negotiated.
The average life to maturity of any additional facilities could not be less than
the remaining average life to maturity of the permanent term or revolving credit
facilities. We are not required to request or enter into any additional
facilities and, if we request additional facilities, no lender is obligated to
participate.
WILLIAMS NOTE
To fund our operations, we historically have received capital contributions
from Williams and interest-bearing advances from Williams and an affiliate of
Williams at floating rates of interest established at specified margins above
benchmark rates. As of June 30, 1999, Williams' total capital contributions to
us were approximately $1.4 billion and our borrowings provided by Williams were
$794.2 million at an annual interest rate of LIBOR plus 75 basis points, the
rate paid on our current credit facility. At the time of completion of the
offerings, we estimate that we will have approximately $1.0 billion in
borrowings from Williams. At that time, these borrowings will be converted into
a seven-year amortizing note payable by Williams Communications, Inc. to
Williams that will bear interest at an annual rate based on our credit rating,
expected initially to be LIBOR plus 2.25%. The permanent credit facility will
prohibit principal payments on the Williams note prior to June 30, 2000. For so
long as no default or event of default exists under the permanent credit
facility, principal will be paid quarterly beginning June 30, 2000, with no less
than $25 million payable in any fiscal year. Additional principal payments will
be permitted under the permanent credit facility and will be made to the extent,
after giving effect to such payment, the ratio of total debt to adjusted EBITDA,
as defined in the permanent credit facility, is less than 5.0 to 1.0. Additional
principal payments
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may also be made with additional capital as defined in the permanent credit
facility. The Williams note will be due and payable in full upon a change of
control of our company. We plan to amend the Williams note to more closely
resemble the terms and conditions of the permanent credit facility after the
completion of the offerings.
The Williams note will rank senior to the notes. It will rank equal to the
permanent credit facility except to the extent the permanent credit facility is
secured and as set forth in an intercreditor agreement to be entered into by
Williams and the credit facility lenders. Under the intercreditor agreement,
Williams will agree that the Williams note will be subordinated to rights of the
lenders in any bankruptcy, insolvency, liquidation or dissolution of the
borrower and in the event of default under the credit facility, with some
exceptions to be negotiated.
ASSET DEFEASANCE PROGRAM
During 1998, we entered into an asset defeasance program in the form of an
operating lease agreement covering a portion of the Williams network with a
group of financial institutions. The total estimated cost of the network assets
to be covered by this lease agreement is $750 million. The lease term includes
an interim term, during which the covered network assets will be constructed,
which is anticipated to end no later than December 31, 1999, and a base term.
The interim and base terms are expected to total five years and, if renewed,
could total seven years.
We have an option to purchase the covered network assets during the lease
term at an amount approximating the lessor's cost. Williams provides a residual
value guarantee equal to a maximum of 89.9% of the transaction. The residual
value guarantee is reduced by the present value of the actual lease payments. In
the event that we do not exercise the purchase option, we expect the fair market
value of the covered network assets to substantially reduce or eliminate
Williams' payment under the residual value guarantee. At June 30, 1999,
approximately $495 million of construction costs for the Williams network had
been spent.
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SHARES ELIGIBLE FOR FUTURE SALE
After the equity offering and the concurrent investments, we will have
approximately 450,000,000 shares of common stock outstanding, ________ of which
will be owned by SBC, Intel and Telefonos de Mexico in the aggregate and up to
______ of which will be owned by our directors and executive officers. If the
underwriters exercise their over-allotment option in full, we will have a total
of approximately ________ shares of common stock outstanding. There will also be
outstanding options to purchase up to ________ shares of our common stock that
will be issued to directors and selected officers and other employees of our
company and Williams. In addition, we will have ________ shares of Class B
common stock outstanding, all of which will be owned by Williams. The Class B
common stock is convertible into common stock on a share-for-share basis at the
option of the holder at any time, or automatically upon transfer to a person or
entity which is not a permitted transferee. See the section of our prospectus of
"Description for Capital Stock" for more information. All of the common stock
sold in the equity offering will be freely transferable without restriction or
further registration under the Securities Act, except for shares acquired by our
directors and executive officers. The shares of Class B common stock to be
retained by Williams and the shares of common stock to be acquired the
concurrent investments are not being acquired under the equity offering and will
have restrictions on resale.
We, Williams, SBC, Intel, Telefonos de Mexico, our directors and executive
officers and selected customers and suppliers who are purchasing common stock in
the equity offering have agreed, subject to certain exceptions, not to offer,
sell, or otherwise dispose of any capital stock for a period of 180 days after
the date of this prospectus, without the prior written consent of Salomon Smith
Barney Inc. and Lehman Brothers Inc. on behalf of the underwriters. Williams is
not under any contractual obligation to retain our common stock or Class B
common stock, except during this 180-day period. SBC, Intel and Telefonos de
Mexico have agreed to additional restrictions on transfer of the shares of our
common stock acquired by them. We can give no assurance concerning how long
these parties will continue to hold their common stock after the equity
offering.
The shares of common stock acquired by SBC, Intel and Telefonos de Mexico
will be restricted securities, and, as such, will be subject to the resale
limitations of Rule 144 of the Securities Act.
The shares of Class B common stock held by Williams and the shares of
common stock acquired by any of our other affiliates will also be subject to the
resale limitations of Rule 144 of the Securities Act. Rule 144 defines an
affiliate as a person that directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common control with,
the issuer.
In general, a stockholder subject to Rule 144 who has owned common stock of
an issuer for at least one year may, within any three-month period, sell up to
the greater of:
- 1% of the total number of shares of common stock then outstanding; and
- the average weekly trading volume of the common stock during the four
weeks preceding the stockholder's required notice of sale.
Rule 144 requires stockholders to aggregate their sales with other
stockholders with which it is affiliated for purposes of complying with this
volume limitation. A stockholder who has owned common stock for at least two
years, and who has not been an affiliate of the issuer for at least 90 days, may
sell common stock free from the volume limitation and notice requirements of
Rule 144.
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Following expiration of the 180-day period noted above, Williams will be
entitled to require us to use our best efforts to register for sale under the
Securities Act any shares of common stock held by it or any of its affiliates or
that may be received by it upon conversion of its Class B common stock. SBC,
Intel and Telefonos de Mexico also have registration rights. See the sections of
this prospectus entitled "Relationship Between Our Company and Williams" and
"Business -- Strategic alliances."
We cannot estimate the number of shares of common stock that may be sold by
third parties in the future because these sales will depend on market prices and
other factors.
Prior to the equity offering, there has been no public market for our
common stock. We cannot predict the effect, if any, that future sales of shares
of our common stock or the availability of our shares for sale would have on the
prevailing market price of our common stock. Sales of a significant number of
shares of our common stock, or the perception that these sales could occur,
could adversely affect the prevailing market price of our common stock and could
impair our future ability to raise capital through an offering of equity
securities. See "Risk Factors -- Risks relating to our common stock -- Shares
eligible for public sale after this offering may adversely affect our stock
price."
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IMPORTANT UNITED STATES FEDERAL TAX CONSEQUENCES
OF OUR COMMON STOCK TO NON-U.S. HOLDERS
This is a general discussion of certain United States federal tax
consequences of the acquisition, ownership, and disposition of our common stock
by a holder that, for U.S. federal income tax purposes, is not a U.S. person as
we define that term below. A holder of our common stock who is not a U.S. person
is a non-U.S. holder. We assume in this discussion that you will hold our common
stock issued pursuant to the offering as a capital asset (generally, property
held for investment). We do not discuss all aspects of U.S. federal taxation
that may be important to you in light of your individual investment
circumstances, such as special tax rules that would apply to you, for example,
if you are a dealer in securities, financial institution, bank, insurance
company, tax-exempt organization, partnership or owner of more than 5% of our
common stock. Our discussion is based on current provisions of the Internal
Revenue Code of 1986, as amended, Treasury regulations, judicial opinions,
published positions of the U.S. Internal Revenue Service and other applicable
authorities, all as in effect on the date of this prospectus and all of which
are subject to differing interpretations or change, possibly with retroactive
effect. We have not sought, and will not seek, any ruling from the IRS with
respect to the tax consequences discussed in this prospectus, and there can be
no assurance that the IRS will not take a position contrary to the tax
consequences discussed below or that any position taken by the IRS would not be
sustained. We urge you to consult your tax advisor about the U.S. federal tax
consequences of acquiring, holding, and disposing of our common stock, as well
as any tax consequences that may arise under the laws of any foreign, state,
local, or other taxing jurisdiction.
For purposes of this discussion, a U.S. person means any one of the
following:
- a citizen or resident of the U.S.
- a corporation, partnership, or other entity created or organized in the
U.S. or under the laws of the U.S. or of any political subdivision of the
U.S.
- an estate, the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source
- a trust, the administration of which is subject to the primary
supervision of a U.S. court and that has one or more U.S. persons who
have the authority to control all substantial decisions of the trust
DIVIDENDS
Dividends paid to a non-U.S. holder will generally be subject to
withholding of U.S. federal income tax at the rate of 30%. If, however, the
dividend is effectively connected with the conduct of a trade or business in the
U.S. by the non-U.S. holder, the dividend will be subject to U.S. federal income
tax imposed on net income on the same basis that applies to U.S. persons
generally, and, for corporate holders under certain circumstances, the branch
profits tax. Non-U.S. holders should consult any applicable income tax treaties
that may provide for a reduction of, or exemption from, withholding taxes. For
purposes of determining whether tax is to be withheld at a reduced rate as
specified by a treaty, we generally will presume that dividends we pay on or
before December 31, 2000, to an address in a foreign country are paid to a
resident of that country.
Under recently finalized Treasury regulations, which in general apply to
dividends that we pay after December 31, 2000, to obtain a reduced rate of
withholding under a treaty, a non-U.S. holder generally will be required to
provide certification as to that non-U.S. holder's entitlement to treaty
benefits. These regulations also provide special rules to determine whether,
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for purposes of applying a treaty, dividends that we pay to a non-U.S. holder
that is an entity should be treated as paid to holders of interests in that
entity.
GAIN ON DISPOSITION
A non-U.S. holder will generally not be subject to United States federal
income tax, including by way of withholding, on gain recognized on a sale or
other disposition of our common stock unless any one of the following is true:
- the gain is effectively connected with the conduct of a trade or business
in the U.S. by the non-U.S. holder
- the non-U.S. holder is a nonresident alien individual present in the U.S.
for 183 or more days in the taxable year of the disposition and certain
other requirements are met
- the non-U.S. holder is subject to tax pursuant to provisions of the U.S.
federal income tax law applicable to certain U.S. expatriates
- we are or have been during certain periods a "United States real property
holding corporation" for U.S. federal income tax purposes
If we are or have been a United States real property holding corporation, a
non-U.S. holder will generally not be subject to U.S. federal income tax on gain
recognized on a sale or other disposition of our common stock provided that:
- the non-U.S. holder does not hold, and has not held during certain
periods, directly or indirectly, more than 5% of our outstanding common
stock and
- our common stock is and continues to be traded on an established
securities market for U.S. federal income tax purposes
We believe that our common stock will be traded on an established securities
market for this purpose in any quarter during which it is listed on the NYSE.
If we are or have been during certain periods a U.S. real property holding
corporation and the above exception does not apply, a non-U.S. holder will be
subject to U.S. federal income tax with respect to gain realized on any sale or
other disposition of our common stock as well as to a withholding tax, generally
at a rate of 10% of the proceeds. Any amount withheld pursuant to a withholding
tax will be creditable against a non-U.S. holder's U.S. federal income tax
liability.
Gain that is effectively connected with the conduct of a trade or business
in the U.S. by the non-U.S. holder will be subject to the U.S. federal income
tax imposed on net income on the same basis that applies to U.S. persons
generally, and, for corporate holders under certain circumstances, the branch
profits tax, but will generally not be subject to withholding. Non-U.S. holders
should consult any applicable income tax treaties that may provide for different
rules.
UNITED STATES FEDERAL ESTATE TAXES
Our common stock that is owned or treated as owned by an individual who is
not a citizen or resident of the U.S., as specially defined for U.S. federal
estate tax purposes, on the date of that person's death will be included in his
or her estate for U.S. federal estate tax purposes, unless an applicable estate
tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, we must report annually to the IRS and to each non-U.S. holder
the amount of dividends that we paid to a holder, and the amount of tax that we
withheld on those dividends.
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This information may also be made available to the tax authorities of a country
in which the non-U.S. holder resides.
Under current U.S. Treasury regulations, U.S. information reporting
requirements and backup withholding tax will generally not apply to dividends
that we pay on our common stock to a non-U.S. holder at an address outside the
U.S. Payments of the proceeds of a sale or other taxable disposition of our
common stock by a U.S. office of a broker are subject to both backup withholding
at a rate of 31% and information reporting, unless the holder certifies as to
its non-U.S. holder status under penalties of perjury or otherwise establishes
an exemption. Information reporting requirements, but not backup withholding
tax, will also apply to payments of the proceeds of a sale or other taxable
disposition of our common stock by foreign offices of U.S. brokers or foreign
brokers with certain types of relationships to the U.S., unless the broker has
documentary evidence in its records that the holder is a non-U.S. holder and
certain other conditions are met or the holder otherwise established an
exemption.
Backup withholding is not an additional tax. Any amounts that we withhold
under the backup withholding rules will be refunded or credited against the
non-U.S. holder's U.S. federal income tax liability if certain required
information is furnished to the IRS.
The U.S. Treasury Department has promulgated final regulations regarding
the withholding and information reporting rules discussed above. In general,
those regulations do not significantly alter the substantive withholding and
information reporting requirements but unify current certification procedures
and forms and clarify reliance standards. The final regulations are generally
effective for payments made after December 31, 2000, subject to transition
rules.
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UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, the underwriters of the equity offering in the United
States and Canada named below, for whom Salomon Smith Barney Inc., Lehman
Brothers Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting
as U.S. representatives, and the underwriters of the concurrent equity offering
outside the United States and Canada named below, for whom Lehman Brothers
International (Europe), Salomon Brothers International Limited and Merrill Lynch
International are acting as international representatives, severally agreed to
purchase, and we have agreed to sell to the underwriters, the number of shares
set forth opposite the name of each underwriter.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
U.S. underwriters:
Salomon Smith Barney Inc. ................................
Lehman Brothers Inc. .....................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...............................
Banc of America Securities LLC............................
CIBC World Markets Corp...................................
Credit Suisse First Boston Corporation....................
Donaldson, Lufkin & Jenrette Securities Corporation.......
--------
Subtotal...............................................
--------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
International underwriters:
Lehman Brothers International (Europe)....................
Salomon Brothers International Limited....................
Merrill Lynch International...............................
Cazenove & Co.............................................
Bank of America International Limited.....................
CIBC World Markets International Limited..................
Credit Suisse First Boston (Europe) Limited...............
Donaldson, Lufkin & Jenrette International................
--------
Subtotal...............................................
--------
Total.......................................
========
</TABLE>
We refer to the U.S. underwriters and the international underwriters as the
underwriters and the U.S. representatives and international representatives as
the representatives. The underwriting agreement provides that the obligations of
the several underwriters to purchase the shares included in this offering are
subject to approval of legal matters by counsel as well as to other conditions.
The underwriters are obligated to purchase all the shares, other than those
covered by the over-allotment option described below, if they purchase any of
the shares. The offering price and underwriting discounts and commissions per
share for the U.S. offering and the international offering are identical. The
closing of the U.S. offering is a condition to the closing of the international
offering and the closing of the international offering is a condition to the
closing of the U.S. offering.
The underwriters propose to 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 certain
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dealers at the public offering price less a concession not in excess of $____
per share. The underwriters may allow, and such dealers may reallow, a
concession not in excess of $____ per share on sales to certain other dealers.
If all of the shares are not sold at the initial offering price, the
representatives may change the public offering price and the other selling
terms. The representatives have advised us that the underwriters do not intend
to confirm any sales to any accounts over which they exercise discretionary
authority.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to ________ additional shares of our
common stock at the public offering price less the underwriting discount. The
underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To the extent this
option is exercised, each underwriter will be obligated, subject to various
conditions, to purchase a number of additional shares approximately
proportionate to its initial purchase commitment.
We, Williams, SBC, Intel and Telefonos de Mexico and our executive officers
and directors have agreed not to do any of the following, whether any
transaction described in clause (1), (2) or (3) below is to be settled by
delivery of common stock or other securities, in cash or otherwise, in each case
without the prior written consent of Salomon Smith Barney Inc. and Lehman
Brothers Inc., on behalf of the underwriters, for a period of 180 days after the
date of this prospectus:
(1) offer, sell, pledge, or otherwise dispose of, or enter into any transaction
or device which is designed or could be expected to, result in the
disposition by any person at any time in the future of, any shares of common
stock or securities convertible into or exchangeable for common stock, other
than any of the following:
- the common stock sold under this prospectus
- our issuance and sale of shares of common stock to SBC, Intel and
Telefonos de Mexico in connection with the concurrent investments
- our issuance of shares of Class B common stock to Williams in connection
with our exercise of the Algar Telecom option
- shares of common stock we issue pursuant to employee benefit plans,
qualified stock option plans or other employee compensation plans
existing on the date of this prospectus or pursuant to currently
outstanding options, warrants or rights
- shares of common stock we use as consideration for acquisitions or that
we issue in connection with strategic alliances, provided that the
recipient of these shares of our common stock agrees to be bound by the
transfer restrictions set forth in this prospectus for the remaining term
(2) sell or grant options, rights or warrants for shares of our common stock or
securities convertible into or exchangeable for our common stock except for
common stock and options for common stock which we issue or grant to our
officers, directors or employees
(3) enter into any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits or risks of
ownership of shares of common stock
The U.S. underwriters and the international underwriters have entered into
an agreement among U.S. underwriters and international underwriters, pursuant to
which each U.S.
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underwriter has agreed that, as part of the distribution of the shares of common
stock offered in the U.S. offering:
- it is not purchasing any of these shares for the account of anyone other
than a U.S. person, which is generally U.S. or Canadian residents,
nationals or entities, and
- it has not offered or sold, will not offer, sell, resell or deliver,
directly or indirectly, any of these shares or distribute any prospectus
relating to the U.S. offering to anyone other than a U.S. person
In addition, pursuant to the agreement, each international underwriter has
agreed that, as part of the distribution of the shares of common stock offered
in the international offering:
- it is not purchasing any of the shares for the account of a U.S. person,
and
- it has not offered or sold, and will not offer, sell, resell or deliver,
directly or indirectly, any of these shares or distribute any prospectus
relating to the international offering to any U.S. person
The limitations described above do not apply to stabilization transactions
or to other transactions specified in the underwriting agreement and the
agreement among U.S. underwriters and international underwriters, including:
- some purchases and sales between U.S. underwriters and the international
underwriters
- some offers, sales, resales, deliveries or distributions to or through
investment advisors or other persons exercising investments discretion
- purchases, offers or sales by a U.S. underwriter who is also acting as an
international underwriter or by an international underwriter who is also
acting as a U.S. underwriter
- other transactions specifically approved by the U.S. representatives and
the international representatives
Any offer of the shares of common stock in Canada will be made only
pursuant to an exemption from the prospectus filing requirement and an exemption
from the dealer registration requirement (where such an exemption is not
available, offers shall be made only by a registered dealer) in the relevant
Canadian jurisdiction where any such offer is made.
Each international underwriter has represented and agreed to all of the
following:
- It has not offered or sold and, prior to the date six months after the
date of issue of the shares of common stock, will not offer or sell any
shares of common stock to persons in the United Kingdom except to persons
whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted
and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995.
- It has complied and will comply with all applicable provisions of the
Financial Services Act 1986 and the Public Offers of Securities
Regulations 1995 with respect to anything done by it in relation to the
shares of common stock in, from or otherwise involving the United
Kingdom.
- It has only issued or passed on, and will only issue or pass on, to any
person in the United Kingdom any document received by it in connection
with the issue of the shares of common stock if that person is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise be issued or passed upon.
156
<PAGE> 161
Under the agreement between the U.S. underwriters and the international
underwriters, each international underwriter has further represented that it has
not offered or sold, and has agreed not to offer or sell, directly or
indirectly, in Japan or to or for the account of any resident of Japan, any of
the shares of common stock in connection with the distribution contemplated by
this prospectus, except for offers and sales to Japanese international
underwriters or dealers and except pursuant to any exemption from the
registration requirements of the Securities and Exchange Law and otherwise in
compliance with applicable provisions of Japanese law. Each international
underwriter has further agreed to send to any dealer who purchases from it any
of the shares of common stock a notice stating in substance that, by purchasing
these shares, the dealer represents and agrees that it has not offered or sold,
and will not offer or sell, any of these shares, directly or indirectly, in
Japan or to or for the account of any resident of Japan except for offers or
sales to Japanese international underwriters or dealers and except pursuant to
any exemption from the registration requirements of the Securities and Exchange
Law and otherwise in compliance with applicable provisions of Japanese law, and
that the dealer will send to any other dealer to whom it sells any of these
shares a notice containing substantially the same statements as set forth in
this sentence.
Pursuant to the agreement among the U.S. underwriters and international
underwriters, sales may be made between the U.S. underwriters and the
international underwriters of the number of shares of common stock as may be
mutually agreed. The price of any shares so sold shall be the public offering
price as then in effect for the shares of common stock being sold by the U.S.
underwriters and the international underwriters less an amount equal to the
selling concession allocable to those shares of common stock, unless otherwise
determined by mutual agreement. To the extent that there are sales between the
U.S. underwriters and the international underwriters pursuant to the agreement
among the U.S. underwriters and the international underwriters, the number of
shares of common stock available for sale by the U.S. underwriters or by the
international underwriters may be more or less than the amount specified on the
cover page of this prospectus.
In connection with the equity offering, Salomon Smith Barney Inc. and
Lehman Brothers Inc., on behalf of the underwriters, may purchase and sell
shares of our common stock in the open market. These transactions may include
over-allotment, syndicate covering transactions and stabilizing transactions.
Over-allotment involves syndicate sales of common stock in excess of the number
of shares to be purchased by the underwriters in the offering, which creates a
syndicate short position. Syndicate covering transactions involve purchases of
our common stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Stabilizing transactions consist of
certain bids or purchases of our common stock made for the purpose of preventing
or retarding a decline in the market price of our common stock while this
offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc. and Lehman Brothers Inc., in covering syndicate short
positions or making stabilizing purchases, repurchase shares originally sold by
that syndicate member.
Any of these activities may cause the price of our common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the NYSE, in
the over-the-counter market or otherwise and, if commenced, may be discontinued
at any time.
At our request, the underwriters have reserved up to ________ shares of
common stock offered in this prospectus for sale to all of the regular domestic
employees and independent
157
<PAGE> 162
directors of our company and of Williams and selected suppliers and customers of
our company at the initial public offering price set forth on the cover page of
this prospectus. Up to 7.0% of the common stock constituting the equity offering
will be available for purchase under the program, with no more than 0.7% of the
common stock constituting the equity offering to be available for purchase by
the independent directors of our company and Williams or our customers and
suppliers. These persons must commit to purchase no later than the close of
business on the day following the date of this prospectus. The number of shares
available for sale to the general public will be reduced to the extent these
persons purchase reserved shares. Our suppliers and customers who purchase
shares of common stock will agree not to sell these shares for a period of 180
days after the date of this prospectus without the prior written consent of
Salomon Smith Barney Inc. and Lehman Brothers Inc., on behalf of the
underwriters.
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges in accordances with the laws and
practices of the country of purchase, in addition to the offering price set
forth on the cover of this prospectus.
We expect that more than 10% of the net proceeds of the offerings will be
paid to affiliates of certain of the underwriters. Accordingly, the offering is
being conducted in accordance with Rule 2710(c)(8) of the National Association
of Securities Dealers, Inc., which requires that the initial public offering
price be no higher than that recommended by a qualified independent underwriter
as defined by the NASD. Salomon Smith Barney Inc. has agreed to serve in that
capacity in connection with the equity offering and performed due diligence
investigations and reviewed and participated in the preparation of the
registration statement of which this prospectus is a part. Salomon Smith Barney
Inc. will receive no compensation for acting in this capacity; however, we have
agreed to indemnify Salomon Smith Barney Inc. for acting as qualified
independent underwriter against certain liabilities under the Securities Act of
1933.
Certain of the underwriters of the equity offering and their affiliates
engage in transactions with, and perform services for, our company in the
ordinary course of business and have engaged and may in the future engage in
commercial banking and investment banking transactions with us and with
Williams, for which they receive customary compensation. In addition, some of
the underwriters of the equity offering will act as underwriters for the notes
offering. Furthermore, affiliates of certain of the underwriters are lenders
under our interim loan facility and will be lenders under the permanent credit
facility.
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act of 1933, or to contribute to payments the
underwriters may be required to make in respect of any of those liabilities.
158
<PAGE> 163
LEGAL MATTERS
The validity of the common stock offered in this prospectus and certain
legal matters in connection with the offerings will be passed upon for us by our
Senior Vice President, Law, William von Glahn, and our special counsel, Skadden,
Arps, Slate, Meagher & Flom LLP, New York, New York. Skadden, Arps, Slate,
Meagher & Flom LLP has from time to time represented, and may continue to
represent, Williams and its affiliates in certain legal matters, and is one of
several firms that have provided advice on taxation matters in connection with
the formation of WCG. Certain legal matters in connection with the offerings
will be passed upon for the underwriters by Davis Polk & Wardwell, New York, New
York. Davis Polk & Wardwell has from time to time represented, and may continue
to represent, Williams and its affiliates in certain legal matters. As of the
date of this prospectus, Mr. von Glahn owns, directly or indirectly, 177,527
shares of common stock of Williams and has the right to exercise options to
receive an additional 93,838 shares. At the time of completion of the offerings,
our company will grant to Mr. von Glahn options to purchase 50,000 shares of our
common stock at an exercise price equal to the initial public offering price.
EXPERTS
The consolidated financial statements and schedule of Williams
Communications Group, Inc. at December 31, 1998 and 1997, and for each of the
three years in the period ended December 31, 1998, appearing in this prospectus
and registration statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein
which, as to the year 1998, are based in part on the report of Arthur Andersen
S/C, independent public accountants. The financial statements and schedule
referred to above are included in reliance upon such reports given on the
authority of such firms as experts in accounting and auditing.
The combined financial statements of the Direct Sales Subsidiary, NCS
(including BA Meridian) and TTS of the Enterprise Network's division of Nortel
Networks Corporation, formerly Northern Telecom Limited, for the year ended
December 31, 1996 and the four-month period ended April 30, 1997 appearing in
this prospectus and registration statement have been audited by Deloitte &
Touche LLP, independent auditors, as set forth thereon appearing elsewhere
herein, and are included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
159
<PAGE> 164
WHERE YOU CAN FIND ADDITIONAL INFORMATION
This prospectus constitutes a part of a registration statement on Form S-1
(together with all amendments, supplements, schedules and exhibits to the
registration statement, referred to as the registration statement) which we have
filed with the Commission under the Securities Act, with respect to the common
stock offered in this prospectus. This prospectus does not contain all the
information which is in the registration statement. Certain parts of the
registration statement are omitted as allowed by the rules and regulations of
the Commission. We refer you to the registration statement for further
information about our company and the securities offered in this prospectus.
Statements contained in this prospectus concerning the provisions of documents
are not necessarily summaries of the material provisions of those documents, and
each statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission. You can inspect and copy the
registration statement and the reports and other information we file with the
Commission under the Exchange Act at the public reference room maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. You can obtain information on the operation of the public reference
room by calling the Commission at 1-800-SEC-0330. The same information will be
available for inspection and copying at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, N.Y. 10048 and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
You can also obtain copies of this material from the public reference room of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also maintains a Web site which provides online access to
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission at the address
http://www.sec.gov.
Upon the effectiveness of the registration statement, we will become
subject to the information requirements of the Exchange Act. We will then file
reports, proxy statements and other information under the Exchange Act with the
Commission. In addition, Williams is subject to the information requirements of
the Exchange Act and files reports and other information under the Exchange Act
with the Commission. You can inspect and copy these reports and other
information of our company and Williams at the locations set forth above or
download these reports from the Commission's web site.
160
<PAGE> 165
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
WILLIAMS COMMUNICATIONS GROUP, INC.
Report of Ernst & Young LLP, Independent Auditors......... F-2
Report of Arthur Andersen S/C, Independent Public
Accountants............................................ F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 and the six months
ended June 30, 1999 and 1998 (unaudited)............... F-4
Consolidated Balance Sheets as of December 31, 1998 and
1997 and June 30, 1999 (unaudited)..................... F-5
Consolidated Statements of Stockholder's Equity for the
years ended December 31, 1998, 1997 and 1996 and the
six months ended June 30, 1999 and 1998 (unaudited).... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 and the six months
ended June 30, 1999 and 1998 (unaudited)............... F-7
Notes to Consolidated Financial Statements (Information as
of June 30, 1999 and for the six months ended June 30,
1999 and 1998 is unaudited)............................ F-8
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
Report of Deloitte & Touche LLP, Independent Auditors..... F-41
Combined Statements of Income and Changes in Net Assets
for the four months ended April 30, 1997 and year ended
December 31, 1996...................................... F-42
Combined Statements of Cash Flows for the four months
ended April 30, 1997 and year ended December 31,
1996................................................... F-43
Notes to the Financial Statements......................... F-44
</TABLE>
F-1
<PAGE> 166
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Williams Communications Group, Inc.
We have audited the accompanying consolidated balance sheets of Williams
Communications Group, Inc. as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholder's equity, and cash flows for
each of the three years in the period ended December 31, 1998. 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. The financial statements of ATL -- Algar Telecom Leste S.A. (an
entity in which the Company has a 30% interest at December 31, 1998) have been
audited by other auditors whose report has been furnished to us; insofar as our
opinion on the consolidated financial statements relates to data included for
ATL -- Algar Telecom Leste S.A., it is based solely on their report. In the
consolidated statement of operations for the year ended December 31, 1998, the
Company's equity in the net loss of ATL -- Algar Telecom Leste S.A. is
$4,228,000.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Williams
Communications Group, Inc. at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Tulsa, Oklahoma
April 7, 1999,
except for the matters described in the
third paragraph of Note 10 and Note 17,
as to which the date is July 27, 1999
F-2
<PAGE> 167
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Management and Shareholders of
ATL -- Algar Telecom Leste S.A.:
We have audited the balance sheet of ATL -- ALGAR TELECOM LESTE S.A. (a
Brazilian corporation in the pre-operating stage) as of December 31, 1998, and
the related statements of income, changes in shareholders' investment and cash
flows for the period from inception (March 26, 1998) to December 31, 1998 (not
presented separately herein), all expressed in US dollars. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ATL -- ALGAR TELECOM LESTE
S.A. (a pre-operating Company) as of December 31, 1998, and the results of its
operations and its cash flows for the period from inception (March 26, 1998) to
December 31, 1998, in conformity with generally accepted accounting principles
in the United States of America.
ARTHUR ANDERSEN S/C
Belo Horizonte, Brazil, January 29, 1999.
(except with respect to the matter
discussed in Note 8, as to which the
date is February 5, 1999)
F-3
<PAGE> 168
WILLIAMS COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, (UNAUDITED) YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues (Note 3).............. $ 1,001,139 $ 801,726 $ 1,733,469 $ 1,428,513 $ 705,187
Operating expenses:
Cost of sales................ 765,742 587,238 1,294,583 1,043,932 517,222
Selling, general and
administrative............ 265,352 205,296 487,073 329,513 152,484
Provision for doubtful
accounts.................. 11,810 2,696 21,591 7,837 2,694
Depreciation and
amortization.............. 57,912 39,409 84,381 70,663 32,378
Other (Note 4)............... 26,913 1,033 34,245 39,269 500
----------- ----------- ----------- ----------- -----------
Total operating
expenses.......... 1,127,729 835,672 1,921,873 1,491,214 705,278
----------- ----------- ----------- ----------- -----------
Loss from operations (Note
3)........................... (126,590) (33,946) (188,404) (62,701) (91)
Interest accrued............... (29,033) (6,250) (18,650) (8,714) (17,367)
Interest capitalized........... 8,798 4,556 11,182 7,781 --
Equity losses (Note 3)......... (18,682) (2,739) (7,908) (2,383) (1,601)
Investing income............... 4,762 1,267 1,931 670 296
Minority interest in (income)
loss of subsidiaries......... 11,272 (4,904) 15,645 (13,506) --
Gain on sale of interest in
subsidiary (Note 2).......... -- -- -- 44,540 --
Gain on sale of assets (Note
4)........................... -- -- -- -- 15,725
Other income (loss), net....... (758) (44) 178 508 (108)
----------- ----------- ----------- ----------- -----------
Loss before income taxes....... (150,231) (42,060) (186,026) (33,805) (3,146)
(Provision) benefit for income
taxes (Note 5)............... (45,834) 1,183 5,097 (2,038) (368)
----------- ----------- ----------- ----------- -----------
Net loss....................... $ (196,065) $ (40,877) $ (180,929) $ (35,843) $ (3,514)
=========== =========== =========== =========== ===========
Basic loss per share:
Net loss..................... $ (196,065) $ (40,877) $ (180,929) $ (35,843) $ (3,514)
Weighted average shares
outstanding............... 1,000 1,000 1,000 1,000 1,000
Pro-forma loss per share
(unaudited):
Net loss..................... $ (.44) $ (.09) $ (.40) $ (.08) $ (.01)
Weighted average shares
outstanding............... 450,000,000 450,000,000 450,000,000 450,000,000 450,000,000
</TABLE>
See accompanying notes.
F-4
<PAGE> 169
WILLIAMS COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
JUNE 30, ---------------------------
1999 (UNAUDITED) 1998 1997
---------------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 73,706 $ 42,004 $ 11,290
Receivables less allowance of $34,098,000 (unaudited)
($23,576,000 in 1998 and $12,787,000 in 1997)..... 513,330 491,871 291,100
Due from affiliates (Note 14)........................ -- 3,881 --
Costs and estimated earnings in excess of billings... 188,405 185,922 144,575
Inventories.......................................... 81,493 67,699 63,484
Deferred income taxes (Note 5)....................... 27,918 23,829 20,090
Other (Note 4)....................................... 72,988 26,198 29,640
---------- ---------- ----------
Total current assets................................... 957,840 841,404 560,179
Investments (Note 7)................................... 657,631 265,217 28,170
Property, plant and equipment -- net (Note 8).......... 1,063,335 711,404 407,652
Goodwill and other intangibles, net of accumulated
amortization of $87,304,000 (unaudited) ($81,882,000
in 1998 and $55,136,000 in 1997)..................... 365,902 430,557 403,319
Due from affiliate (Note 14)........................... -- -- 97,097
Other assets and deferred charges (Note 15)............ 129,430 88,964 9,617
---------- ---------- ----------
Total assets........................................... $3,174,138 $2,337,546 $1,506,034
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable (Note 9)............................ $ 142,931 $ 269,736 $ 59,402
Due to affiliates (Note 14).......................... 55,722 38,510 123,584
Accrued liabilities (Note 9)......................... 270,761 198,676 176,979
Billings in excess of costs and estimated earnings... 63,876 49,434 48,054
Long-term debt due within one year (Note 10)......... 372 690 1,195
---------- ---------- ----------
Total current liabilities.............................. 533,662 557,046 409,214
Long-term debt:
Affiliates (Note 14)................................. 800,956 620,710 --
Other (Note 10)...................................... 613,275 3,020 125,746
Deferred income taxes (Note 5)......................... 127,135 29,417 20,090
Other liabilities...................................... 23,040 10,595 5,126
Minority interest in subsidiaries...................... 121,504 110,076 83,156
Stockholder's equity:
Common stock, $1 per share par value, 1,000 shares
issued and authorized............................. 1 1 1
Capital in excess of par value....................... 1,391,160 1,299,871 1,000,348
Accumulated deficit.................................. (514,224) (317,896) (134,168)
Accumulated other comprehensive income (loss) (Note
11)............................................... 77,629 24,706 (3,479)
---------- ---------- ----------
Total stockholder's equity............................. 954,566 1,006,682 862,702
---------- ---------- ----------
Total liabilities and stockholder's equity............. $3,174,138 $2,337,546 $1,506,034
========== ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE> 170
WILLIAMS COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
CAPITAL ACCUMULATED
IN OTHER
COMMON EXCESS OF ACCUMULATED COMPREHENSIVE
STOCK PAR VALUE DEFICIT INCOME(LOSS) TOTAL
------ ---------- ----------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995................ $1 $ 179,712 $ (85,492) $ -- $ 94,221
Net loss................................ -- -- (3,514) -- (3,514)
Capital contributions from parent....... -- 439,000 -- -- 439,000
Dividends to parent..................... -- -- (2,760) -- (2,760)
Other................................... -- 306 -- -- 306
-- ---------- --------- -------- ----------
Balance, December 31, 1996................ 1 619,018 (91,766) -- 527,253
Net loss................................ -- -- (35,843) -- (35,843)
Other comprehensive loss (Note 11):
Unrealized depreciation on marketable
equity securities................. -- -- -- (2,348) (2,348)
Foreign currency translation
adjustments....................... -- -- -- (1,131) (1,131)
----------
Comprehensive loss...................... (39,322)
Capital contributions from parent....... -- 366,130 -- -- 366,130
Acquisition of subsidiary with parent
stock................................ -- 15,200 -- -- 15,200
Dividends to parent..................... -- -- (6,559) -- (6,559)
-- ---------- --------- -------- ----------
Balance, December 31, 1997................ 1 1,000,348 (134,168) (3,479) 862,702
Net loss................................ -- -- (180,929) -- (180,929)
Other comprehensive income (loss) (Note
11):
Unrealized appreciation on marketable
equity securities................. -- -- -- 29,977 29,977
Foreign currency translation
adjustments....................... -- -- -- (1,792) (1,792)
----------
Comprehensive loss...................... (152,744)
Capital contributions from parent....... -- 299,493 -- -- 299,493
Noncash dividends to parent............. -- -- (2,799) -- (2,799)
Other................................... -- 30 -- -- 30
-- ---------- --------- -------- ----------
Balance, December 31, 1998................ 1 1,299,871 (317,896) 24,706 1,006,682
Net loss*............................... -- -- (196,065) -- (196,065)
Other comprehensive income (loss) (Note
11):
Unrealized appreciation on marketable
equity securities*................ -- -- -- 74,491 74,491
Foreign currency translation
adjustments*...................... -- -- -- (21,568) (21,568)
----------
Comprehensive loss*..................... (143,142)
Capital contributions from parent*...... -- 91,289 -- -- 91,289
Other*.................................. -- -- (263) -- (263)
-- ---------- --------- -------- ----------
Balance, June 30, 1999*................... $1 $1,391,160 $(514,224) $ 77,629 $ 954,566
== ========== ========= ======== ==========
</TABLE>
- ---------------
* Amounts for the six months ended June 30, 1999 are unaudited.
See accompanying notes.
F-6
<PAGE> 171
WILLIAMS COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, (UNAUDITED) YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.......................................... $(196,065) $ (40,877) $(180,929) $ (35,843) $ (3,514)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation.................................... 41,394 25,931 56,224 47,066 22,453
Amortization of goodwill and other
intangibles.................................. 16,519 13,479 28,157 23,597 9,925
Provision (benefit) for deferred income taxes... 43,033 (1,808) (7,781) (1,777) (1,600)
Provision for loss on property.................. 26,654 -- -- 36,043 --
Provision for loss on investment................ -- -- 23,150 2,500 --
Provision for doubtful accounts................. 11,810 2,696 21,591 7,837 2,694
Equity losses................................... 18,682 2,739 7,908 2,383 1,601
Gain on disposition of interest in subsidiary... -- -- -- (44,540) --
Gain on sale of assets.......................... -- -- -- -- (15,725)
Minority interest in income (loss) of
subsidiaries................................. (11,272) 4,904 (15,645) 13,506 --
Cash provided (used) by changes in:
Receivables sold............................. (33,767) 345 8,103 25,664 --
Receivables.................................. (11,009) (61,340) (213,148) (34,127) (15,420)
Costs and estimated earnings in excess of
billings................................... (2,483) 12,979 (41,298) (66,454) (8,753)
Inventories.................................. (13,056) 4,637 (2,347) (6,613) (1,896)
Other current assets......................... 1,234 (10,279) (10,640) 210 (17,484)
Accounts payable............................. (41,513) 49,622 108,770 (24,349) 13,851
Accrued liabilities.......................... 60,688 (17,643) 18,226 42,480 11,715
Billings in excess of costs and estimated
earnings................................... 14,442 (41,038) 1,380 38,239 5,214
Due to/from affiliates....................... 21,093 (12,738) (89,870) 127,378 7,320
Other........................................ 16,184 (6,371) (10,561) (5,342) (12,156)
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities...................................... (37,432) (74,762) (298,710) 147,858 (1,775)
FINANCING ACTIVITIES
Proceeds from long-term debt...................... 940,963 -- -- 150,890 126
Payments on long-term debt........................ (330,933) (125,809) (126,677) (187,534) (1,353)
Capital contributions from parent................. 91,289 123,627 299,493 366,130 439,000
Contribution to subsidiary from minority interest
shareholders.................................... 17,361 -- -- -- --
Changes due to/from affiliates.................... 180,246 326,304 717,807 (96,974) (209,004)
Dividends to parent............................... -- -- -- (6,559) (2,760)
--------- --------- --------- --------- ---------
Net cash provided by financing activities......... 898,926 324,122 890,623 225,953 226,009
INVESTING ACTIVITIES
Property, plant and equipment:
Capital expenditures............................ (571,887) (255,671) (403,104) (276,249) (66,900)
Proceeds from sales and dark fiber
transactions................................. 48,894 628 40,012 15,292 23,010
Purchase of investments........................... (306,799) (7,002) (226,489) (25,345) (15,415)
Acquisition of businesses, net of cash acquired... -- -- 9,067 (81,192) (164,881)
Proceeds from sale of business.................... -- -- 10,000 -- --
Other............................................. -- 8,920 9,315 4,000 --
--------- --------- --------- --------- ---------
Net cash used in investing activities............. (829,792) (253,125) (561,199) (363,494) (224,186)
--------- --------- --------- --------- ---------
Increase (decrease) in cash and cash
equivalents..................................... 31,702 (3,765) 30,714 10,317 48
Cash and cash equivalents at beginning of
period.......................................... 42,004 11,290 11,290 973 925
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period........ $ 73,706 $ 7,525 $ 42,004 $ 11,290 $ 973
========= ========= ========= ========= =========
</TABLE>
See accompanying notes.
F-7
<PAGE> 172
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (INFORMATION AS OF JUNE 30, 1999 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED.)
1. NATURE OF THE BUSINESS -- HISTORY AND FORMATION OF THE COMPANY -- BASIS OF
PRESENTATION -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF THE BUSINESS
Williams Communications Group, Inc. ("WCG" as described below) owns,
operates and is extending a nationwide fiber optic network focused on providing
voice, data, Internet and video services to communications service providers.
WCG also sells, installs and maintains equipment and network services that
address the comprehensive voice and data needs of organizations of all sizes.
WCG's primary business units are Williams network ("Network") and Williams
Communications Solutions ("Solutions"). WCG also owns and operates businesses
that create demand for capacity on the Williams network, create demand for our
solutions unit services or develop expertise in advanced transmission
applications. In addition, WCG has a number of investments in domestic and
foreign businesses that drive bandwidth usage on the Williams network, increase
service capabilities, strengthen customer relationships or extend WCG's reach.
These businesses and investments are referred to as "Strategic Investments."
HISTORY AND FORMATION OF THE COMPANY
WCG is owned by The Williams Companies, Inc. ("Williams"). In 1985,
Williams entered the communications business by pioneering the placement of
fiber optic cables in decommissioned pipelines. By 1989, through a combination
of construction projects and acquisitions, Williams had completed the fourth
nationwide digital fiber optic network. The network consisted of approximately
9,700 route miles. By 1994, Williams, through its WilTel subsidiary, was one of
the top providers of broadband data services and long distance voice services as
well as the first provider to offer nationwide frame relay transmission
capacity.
In January 1995, Williams completed the sale of the WilTel network business
to LDDS Communications, Inc. (now MCI WorldCom, Inc.) for approximately $2.5
billion. The sale included the nationwide fiber optic network and the associated
consumer, business and carrier customers. Williams excluded from the sale an
approximate 9,700 route mile single-fiber network, comprised of a single fiber
strand and associated equipment on the nationwide network, WilTel's
communications equipment distribution business, and Vyvx, Inc. ("Vyvx"), a
leading provider of integrated fiber optic, satellite and teleport video
transmission services. The single-fiber network, along with Vyvx, our solutions
unit and a number of acquired companies formed the initial basis for what is
today WCG. See Note 2 for a description of acquisitions in 1996 through 1998.
Under agreements with MCI WorldCom, Inc., the single-fiber network can only
be used to transmit video and multimedia services, including Internet services,
until July 1, 2001. After July 1, 2001, the single-fiber network can be used for
any purpose, including voice and data tariffed services. In addition, as part of
the sale to MCI WorldCom, Inc., Williams agreed not to reenter the
communications network business until January 1998.
In October 1997, management and ownership of the single-fiber network was
transferred from Strategic Investments to Network and intercompany transfer
pricing was established prospectively. In addition, consulting, outsourcing and
the management of Williams' internal telephone operations, activities previously
performed within Strategic Investments, were
F-8
<PAGE> 173
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
transferred to Network. For comparative purposes, the 1996 and 1997 consulting,
outsourcing and internal telephone management activities previously performed in
Strategic Investments that were transferred to Network have been reflected in
Network's segment results. See Note 3 for segment disclosures.
In January 1998, Williams reentered the communications network business,
announcing its plans to develop a fiber optic network consisting of 32,000 route
miles.
In November 1998, Williams announced its intention to sell a minority
interest in WCG through an initial public offering. Prior to the initial public
offering, Williams contributed certain international communications investments
held in Williams International Company to WCG for inclusion in the initial
public offering (see Note 17).
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been retroactively
restated to reflect the historical consolidated financial position as of June
30, 1999 (unaudited) and December 31, 1998 and 1997 and the consolidated results
of operations and cash flows for the six months ended June 30, 1999 and 1998
(unaudited) and each of the three years in the period ended December 31, 1998 as
if the contribution of the international investments held in Williams
International Company to WCG described above had occurred and operated as a
stand alone business throughout the periods presented. The June 30, 1999 and
1998 financial statements have not been audited by independent auditors, but
include all normal recurring adjustments which, in the opinion of WCG's
management, are necessary to present fairly its financial position as of June
30, 1999 and results of operations and cash flows for the six months ended June
30, 1999 and 1998. Williams Communications Group, Inc. and Williams
International Company are both wholly owned subsidiaries of Williams Holdings of
Delaware, Inc. ("Holdings"), which is a wholly owned subsidiary of Williams.
When the consolidated financial statements refer to WCG, references include both
Williams Communications Group, Inc. together with its subsidiaries and the
international assets contributed to the company from Williams. In addition, when
the consolidated financial statements refer to Williams, Holdings or parent, the
reference includes Williams, either alone or together with its consolidated
subsidiaries as the context requires, except for WCG. Prior to the completion of
the equity offering, the existing outstanding common stock of WCG, all of which
is owned by Williams, will be reclassified into shares of Class B common stock.
The consolidated financial statements include the accounts of WCG and its
majority owned subsidiaries and a subsidiary that WCG controls but owns less
than 50% of the voting common stock. Companies in which WCG owns 20% to 50% of
the voting common stock, or otherwise has the ability to exercise significant
influence over the operating and financial policies of the company, are
accounted for under the equity method of accounting.
The specific international investments referred to above include the
interests in ATL-Algar Telecom Leste S.A. ("ATL") located in Brazil, accounted
for under the equity method (see Note 7), and a 36% interest at June 30, 1999
(22% at December 31, 1998) in PowerTel Limited ("PowerTel") located in
Australia, accounted for under the principles of consolidation inasmuch as WCG
has control over the operations despite its less than 50% ownership.
WCG is organized into three operating segments as follows: (1) Network,
which includes fiber optic construction, transmission and management services,
(2) Solutions, which includes
F-9
<PAGE> 174
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
distribution and integration of communications equipment for voice and data
networks, and (3) Strategic Investments, which includes Vyvx services (video,
advertising distribution and other multimedia transmission services via
terrestrial and satellite links for the broadcast industry), closed circuit
video broadcasting services for businesses and audio and video conferencing
services, investments in domestic communications companies and investments in
foreign communications companies located in Australia, Brazil and Chile.
WCG's operations do not currently provide positive cash flow. Accordingly,
Williams has historically funded WCG's capital expenditures and acquisitions
through a combination of advances and capital contributions. Williams will
continue to provide cash to WCG or assist in the attainment of bridge financing
up to the effective date of the public offering. Subsequent to that date, WCG
intends to finance future cash outlays through internally generated and external
funds without relying on cash advances or contributions from Williams.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
REVENUE RECOGNITION
Transmission and management services revenues are recognized monthly as the
services are provided. Amounts billed in advance of the service month are
recorded as deferred revenue.
Grants of indefeasible rights of use, or IRUs, of constructed but unlit
fiber, or dark fiber, in exchange for cash, are accounted for as leases. IRUs
are evaluated for sales-type lease accounting which resulted in certain lease
transactions being accounted for as sales at the time of acceptance of the fiber
by the customer. IRUs that do not meet the criteria for a sales-type lease are
accounted for as an operating lease, and the cash received is recognized as
revenue over the term of the IRU. IRUs exchanged for cash entered into after
June 30, 1999 are accounted for as operating leases. See "Recent Accounting
Standards" below.
New systems sales and upgrades revenues are recognized under the percentage
of completion method. Revenues on these contracts are initially recognized upon
delivery of equipment with the remaining revenues under the contracts being
recognized over the installation period based on the relationship of incurred
labor to total estimated labor. Estimated losses on all contracts in progress
are accrued when the loss becomes known. Costs incurred and estimated earnings
on contracts in excess of billings are recorded and reflected as current assets
in the balance sheet. The billings associated with these contracts occur
incrementally over the term of the contract or upon completion of the contract,
as provided in the applicable contract. Billings to customers in excess of costs
incurred and estimated earnings are recorded and reflected as current
liabilities.
Customer service order revenues are recognized under the completed contract
method. Customer service orders represent moves, adds or changes to existing
customer systems.
F-10
<PAGE> 175
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues on contracts for maintenance of installed systems are deferred and
amortized on a straight-line basis over the lives of the related contracts.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include demand and time deposits, certificates of
deposit and other marketable securities with maturities of three months or less
when acquired.
INVENTORIES
Inventories consist primarily of purchased new and refurbished data, voice
and video equipment, and are stated at the lower of average cost or market.
PROPERTY, PLANT AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed
primarily on the straight-line method over estimated useful lives.
GOODWILL AND OTHER INTANGIBLES
Goodwill is amortized on a straight-line basis over the estimated period of
benefit ranging from ten to twenty-five years. Other intangibles are amortized
on a straight-line basis over the estimated period of benefit ranging from five
to twenty years.
IMPAIRMENT OF LONG-LIVED ASSETS
WCG evaluates its long-lived assets, including related intangibles, of
identifiable business activities for impairment when events or changes in
circumstances indicate, in management's judgment, that the carrying value of
such assets may not be recoverable. The determination of whether an impairment
has occurred is based on management's estimate of undiscounted future cash flows
attributable to the assets as compared to the carrying value of the assets. If
an impairment has occurred, the amount of the impairment recognized is
determined by estimating the fair value for the assets and recording a provision
for loss if the carrying value is greater than fair value.
For assets identified to be disposed of in the future, the carrying value
of these assets is compared to the estimated fair value less the cost to sell to
determine if an impairment is required. Until the assets are disposed of, an
estimate of the fair value is redetermined when related events or circumstances
change.
INCOME TAXES
WCG's operations are included in the Williams' consolidated federal income
tax return. A tax sharing agreement exists between WCG and Williams to allocate
and settle among themselves the consolidated federal income tax liability (see
Note 5). Deferred income taxes are computed using the liability method and are
provided on all temporary differences between the financial basis and tax basis
of WCG's assets and liabilities. Valuation allowances are established to reduce
deferred tax assets to an amount that will more likely than not be realized.
F-11
<PAGE> 176
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS PER SHARE
Basic earnings per share are based on the 1,000 shares outstanding for all
periods presented. Diluted earnings per share are not presented as there are no
dilutive securities related to the WCG stock for the periods presented. The
pro-forma earnings per share was based on an assumed average shares outstanding
of 450,000,000. Stock options and awards have not been considered in calculating
the pro-forma net loss per share as their effect would be anti-dilutive.
FOREIGN CURRENCY TRANSLATION
The functional currency of WCG is the U.S. dollar. The functional currency
of WCG's foreign operations is the applicable local currency for each foreign
subsidiary and equity method investee, including the Australian dollar,
Brazilian real and Canadian dollar. Assets and liabilities of foreign
subsidiaries and equity investees are translated at the spot rate in effect at
the applicable reporting date, and the combined statements of operations and
WCG's share of the results of operations of its equity affiliates are translated
at the average exchange rates in effect during the applicable period. The
resulting cumulative translation adjustment is recorded as a separate component
of other comprehensive income.
Transactions denominated in currencies other than the functional currency
are recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transactions gains and losses
which are reflected in the statement of operations.
RECENT ACCOUNTING STANDARDS
WCG adopted the American Institute of Certified Public Accountants'
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," on January 1, 1999. The SOP requires that all start-up costs be
expensed as incurred and the expense related to the initial application of this
SOP was immaterial.
In June 1999, the Financial Accounting Standards Board (the "FASB") issued
Interpretation No. 43, "Real Estate Sales, an interpretation of FASB Statement
No. 66." The interpretation is effective for sales of real estate with property
improvements or integral equipment entered into after June 30, 1999. Under this
interpretation, dark fiber is considered integral equipment and accordingly
title must transfer to a lessee in order for a lease transaction to be accounted
for as a sales-type lease. After June 30, 1999, the effective date of FASB
Interpretation No. 43, sales-type lease accounting will no longer be appropriate
for dark fiber leases and, therefore, these transactions will be accounted for
as operating leases unless title to the fibers under lease transfers to the
lessee or the agreement was entered into prior to June 30, 1999.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 1999
presentation. Effective January 1, 1999, the segments previously known as
Applications and Strategic Investments were combined as they are now
collectively managed and reported under the name of Strategic Investments.
F-12
<PAGE> 177
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS
NORTEL
On April 30, 1997, WCG purchased Northern Telecom Limited's ("Nortel")
North American customer-premise equipment distribution business which was then
combined with WCG's equipment distribution business to create Williams
Communications Solutions, LLC. ("Solutions LLC"). WCG owns 70% of Solutions LLC
and Nortel owns the remaining 30%. WCG paid approximately $68 million to Nortel.
WCG has accounted for its 70% interest in the operations as a purchase business
combination, and beginning May 1, 1997, has included the results of operations
of the acquired company in WCG's consolidated statement of operations.
Accordingly, the acquired assets and liabilities, including $168 million in
accounts receivable, $68 million in accounts payable and accrued liabilities and
$161 million in debt obligations, were recorded based on an allocation of the
purchase price, with the cost in excess of historical carrying values, which
approximated fair value, allocated to identifiable intangible assets and
goodwill.
WCG recorded the 30% ownership reduction in its operations contributed to
Solutions LLC as a sale to Nortel. WCG recognized a gain of $44.5 million based
on the excess of the fair value over the net book value (approximately $71
million) of its operations conveyed to Nortel's minority interest. Income taxes
were not provided on the gain, because the transaction did not affect the
difference between the financial and tax bases of identifiable assets and
liabilities.
OTHER
During the three years ended December 31, 1998, WCG acquired 11 companies
in addition to the business combination involving Nortel. Each acquisition was
accounted for as a purchase business combination. The acquired assets and
liabilities have been recorded based on an allocation of the purchase price,
including identifiable intangibles with any remaining cost in excess of fair
value allocated to goodwill. WCG has included the results of operations of the
acquired entities in WCG's consolidated results of operations generally from the
date of acquisition. A summary of the acquisitions by segment is as follows:
NETWORK
On March 7, 1997, WCG acquired Critical Technologies, Inc., a company which
designs and manages outsourced communications networks, by utilizing a
$15,200,000 contribution of Williams common stock.
SOLUTIONS
In January 1996, WCG acquired Comlink, Inc., a voice and network systems
integration company, for approximately $13 million in cash.
On August 30, 1996, WCG acquired SoftIRON Systems, Inc., a network systems
integration company, for approximately $9 million in cash.
On October 13, 1998, WCG acquired Computer Networking Group, Inc., a
Canadian company which provides customers with comprehensive multimedia network
consulting and remote network management services, for approximately $13 million
to be paid over four years. Approximately $11 million of the acquisition price
was recorded at the acquisition date as the
F-13
<PAGE> 178
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
remaining $2 million is contingent upon certain performance measures.
Approximately $3 million of the acquisition price was paid at the acquisition
date with the remaining $7,700,000 payable on the October 13 anniversary date as
follows: 1999 -- $1,323,000, 2000 -- $1,667,000, 2001 -- $2,296,000 and
2002 -- $2,404,000.
STRATEGIC INVESTMENTS
On May 1, 1996, WCG acquired Global Access Telecommunications Services,
Inc., a reseller of worldwide satellite video transmission services, for
approximately $22 million in cash.
On August 1, 1996, WCG acquired ITC Media Conferencing, a provider of audio
and video conferencing services, for approximately $48 million in cash.
On November 19, 1996, WCG acquired Cycle-Sat, Inc., a distributor of
television and radio commercials using satellite, fiber-optic and digital
technologies, for approximately $57 million in cash.
On December 31, 1996, WCG acquired Viacom MGS, an advertising distribution
services company, for approximately $15 million in cash.
On March 3, 1997, WCG acquired Satellite Management International, Inc., a
full service provider of closed-circuit video broadcasting services for
businesses, for approximately $6 million in cash.
On August 14, 1998, Williams International Company acquired 22% (based on
25% of the common shares and no preferred shares) of PowerTel, a publicly owned
telecommunications company in Australia, for approximately $25 million in cash
and subscribed to purchase additional common and preferred shares for
approximately $67 million to increase its combined ownership to approximately
45% by February 2000. WCG also received 44,680,851 options to purchase
additional common shares of PowerTel at 0.47 Australian dollars per share. The
options, which expire in 2003, are not publicly traded and do not have a readily
determinable fair value. On February 9, 1999, in accordance with the
subscription agreement, additional preferred and common shares were purchased at
a total cost of $31,845,000, increasing WCG's ownership to 35% of the common
shares. WCG consolidates its interest in PowerTel as WCG currently holds a
majority of PowerTel's board seats and exercises control over PowerTel's
operations. After WCG's initial investment, PowerTel had approximately $38
million in cash, which resulted in net cash acquired of approximately $13
million when consolidated by WCG.
On October 23, 1998, WCG acquired Intersys, a data systems integration, ATM
frame relay and professional development company based in Mexico, for
approximately $1 million in cash and conversion of the investment WCG had in
Intersys' parent.
F-14
<PAGE> 179
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Costs of acquisitions, net of cash acquired, for all acquisitions discussed
above are as follows for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Working capital............................. $ (3,048) $ 121,830 $ 16,862
Property and equipment...................... 4,567 21,211 17,790
Goodwill and other intangibles.............. 52,506 215,821 142,287
Long-term debt.............................. (3,446) (160,873) (1,234)
Minority interest........................... (49,137) (69,650) --
Other....................................... (10,509) (31,947) (10,824)
-------- --------- --------
Cost of acquisitions, net of cash
acquired.................................. $ (9,067) $ 96,392 $164,881
======== ========= ========
</TABLE>
The following summarized unaudited pro forma financial information for the
years ended December 31 assumes each acquisition had occurred on January 1 of
the year immediately preceding the year of the acquisition:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues................................ $1,776,349 $1,756,253 $1,533,140
Net loss................................ $ (189,707) $ (37,615) $ (11,162)
</TABLE>
The pro forma results include operating results prior to the acquisitions
and adjustments to interest expense, goodwill amortization and income taxes. The
pro forma consolidated results do not purport to be indicative of results that
would have occurred had the acquisitions been in effect for the period
presented, nor do they purport to be indicative of the results that will be
obtained in the future.
3. SEGMENT DISCLOSURES
WCG adopted Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures about Segments of an Enterprise and Related Information," during
the fourth quarter of 1998. SFAS No. 131 establishes standards for reporting
information about operating segments and related disclosures about products and
services, geographic areas and major customers.
WCG evaluates performance based upon segment profit or loss from operations
which includes revenues from external and internal customers, equity earnings or
losses, operating costs and expenses, and depreciation and amortization and
excludes allocated charges from parent. The accounting policies of the segments
are the same as those described in Note 1. Intercompany sales are generally
accounted for as if the sales were to unaffiliated third parties, that is, at
current market prices.
F-15
<PAGE> 180
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents certain financial information concerning WCG's
reportable segments.
<TABLE>
<CAPTION>
STRATEGIC
NETWORK SOLUTIONS INVESTMENTS ELIMINATIONS TOTAL
---------- ------------ ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
JUNE 30, 1999 (UNAUDITED)
Revenues:
External customers:
Dark fiber......................................... $ 71,927 $ -- $ -- $ -- $ 71,927
Capacity and other................................. 96,855 -- 133,205 -- 230,060
New systems sales and upgrades..................... -- 403,818 -- -- 403,818
Maintenance and customer service orders............ -- 271,431 -- -- 271,431
Other.............................................. -- 15,148 -- -- 15,148
---------- ---------- ----------- ---------- ----------
Total external customers.............................. 168,782 690,397 133,205 -- 992,384
Affiliates............................................ 6,660 2,095 -- -- 8,755
Intercompany.......................................... 21,947 -- 264 (22,211) --
---------- ---------- ----------- ---------- ----------
Total segment revenues.................................. $ 197,389 $ 692,492 $ 133,469 $ (22,211) $1,001,139
========== ========== =========== ========== ==========
Costs of sales:
Dark fiber............................................ $ 54,189 $ -- $ -- $ -- $ 54,189
Capacity and other.................................... 131,669 -- 83,543 -- 215,212
New systems sales and upgrades........................ -- 294,239 -- -- 294,239
Maintenance and customer service orders............... -- 143,505 -- -- 143,505
Indirect operating and maintenance.................... -- 58,597 -- 58,597
Intercompany.......................................... -- 5,356 16,855 (22,211) --
---------- ---------- ----------- ---------- ----------
Total cost of sales..................................... $ 185,858 $ 501,697 $ 100,398 $ (22,211) $ 765,742
========== ========== =========== ========== ==========
Segment loss:
Loss from operations.................................. $ (45,376) $ (20,947) $ (60,267) $ -- $ (126,590)
Equity losses......................................... -- -- (18,682) -- (18,682)
Add back -- allocated charges from parent............. 1,863 4,137 624 -- 6,624
---------- ---------- ----------- ---------- ----------
Total segment loss...................................... $ (43,513) $ (16,810) $ (78,325) $ -- $ (138,648)
========== ========== =========== ========== ==========
Total assets............................................ $1,082,071 $ 974,423 $ 1,117,644 $ -- $3,174,138
Depreciation and amortization........................... $ 13,481 $ 22,686 $ 21,745 $ -- $ 57,912
</TABLE>
F-16
<PAGE> 181
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
STRATEGIC
NETWORK SOLUTIONS INVESTMENTS ELIMINATIONS TOTAL
-------- ---------- ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
JUNE 30, 1998 (UNAUDITED)
Revenues:
External customers:
Capacity and other................................... $ 23,282 $ -- $ 100,218 $ -- $ 123,500
New systems sales and upgrades....................... -- 376,339 -- -- 376,339
Maintenance and customer service orders.............. -- 289,378 -- -- 289,378
Other................................................ -- 4,739 -- -- 4,739
-------- ---------- ----------- ---------- ----------
Total external customers................................ 23,282 670,456 100,218 -- 793,956
Affiliates.............................................. 4,010 1,640 2,120 -- 7,770
Intercompany............................................ 24,750 -- 274 (25,024) --
-------- ---------- ----------- ---------- ----------
Total segment revenues.................................... $ 52,042 $ 672,096 $ 102,612 $ (25,024) $ 801,726
======== ========== =========== ========== ==========
Costs of sales:
Capacity and other...................................... $ 40,829 $ -- $ 63,824 $ -- $ 104,653
New systems sales and upgrades.......................... -- 266,735 -- -- 266,735
Maintenance and customer service orders................. -- 161,993 -- -- 161,993
Indirect operating and maintenance...................... -- 53,857 -- -- 53,857
Intercompany............................................ 139 4,450 20,435 (25,024) --
-------- ---------- ----------- ---------- ----------
Total cost of sales....................................... $ 40,968 $ 487,035 $ 84,259 $ (25,024) $ 587,238
======== ========== =========== ========== ==========
Segment income(loss):
Income(loss) from operations............................ $(15,147) $ 12,647 $ (31,446) $ -- $ (33,946)
Equity losses........................................... -- -- (2,739) -- (2,739)
Add back -- allocated charges from parent............... 786 5,166 895 -- 6,847
-------- ---------- ----------- ---------- ----------
Total segment loss........................................ $(14,361) $ 17,813 $ (33,290) $ -- $ (29,838)
======== ========== =========== ========== ==========
Depreciation and amortization............................. $ 5,135 $ 18,702 $ 15,572 $ -- $ 39,409
</TABLE>
F-17
<PAGE> 182
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
STRATEGIC
NETWORK SOLUTIONS INVESTMENTS ELIMINATIONS TOTAL
-------- ------------ ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1998
Revenues:
External customers:
Dark fiber........................................... $ 64,100 $ -- $ -- $ -- $ 64,100
Capacity and other................................... 73,367 -- 216,634 -- 290,001
New systems sales and upgrades....................... -- 791,518 -- -- 791,518
Maintenance and customer service orders.............. -- 556,392 -- -- 556,392
Other................................................ -- 16,029 -- -- 16,029
-------- ---------- ----------- ---------- ----------
Total external customers................................ 137,467 1,363,939 216,634 -- 1,718,040
Affiliates.............................................. 7,710 3,465 4,254 -- 15,429
Intercompany............................................ 49,759 -- 522 (50,281) --
-------- ---------- ----------- ---------- ----------
Total segment revenues.................................... $194,936 $1,367,404 $ 221,410 $ (50,281) $1,733,469
======== ========== =========== ========== ==========
Costs of sales:
Dark fiber.............................................. $ 38,500 $ -- $ -- $ -- $ 38,500
Capacity and other...................................... 118,627 -- 137,255 -- 255,882
New systems sales and upgrades.......................... -- 554,726 -- -- 554,726
Maintenance and customer service orders................. -- 311,258 -- -- 311,258
Indirect operating and maintenance...................... -- 134,217 -- -- 134,217
Intercompany............................................ 252 9,274 40,755 (50,281) --
-------- ---------- ----------- ---------- ----------
Total cost of sales....................................... $157,379 $1,009,475 $ 178,010 $ (50,281) $1,294,583
======== ========== =========== ========== ==========
Segment loss:
Loss from operations.................................... $(27,716) $ (58,966) $ (101,722) $ -- $ (188,404)
Equity losses........................................... -- -- (7,908) -- (7,908)
Add back -- allocated charges from parent............... 1,409 8,435 1,810 -- 11,654
-------- ---------- ----------- ---------- ----------
Total segment loss........................................ $(26,307) $ (50,531) $ (107,820) $ -- $ (184,658)
======== ========== =========== ========== ==========
Total assets.............................................. $727,119 $ 967,948 $ 642,479 $ -- $2,337,546
Equity method investments................................. $ -- $ -- $ 52,722 $ -- $ 52,722
Additions to long-lived assets............................ $350,249 $ 57,504 $ 97,824 $ -- $ 505,577
Depreciation and amortization............................. $ 13,230 $ 36,637 $ 34,514 $ -- $ 84,381
</TABLE>
F-18
<PAGE> 183
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
STRATEGIC
NETWORK SOLUTIONS INVESTMENTS ELIMINATIONS TOTAL
-------- ---------- ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1997
Revenues:
External customers:
Capacity and other................................... $ 16,637 $ -- $ 213,098 $ -- $ 229,735
New systems sales and upgrades....................... -- 674,604 -- -- 674,604
Maintenance and customer service orders.............. -- 508,319 -- -- 508,319
Other................................................ -- 5,363 -- -- 5,363
-------- ---------- ----------- ---------- ----------
Total external customers................................ 16,637 1,188,286 213,098 -- 1,418,021
Affiliates.............................................. 5,217 1,512 3,763 -- 10,492
Intercompany............................................ 21,159 -- 1,105 (22,264) --
-------- ---------- ----------- ---------- ----------
Total segment revenues.................................... $ 43,013 $1,189,798 $ 217,966 $ (22,264) $1,428,513
======== ========== =========== ========== ==========
Cost of sales:
Capacity and other...................................... $ 28,657 $ -- $ 139,609 $ -- $ 168,266
New systems sales and upgrades.......................... -- 505,284 -- -- 505,284
Maintenance and customer service orders................. -- 267,775 -- -- 267,775
Indirect operating and maintenance...................... -- 102,607 -- -- 102,607
Intercompany............................................ 554 5,446 16,264 (22,264) --
-------- ---------- ----------- ---------- ----------
Total cost of sales....................................... $ 29,211 $ 881,112 $ 155,873 $ (22,264) $1,043,932
======== ========== =========== ========== ==========
Segment profit (loss):
Income (loss) from operations........................... $ 3,278 $ 37,052 $ (103,031) $ -- $ (62,701)
Equity earnings (losses)................................ -- -- (2,383) -- (2,383)
Add back -- allocated charges from parent............... -- 6,690 2,540 -- 9,230
-------- ---------- ----------- ---------- ----------
Total segment profit (loss)............................... $ 3,278 $ 43,742 $ (102,874) $ -- $ (55,854)
======== ========== =========== ========== ==========
Total assets.............................................. $246,317 $ 922,823 $ 336,894 $ -- $1,506,034
Equity method investments................................. $ 2,317 $ -- $ 3,815 $ -- $ 6,132
Additions to long-lived assets............................ $175,861 $ 236,000 $ 101,487 $ -- $ 513,348
Depreciation and amortization............................. $ 4,012 $ 30,142 $ 36,509 $ -- $ 70,663
</TABLE>
F-19
<PAGE> 184
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
STRATEGIC
NETWORK SOLUTIONS INVESTMENTS ELIMINATIONS TOTAL
------- ------------ ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1996
Revenues:
External customers:
Capacity and other.................................... $ -- $ -- $ 130,816 $ -- $ 130,816
New systems sales and upgrades........................ -- 306,110 -- -- 306,110
Maintenance and customer service orders............... -- 251,221 -- -- 251,221
Other................................................. -- 9,379 -- -- 9,379
------- ---------- ----------- ---------- ----------
Total external customers................................. -- 566,710 130,816 -- 697,526
Affiliates............................................... 4,918 1,362 1,381 -- 7,661
Intercompany............................................. 6,145 -- 280 (6,425) --
------- ---------- ----------- ---------- ----------
Total segment revenues..................................... $11,063 $ 568,072 $ 132,477 $ (6,425) $ 705,187
======= ========== =========== ========== ==========
Cost of sales:
Capacity and other....................................... $ 4,681 $ -- $ 81,535 $ -- $ 86,216
New systems sales and upgrades........................... -- 223,519 -- -- 223,519
Maintenance and customer service orders.................. -- 155,130 -- -- 155,130
Indirect operating and maintenance....................... -- 52,357 -- -- 52,357
Intercompany............................................. -- 4,484 1,941 (6,425) --
------- ---------- ----------- ---------- ----------
Total cost of sales........................................ $ 4,681 $ 435,490 $ 83,476 $ (6,425) $ 517,222
======= ========== =========== ========== ==========
Segment profit (loss):
Income (loss) from operations............................ $ 5,750 $ 8,887 $ (14,728) $ -- $ (91)
Equity losses............................................ -- -- (1,601) -- (1,601)
Add back -- allocated charges from parent................ -- 5,439 $ 1,204 -- 6,643
------- ---------- ----------- ---------- ----------
Total segment profit (loss)................................ $ 5,750 $ 14,326 $ (15,125) $ -- $ 4,951
======= ========== =========== ========== ==========
Total assets............................................... $ -- $ 344,606 $ 377,081 $ -- $ 721,687
Equity method investments.................................. $ -- $ -- $ 6,550 $ -- $ 6,550
Additions to long-lived assets............................. $ -- $ 34,906 $ 192,071 $ -- $ 226,977
Depreciation and amortization.............................. $ -- $ 16,023 $ 16,355 $ -- $ 32,378
</TABLE>
F-20
<PAGE> 185
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following geographic area data includes revenues from external
customers based on product shipment origin for the years ended December 31 and
long-lived assets based upon physical location as of December 31.
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues from external customers:
United States........................... $1,591,779 $1,336,743 $693,943
Other................................... 126,261 81,278 3,583
---------- ---------- --------
Total..................................... $1,718,040 $1,418,021 $697,526
========== ========== ========
Long-lived assets:
United States........................... $1,070,772 $ 805,830 $374,439
Other................................... 55,510 5,141 1,244
---------- ---------- --------
Total..................................... $1,126,282 $ 810,971 $375,683
========== ========== ========
</TABLE>
Long-lived assets are comprised of property, plant and equipment and
goodwill and other intangible assets.
4. ASSET SALES AND WRITE-OFFS
During the second quarter of 1999, management determined that the
businesses that provide audio and video conferencing services and closed-circuit
video broadcasting services for businesses were held for sale. On June 30, 1999,
WCG signed an agreement, which closed effective July 31, 1999, with Genesys,
S.A. to sell its business which provides audio and video conferencing services.
In addition, on July 31, 1999, WCG signed and closed an agreement with Cyberstar
L.P. to sell its business which provides closed-circuit video broadcasting
services for businesses. The proceeds from these transactions total
approximately $50 million. WCG recognized a pre-tax loss of $26.7 million
consisting of a $22.8 million impairment of the assets to fair value based on
the expected net sales proceeds and exit costs of $3.9 million consisting of
$2.8 million of contractual obligations and $1.1 million of employee-related
costs related to the sales of these businesses. These transactions resulted in
an income tax provision of approximately $7.9 million, which reflects the impact
of certain differences between the book and tax basis in the assets. Loss from
operations related to these assets for the six months ended June 30, 1999 and
1998 were $9.3 million and $9.9 million, respectively. At June 30, 1999, the
asset basis of $50.0 million was classified as held for sale in other current
assets and, accordingly, depreciation and amortization were suspended on these
assets at June 30, 1999.
Included in 1998 other operating expenses and Strategic Investments'
segment loss is a $23,150,000 loss related to abandoning an investment in a
venture involved in the technology and transmission of business information for
news and educational purposes. The loss occurred as a result of WCG's
re-evaluation and decision to exit the venture as WCG decided against making
further investments in the venture. WCG abandoned its entire ownership interest
in the venture in 1998. The loss primarily consists of $17 million from writing
off the entire carrying amount of the investment and $5 million from recognition
of contractual obligations that will continue after the abandonment. During
1998, $2 million of the contractual obligations were paid. WCG's share of losses
from the venture accounted for under the equity method were $3,670,000,
$2,269,000 and none in 1998, 1997 and 1996, respectively.
F-21
<PAGE> 186
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Included in 1997 other operating expenses and Strategic Investments'
segment loss are impairments and other charges totaling $36,043,000. In the
fourth quarter of 1997, WCG made the decision and committed to a plan to sell
the learning content business, which resulted in a loss of $22.7 million in
1997. The loss consisted of a $21 million impairment of the assets to fair value
less cost to sell and recognition of $1.7 million in costs associated with the
decision to sell the business. Fair value was based on management's estimate of
the expected net proceeds to be received. During 1998, a significant portion of
the learning content business was sold with a resulting $2 million reduction in
1998 expenses. The carrying amount of the learning content business at December
31, 1998 and 1997 is not significant to WCG's consolidated balance sheet. The
results of operations and effect of suspending amortization for the learning
content business included in the consolidated net loss are not significant for
any of the periods presented. Costs of $1.7 million recorded in 1997 primarily
consist of contractual obligations and employee termination costs. Additional
employee termination costs of $1 million were incurred in 1998. WCG also
impaired a continuing Strategic Investments project related to touch screen
display units to be installed in sports stadiums due to shortfalls in
anticipated revenues from the installed units. The impairment indicator was
uncertainties related to future cash flow projections. Fair value for this
project was initially determined based on management's estimate as to the
recovery of the project. Ultimately cash flow projections on the basis of held
for use demonstrated inability to recover WCG's basis and accordingly using
discounted cash flow projections demonstrated a need for an impairment charge of
$7 million, which was recorded in December 1997. Additionally, WCG made the
decision and committed to a plan to sell the enhanced fax business, resulting in
an impairment loss of $4 million in 1997. Fair value was based on management's
estimate of the expected proceeds to be received. The fax business was sold in
1998 resulting in a $.5 million reduction in 1998 expenses. In 1997, WCG also
recorded $2 million of expenses from cancellation payments for leases that are
no longer being utilized in WCG's operations.
In 1996, WCG recognized a pre-tax gain of $15,725,000 from the sale of
certain communication rights (obtained from affiliates in 1995) for
approximately $38 million.
5. PROVISION (BENEFIT) FOR INCOME TAXES
WCG's operations are included in Williams' consolidated federal income tax
return. WCG has a tax sharing agreement with Williams under which the amount of
federal income taxes allocated to WCG is generally determined as though WCG were
filing a separate federal consolidated income tax return. Under the terms of the
tax sharing agreement, any loss or other similar tax attribute realized for
periods prior to the initial public offering will be allocated solely to
Williams. WCG will be responsible for any taxes resulting to Williams if the
loss or similar tax attribute is reduced by audit or otherwise. For any loss or
other similar tax attribute realized after the initial public offering, WCG will
receive the benefit of the loss or other similar tax attribute only if WCG is
able to carry forward the loss or other similar tax attribute against its
hypothetical separate return tax calculation for a period in which WCG remains a
member of Williams' consolidated federal income tax group. If WCG ceases to be a
member of Williams' consolidated federal income tax return, WCG will retain only
its allocable share under applicable law of any consolidated loss or other
similar tax attribute realized after the initial public offering to the extent
that it has not been treated as utilizing such loss or attribute on a
hypothetical separate tax return basis under the tax sharing agreement. Similar
concepts apply to allocate the state unitary, combined or consolidated, income
tax liability.
F-22
<PAGE> 187
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for income taxes for the six months ended June 30,
1999 and 1998 (unaudited) and the years ended December 31, 1998, 1997 and 1996
includes:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, (UNAUDITED) YEARS ENDED DECEMBER 31,
-------------------- ---------------------------
1999 1998 1998 1997 1996
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current:
Federal................. $ -- $ -- $ -- $ -- $ 1,810
State................... 10 38 162 2,081 158
Foreign................. 2,791 586 2,522 1,734 --
------- ------- ------- ------- -------
2,801 624 2,684 3,815 1,968
Deferred:
Federal................. 32,318 (1,313) (5,652) (2,761) (1,761)
State................... 10,715 (495) (2,129) 984 161
------- ------- ------- ------- -------
43,033 (1,808) (7,781) (1,777) (1,600)
------- ------- ------- ------- -------
Total provision
(benefit)............... $45,834 $(1,184) $(5,097) $ 2,038 $ 368
======= ======= ======= ======= =======
</TABLE>
The following table presents the U.S. and foreign components of loss before
income taxes for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
--------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States................................ $(183,074) $(33,930) $(2,184)
Foreign...................................... (2,952) 125 (962)
--------- -------- -------
Total loss before taxes...................... $(186,026) $(33,805) $(3,146)
========= ======== =======
</TABLE>
F-23
<PAGE> 188
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliations from the benefit for income taxes at the federal statutory
rate to the provision (benefit) for income taxes for the six months ended June
30, 1999 and 1998 (unaudited) and the years ended December 31, 1998, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, (UNAUDITED) YEARS ENDED DECEMBER 31,
---------------------- -----------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Benefit at statutory
rate................ $(52,581) $(14,721) $(65,109) $(11,832) $(1,101)
Increases (reductions)
in taxes resulting
from:
State income
taxes............ 6,804 (297) (1,279) 1,992 207
Goodwill
amortization..... 3,566 1,195 5,286 2,675 1,469
Asset sales......... 16,765 -- -- -- --
- ---------------------- --------
Non-taxable gain
from the sale of
interest in
subsidiary....... -- -- -- (15,605) --
Change in valuation
allowance........ -- (1,727) (7,639) 10,827 --
Tax benefits
allocated to
Williams......... 69,910 13,625 60,261 12,761 --
Other -- net........ 1,370 741 3,383 1,220 (207)
-------- -------- -------- -------- -------
Provision (benefit)
for income taxes.... $ 45,834 $ (1,184) $ (5,097) $ 2,038 $ 368
======== ======== ======== ======== =======
</TABLE>
Significant components of deferred tax assets and liabilities as of
December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Deferred revenues..................................... $14,321 $ 15,424
Impairment and other charges.......................... 3,880 17,441
Other................................................. 12,789 3,392
------- --------
30,990 36,257
Valuation allowance..................................... (3,188) (10,827)
------- --------
Total deferred tax assets............................... 27,802 25,430
Deferred tax liabilities:
Property, plant and equipment......................... 14,783 21,759
Securities available for sale......................... 13,763 (1,565)
Other................................................. 4,844 5,236
------- --------
Total deferred tax liabilities.......................... 33,390 25,430
------- --------
Net deferred tax liability.............................. $ 5,588 $ --
======= ========
</TABLE>
Valuation allowances have been established that reduce deferred tax assets
to an amount that will more likely than not be realized. Uncertainties that may
affect the realization of these
F-24
<PAGE> 189
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assets include application of the tax sharing agreement with Williams, tax law
changes and expiration of carryforward periods. The valuation allowance
decreased during 1998 and increased during 1997, primarily due to application of
the tax sharing agreement with Williams.
If WCG had filed a separate federal income tax return for all periods
presented, the provision (benefit) for income taxes for 1998 and 1997 would
reflect additional benefit from the carryback or carryforward of federal net
operating losses that would have been recognized by WCG on a separate return
basis. The deferred federal income tax benefit for 1998 would have increased by
$5,588,000, to reflect the benefit of a deferred tax asset for the federal net
operating loss carryforward generated in 1998, to the extent of the existing net
deferred tax liability. A current federal income tax benefit for 1997 of
$12,761,000 would have been recognized to reflect the refund of tax from
carryback of the federal net operating loss generated in 1997. The provision
(benefit) for income taxes for 1996 would not change since a federal net
operating loss was not generated in 1996.
Cash payments for income taxes (net of refunds) were $2,067,000, $1,148,000
and $2,444,000 in 1998, 1997 and 1996, respectively.
6. EMPLOYEE BENEFIT PLANS
Substantially all of WCG's employees are covered by noncontributory defined
benefit pension plans. Effective August 1, 1997, separate plans were established
for the Solutions LLC union employees and Solutions LLC salaried employees.
Substantially all of the remaining WCG employees are covered by Williams'
noncontributory defined benefit pension plans in which WCG is included. WCG is
also included in Williams' health care plan that provides postretirement medical
benefits to certain retired employees.
Contributions for pension and postretirement medical benefits related to
WCG's participation in the Williams plans were $1,742,000, $357,000 and
$12,463,000 in 1998, 1997 and 1996, respectively. The change in contributions
from year to year is due to a change in the rate of pension contributions during
the periods. Contributions in excess of the minimum funding requirements were
made in 1996 and the resulting credit balances from 1996 were used to reduce the
required pension contributions in 1997.
The following table presents the changes in benefit obligations and plan
assets for pension benefits for the Solutions LLC plans for the years indicated.
It also presents a reconciliation of the funded status of these benefits to the
amount recognized in the accompanying consolidated balance sheet as of December
31 of each year indicated.
<TABLE>
<CAPTION>
PENSION BENEFITS
-----------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................ $41,987 $ --
Service cost........................................... 4,604 1,770
Interest cost.......................................... 2,972 1,130
Actuarial loss......................................... 2,566 497
Acquisition............................................ -- 38,663
Benefits paid.......................................... (234) (73)
------- -------
Benefit obligation at end of year........................ 51,895 41,987
------- -------
</TABLE>
F-25
<PAGE> 190
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PENSION BENEFITS
-----------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Change in plan assets:
Fair value of plan assets at beginning of year......... 42,971 --
Actual return on plan assets........................... 5,247 (956)
Acquisition............................................ 73 44,000
Employer contributions................................. 502 --
Benefits paid.......................................... (234) (73)
------- -------
Fair value of plan assets at end of year................. 48,559 42,971
------- -------
Funded status............................................ (3,336) 984
Unrecognized net actuarial loss.......................... 4,550 2,855
Unrecognized prior service credit........................ (1,230) (1,510)
------- -------
Net prepaid (accrued) benefit cost....................... $ (16) $ 2,329
======= =======
Included in the accompanying consolidated balance sheet
as follows:
Prepaid benefit cost................................... $ 2,196 $ 3,791
Accrued benefit cost................................... (2,212) (1,462)
------- -------
Net prepaid (accrued) benefit cost....................... $ (16) $ 2,329
======= =======
Net pension expense for the Solutions LLC plans consisted
of the following for the years ended December 31:
Components of net periodic pension expense:
Service cost........................................... $ 4,604 $ 1,770
Interest cost.......................................... 2,972 1,130
Expected return on plan assets......................... (4,293) (1,551)
Amortization of prior service credit................... (280) (117)
Recognized net actuarial gain.......................... (83) (18)
------- -------
Net periodic pension expense............................. $ 2,920 $ 1,214
======= =======
The following are the weighted-average assumptions
utilized as of December 31 of the year indicated:
Discount rate.......................................... 7.0% 7.1%
Expected return on plan assets......................... 10.0 10.0
Rate of compensation increase.......................... 5.0 5.0
</TABLE>
Williams maintains various defined contribution plans in which WCG is
included. WCG's costs related to these plans were $16,415,000, $9,564,000 and
$5,934,000 in 1998, 1997 and 1996, respectively. These costs increased over the
period from 1996 to 1998 primarily due to acquisitions (see Note 2).
Included in selling, general and administrative expenses for 1998 is an
accrual of $11,500,000 related to the modification of WCG's employee benefit
program associated with vesting of paid time off. In December 1998, WCG
increased the number of days in the new paid time off policy and changed the
benefits with regard to sick pay.
F-26
<PAGE> 191
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INVESTMENTS
Investments as of June 30, 1999 (unaudited) and December 31, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------
1999 (UNAUDITED) 1998 1997
---------------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Equity method:
ATL -- common stock.................. $ 55,603 $ 48,256 $ --
Others............................... -- 454 6,132
-------- -------- -------
55,603 48,710 6,132
Cost method:
ATL -- preferred stock............... 317,621 100,573 --
Others............................... 68,100 28,001 3,332
-------- -------- -------
385,721 128,574 3,332
Advances to investees................... 4,997 4,997 7,619
Marketable equity securities............ 211,310 82,936 11,087
-------- -------- -------
$657,631 $265,217 $28,170
======== ======== =======
</TABLE>
No dividends were received from investments in companies carried on the
equity basis for 1998, 1997 or 1996.
Included in the investments table above are noncurrent marketable equity
securities which are classified as available for sale under the scope of SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The
carrying amount of this investment is reported at fair value with net unrealized
appreciation or depreciation reported as a component of stockholder's equity. A
comparison of the carrying amount of this investment to cost as of June 30, 1999
(unaudited) and December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------------------------------
1999 (UNAUDITED) 1998 1997
-------------------- -------------------- --------------------
FAIR VALUE FAIR VALUE FAIR VALUE
(CARRYING (CARRYING (CARRYING
COST AMOUNT) COST AMOUNT) COST AMOUNT)
------- ---------- ------- ---------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Concentric Network
Corporation........ $41,543 $208,598 $41,543 $82,936 $15,000 $11,087
Other................ 2,700 2,712 -- -- -- --
------- -------- ------- ------- ------- -------
$44,243 $211,310 $41,543 $82,936 $15,000 $11,087
======= ======== ======= ======= ======= =======
</TABLE>
WCG acquired 710,036 warrants to purchase common stock of Concentric
Network Corporation in connection with WCG's acquisition of Concentric Network
Corporation common stock in 1997. No basis was allocated to the warrants as the
fair value of the warrants was considered to be nominal at the date the warrants
were acquired. Each warrant entitles the holder thereof to purchase one share of
Concentric Network Corporation common stock for $3. The warrants expire in 2002.
F-27
<PAGE> 192
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of August 12, 1999, the Concentric Network Corporation investment has
depreciated since June 30, 1999, to a fair value of $101.4 million based upon
the August 12, 1999 stock price of $19 3/8.
On January 13, 1999, the Brazilian Central Bank removed the limits of
variations of the Brazilian Real compared to the U.S. dollar, allowing free
market fluctuation of the exchange rate. As a result, the value of the Real in
U.S. dollars has declined 33% from December 31, 1998 to June 30, 1999.
Williams has granted WCG an option to acquire Williams' entire equity and
debt interest in Algar Telecom S/A, a Brazilian telecommunications company, at
net book value. The option is exercisable at any time from January 1, 2000 to
January 1, 2001 and is payable entirely in WCG's Class B common stock. The net
book value of Williams investment in Algar Telecom as of December 31, 1998 was
approximately $170 million including advances of $100 million. WCG has not
assigned any value to the option as of December 31, 1998.
At December 31, 1998, Williams, WCG's predecessor in interest, owned 30% of
the preferred shares in ATL and through participation in a limited liability
company owned 30% of the common stock. In March 1999, Williams, WCG's
predecessor in interest, purchased from Algar Telecom for $265 million an
additional 35% economic interest, representing a 19% voting interest, in ATL.
In March 1999, Williams, WCG's predecessor in interest, pledged 49% and
100% of its investment in ATL's common and preferred stock, respectively, as
collateral for a U.S. dollar denominated $521 million loan from Ericsson Project
Finance AB to ATL. In addition, Algar Telecom pledged 49% of its 51% investment
in ATL common stock and 100% of its 27% investment in ATL preferred stock as
collateral for the loan.
Summarized financial position as of December 31, 1998 and results of
operations for the period from inception (March 26, 1998) to December 31, 1998
for ATL are as follows (in thousands):
<TABLE>
<S> <C>
Current assets.............................................. $ 55,641
Noncurrent assets........................................... 1,572,276
Current liabilities......................................... (522,385)
Long-term debt.............................................. (26,427)
Other noncurrent liabilities................................ (649,743)
----------
Stockholders' equity........................................ $ 429,362
==========
Revenues.................................................... $ 29,953
Gross profit................................................ $ 281
Net loss.................................................... $ (42,277)
</TABLE>
On March 30, 1999, WCG acquired 19.9% of the common stock of Metrocom S.A.,
a start-up telecommunications company in Chile, for $15 million. WCG also paid
$9.5 million for warrants to purchase up to an additional 30.1% of Metrocom S.A.
If exercised, the warrants must be exercised in total and have an aggregate
exercise price of approximately $10 million. The warrants effectively expire
March 30, 2003. The investment in Metrocom S.A. is accounted for under the cost
method.
F-28
<PAGE> 193
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of June 30, 1999 (unaudited) and December
31 is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
DEPRECIABLE JUNE 30, -----------------------
LIVES 1999 1998 1997
-------------- ----------- ----------- ---------
(IN YEARS) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fiber........................ 25-30 $ 116,589 $ 116,439 $ 23,712
Optronics.................... 7-10 209,830 167,997 144,191
Right-of-way................. 20-40 135,165 135,113 5,291
Computer equipment........... 3 63,874 65,126 29,835
Customer premise equipment... 3 32,805 30,616 30,736
General office furniture and
fixtures................... 3-5 40,514 61,300 32,935
Buildings and leasehold 30 or life of
improvements............... lease 47,917 41,154 10,961
Construction in progress..... Not applicable 530,010 195,186 218,752
Other........................ Various 89,260 78,442 37,642
---------- --------- ---------
1,265,964 891,373 534,055
Less accumulated
depreciation and
amortization............ (202,629) (179,969) (126,403)
---------- --------- ---------
$1,063,335 $ 711,404 $ 407,652
========== ========= =========
</TABLE>
In connection with its fiber build projects, WCG periodically enters into
various agreements to obtain the use of property rights from Williams' pipeline
companies in exchange for telecommunications services. Under these agreements,
WCG commits to provide various levels and types of services as consideration for
the right-of-way obtained. As of December 31, 1998, such commitments were not
material.
Commitments for construction and acquisition of property, plant and
equipment are approximately $808,183,000 as of December 31, 1998. Included in
this amount is $470,440,000 for the purchase of optronics equipment from Nortel
to be used in building the network pursuant to an agreement with Nortel to
purchase $600 million of optronics equipment. In addition, included in the
commitments is $315,556,000 for the purchase of wireless capacity.
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Under Williams' centralized cash management system, WCG's cash accounts
reflect credit balances to the extent checks written have not been presented for
payment. The amount of these credit balances included in accounts payable is
$51,831,000 and $23,255,000 as of December 31, 1998 and 1997, respectively.
F-29
<PAGE> 194
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accrued liabilities as of June 30, 1999 (unaudited) and December 31 consist
of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------
1999 (UNAUDITED) 1998 1997
---------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Employee costs........................... $ 66,181 $ 68,025 $ 49,276
Deferred revenue......................... 124,280 67,228 45,601
Job costs and customer deposits.......... 16,421 19,161 19,258
Warranty................................. 10,586 10,967 13,232
Other.................................... 53,293 33,295 49,612
-------- -------- --------
$270,761 $198,676 $176,979
======== ======== ========
</TABLE>
10. LONG-TERM DEBT
Long-term debt (excluding amounts due affiliates as disclosed in Note 14)
as of June 30, 1999 (unaudited) and December 31 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------
1999 (UNAUDITED) 1998 1997
---------------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Credit agreements........................ $610,000 $ -- $125,000
Other.................................... 3,647 3,710 1,941
-------- ------ --------
613,647 3,710 126,941
Current maturities....................... 372 690 1,195
-------- ------ --------
Long-term debt........................... $613,275 $3,020 $125,746
======== ====== ========
</TABLE>
In July 1997, Solutions LLC and Williams entered into an unsecured credit
agreement with a bank. Under the terms of the credit agreement, Solutions LLC
has access to $300,000,000. Interest is payable monthly and accrues at rates
which vary with current market conditions. At December 31, 1997, the interest
rate was 6.2%. On January 26, 1999, WCG was added to the unsecured credit
agreement and agreed that the aggregate borrowings would not exceed
$400,000,000, including Solutions LLC's availability. Williams is the guarantor
for WCG under the credit agreement. WCG and Solutions LLC's availability under
the credit agreement is subject to borrowings by other Williams affiliates. In
March, 1999, WCG borrowed $265 million under the credit agreement for the
additional investment in ATL described in Note 7.
On April 16, 1999, WCG entered into a $1.4 billion unsecured revolving
credit facility which is guaranteed by Williams. The facility will expire on
September 30, 1999. As of June 30, 1999, WCG has borrowed $610 million on this
facility, of which the proceeds were used to pay off the outstanding amount of
$315 million under the July 1997 unsecured credit agreement. Interest is payable
monthly and accrues at rates which vary with current market conditions. At June
30, 1999, the weighted average interest rate was 6.0%.
Cash payments for interest were $2,427,000, $5,467,000 and $205,000 in
1998, 1997 and 1996, respectively.
F-30
<PAGE> 195
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The table below presents changes in the components of accumulated other
comprehensive income (loss).
<TABLE>
<CAPTION>
UNREALIZED FOREIGN
APPRECIATION CURRENCY
(DEPRECIATION) TRANSLATION
ON SECURITIES ADJUSTMENTS TOTAL
-------------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance as of December 31, 1996............ $ -- $ -- $ --
Current period change:
Pre-income tax amount.................... (3,913) (1,131) (5,044)
Income tax benefit....................... 1,565 -- 1,565
-------- -------- --------
Balance as of December 31, 1997............ (2,348) (1,131) (3,479)
Current period change:
Pre-income tax amount.................... 45,305 (1,792) 43,513
Income tax expense....................... (15,328) -- (15,328)
-------- -------- --------
29,977 (1,792) 28,185
-------- -------- --------
Balance as of December 31, 1998............ 27,629 (2,923) 24,706
Current period change:
Pre-income tax amount (unaudited)........ 125,674 (21,569) 104,105
Income tax expense (unaudited)........... (51,182) -- (51,182)
-------- -------- --------
74,491 (21,568) 52,923
-------- -------- --------
Balance as of June 30, 1999 (unaudited).... $102,120 $(24,491) $ 77,629
======== ======== ========
</TABLE>
12. STOCK-BASED COMPENSATION
Williams and WCG have several plans providing for Williams
common-stock-based awards to its employees and employees of its subsidiaries.
The plans permit the granting of various types of awards including, but not
limited to, stock options, stock-appreciation rights, restricted stock and
deferred stock. Awards may be granted for no consideration other than prior and
future services or based on certain financial performance targets being
achieved. The purchase price per share for stock options and the grant price for
stock-appreciation rights may not be less than the market price of the
underlying stock on the date of grant. Depending upon terms of the respective
plans, stock options become exercisable after three to five years, subject to
accelerated vesting if certain future stock prices or specific financial
performance targets are achieved. Stock options expire ten years after grant.
Williams' employee stock-based awards are accounted for under provisions of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. Williams' fixed plan common stock
options do not result in compensation expense, because the exercise price of the
stock options equals the market price of the underlying stock on the date of
grant.
F-31
<PAGE> 196
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma net income and earnings per share, assuming WCG had applied the
fair-value method of SFAS No. 123, "Accounting for Stock-Based Compensation," in
measuring compensation cost beginning with 1996 employee stock-based awards, are
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------ -----------------
PRO PRO PRO
FORMA REPORTED FORMA REPORTED FORMA REPORTED
-------- -------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net loss (thousands)............... (190,329) (180,929) (40,543) (35,843) (4,014) (3,514)
Loss per share..................... (190,329) (180,929) (40,543) (35,843) (4,014) (3,514)
</TABLE>
Pro forma amounts for 1998 include the remaining total compensation expense
from the awards made in 1997, as these awards fully vested in 1998 as a result
of the accelerated vesting provision. Pro forma amounts for 1997 include the
remaining total expense from the awards made in 1996, as these awards fully
vested in 1997 as a result of the accelerated vesting provisions. Since
compensation expense from stock options is recognized over the future years'
vesting period for pro forma disclosure purposes, and additional awards
generally are made each year, pro forma amounts may not be representative of
future years' amounts.
The fair value of the stock options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions: expected life of the stock options of approximately 5 years;
volatility of the expected market price of Williams common stock of 25 percent
(26 percent in 1997 and 22 percent in 1996); risk-free interest rate of 5.3
percent (6.1 percent in 1997 and 6.0 percent in 1996); and a dividend yield of
2.0 percent (1.7 percent in 1997 and 2.0 percent in 1996).
The following summary provides information on stock options in Williams
common stock granted to WCG employees:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------- ------------------ ------------------
WCG PLAN WILLIAMS PLANS WILLIAMS PLANS WILLIAMS PLANS
------------------ ------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- -------- ------- --------
(OPTIONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding --
Beginning of
year............ -- -- 4,911 $19.39 3,230 $14.19 1,657 $10.21
Granted.............. 490 $30.55 1,729 31.87 2,303 25.57 2,113 16.66
Exercised............ -- -- (1,093) 15.58 (450) 13.90 (430) 10.46
Canceled............. (20) 31.94 (169) 29.13 (172) 18.81 (110) 16.45
--- ------ ------ ------ ----- ------ ----- ------
Outstanding -- end of
year............... 470 $30.50 5,378 $23.87 4,911 $19.39 3,230 $14.19
--- ------ ------ ------ ----- ------ ----- ------
Exercisable at end of
year............... -- 3,754 $20.41 2,663 $14.13 1,161 $10.18
=== ====== ====== ===== ====== ===== ======
Weighted-average
grant date fair
value of options
granted during the
year............... $ 8.19 $ 8.19 $ 5.98 $ 3.92
</TABLE>
F-32
<PAGE> 197
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summary provides information on stock options in Williams
common stock issued to WCG employees outstanding and exercisable at December 31,
1998:
<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING
--------------------------------------- STOCK OPTIONS EXERCISABLE
WEIGHTED -------------------------
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
EXERCISE CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES: OPTIONS PRICE LIFE OPTIONS PRICE
- ------------------------- -------------- -------- ----------- -------------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
WCG Plan:
$23.00 to $31.94.......... 470 $30.50 9.5 years -- --
Williams Plans:
$4.62 to $27.37........... 3,753 $20.41 8.0 years 3,753 $20.41
$28.75 to $41.02.......... 1,625 $31.85 9.6 years 1 $40.99
----- -----
Total............. 5,378 $23.87 8.5 years 3,754 $20.41
</TABLE>
The following summary provides information on deferred shares of Williams
common stock granted to WCG employees:
<TABLE>
<CAPTION>
1998 1997 1996
------------------- -------- --------
WILLIAMS WILLIAMS WILLIAMS
WCG PLAN PLANS PLANS PLANS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Deferred shares granted..................... 165,000 109,565 14,232 209,410
Weighted-average grant date fair value of
shares granted............................ $ 31.59 $ 31.59 $ 19.94 $ 16.24
</TABLE>
Approximately, $1,197,000, $727,000, and $352,000 were recognized as
expense for deferred shares in 1998, 1997 and 1996, respectively.
Deferred shares are valued at the date of the award. The remaining value of
the deferred shares not expensed in the year granted is amortized over the
vesting period.
13. LEASES
LESSEE:
Future minimum annual rentals under noncancellable operating leases as of
December 31, 1998 are payable as follows:
<TABLE>
<CAPTION>
OFF-NETWORK
OFFICE CAPACITY
RENTAL AND EQUIPMENT OTHER TOTAL
-------- ------------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1999............................. $ 24,756 $ 79,730 $ 5,019 $109,505
2000............................. 21,173 134,851 5,030 161,054
2001............................. 17,935 104,117 1,689 123,741
2002............................. 13,118 91,622 691 105,431
2003............................. 11,169 69,396 691 81,256
Thereafter....................... 38,825 6,650 9,788 55,263
-------- -------- ------- --------
Total minimum annual rentals..... $126,976 $486,366 $22,908 $636,250
======== ======== ======= ========
</TABLE>
During 1998, WCG entered into an operating lease agreement covering a
portion of its fiber optic network. The total estimated cost of the network
assets to be covered by the lease
F-33
<PAGE> 198
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreement is $750 million. The lease term will include an interim term, during
which the covered network assets will be constructed, that is anticipated to end
no later than December 31, 1999, and a base term. The interim and base terms are
expected to total five years, and if renewed, could total seven years. Under the
terms of the lease agreement, WCG cannot sublease the assets without the prior
written consent of the lessor. Through June 30, 1999, WCG has not requested nor
has the lessor granted such consent.
WCG has an option to purchase the covered network assets during the lease
term at an amount approximating the lessor's cost. Williams provides a residual
value guarantee equal to a maximum of 89.9% of the transaction. The residual
value guarantee is reduced by the present value of the actual lease payments. In
the event that WCG does not exercise its purchase option, WCG expects the fair
market value of the covered network assets to substantially reduce Williams
payment under the residual value guarantee. WCG's disclosures for future minimum
annual rentals under noncancellable operating leases do not include amounts for
the residual value guarantee. As of June 30, 1999 (unaudited) and December 31,
1998, approximately $495 million and $287 million, respectively, of costs have
been incurred by the lessor.
Total capacity expense incurred from leasing from a third party's network
(off-network capacity expense) was $110,804,000, $68,824,000 and $45,033,000 in
1998, 1997 and 1996, respectively. All other rent expense was $37,826,000,
$24,912,000 and $17,588,000 in 1998, 1997 and 1996, respectively. Included in
other rent expense is office space charged from affiliates of $3,664,000,
$2,475,000 and $2,247,000 in 1998, 1997 and 1996, respectively.
LESSOR:
WCG has granted IRUs for dark fiber to third parties that are accounted for
as sales-type leases. The lease term is typically for 20 to 25 years and the
lessee can renew the leases at no cost for an additional period of 10 to 20
years. At December 31, 1998, all cash from sales-type leases has been received,
except for $27 million, which will be collected in 1999. Due to the initial term
of the IRUs and lessee renewal options, WCG has not recorded any residual value
for these leases.
14. RELATED PARTY TRANSACTIONS
Williams charges its subsidiaries, including WCG, for certain corporate
administrative expenses, which are directly identifiable or allocable to the
subsidiaries. Nortel also charges Solutions LLC for certain corporate
administrative expenses which are directly identifiable or allocable to
Solutions LLC. Details of such charges for the six months ended June 30, 1999
and 1998 (unaudited) and the years ended December 31 are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, (UNAUDITED) YEAR ENDED DECEMBER 31,
-------------------- ---------------------------
1999 1998 1998 1997 1996
-------- -------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Direct costs, charged from:
Williams.................. $11,125 $ 5,825 $13,364 $ 8,418 $ 6,370
Nortel.................... 1,173 6,278 10,727 15,260 --
Allocated charges from
Williams.................. 6,624 6,828 11,654 9,230 6,643
------- ------- ------- ------- -------
$18,922 $18,931 $35,745 $32,908 $13,013
======= ======= ======= ======= =======
</TABLE>
F-34
<PAGE> 199
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The above costs are reflected in selling, general and administrative
expenses in the accompanying consolidated statements of operations. Direct costs
charged from Williams or Nortel represent the direct costs of goods or services
provided by Williams or Nortel at our request as well as the cost of centralized
administrative services. Williams allocates its cost of centralized
administrative services based on a logical representation of the benefits
received, such as allocating Williams' human resources department based on
employee headcount. Allocated charges from Williams represent an allocation of
general corporate charges based on a three factor formula which considers
operating results, property, plant and equipment and payroll. In management's
estimation, the allocation methodologies used are reasonable and the direct and
allocated charges approximate amounts that would have been incurred on a
stand-alone basis.
Included in WCG's revenues are charges to Williams and its subsidiaries and
affiliates for managing their internal telephone operations of $4,526,000,
$4,010,000, $7,710,000, $5,217,000 and $4,918,000 for the six months ended June
30, 1999 and 1998 (unaudited) and the years ended December 31, 1998, 1997 and
1996, respectively. In addition, WCG's revenues include charges to Williams' gas
pipelines for managing microwave frequencies of $2,134,000, $2,120,000,
$4,254,000, $3,754,000 and $1,381,000 for the six months ended June 30, 1999 and
1998 (unaudited) and the years ended December 31, 1998, 1997 and 1996,
respectively.
As of June 30, 1999 (unaudited) and December 31, 1998 and 1997, WCG's net
amount due to or due from affiliates consists of an unsecured promissory note
agreement with Williams for both advances to and from Williams depending on the
respective cash positions of the companies. The agreement does not require
periodic principal payments or commitment fees and accordingly is normally
classified as noncurrent as periodic principal payments are not required.
Interest on noncurrent receivables and payables is accrued monthly and rates
vary with market conditions. The interest rate for noncurrent receivables and
payables with Williams at the end of the period was 5.9%, 5.8% and 6.2% for June
30, 1999 (unaudited) and December 31, 1998 and 1997, respectively. In addition,
the net amount due to or from affiliates consists of normal course receivables
and payables resulting from the use of each others services. A summary of these
payables and receivables as of June 30, 1999 (unaudited) and December 31
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------
1999 (UNAUDITED) 1998 1997
---------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Due from Williams...................... $ -- $ 3,881 $ --
======== ======== ========
Due to affiliates:
Williams............................... $ 30,357 $ -- $ 24,636
Nortel................................. 23,465 37,187 98,948
Other.................................. 1,900 1,323 --
-------- -------- --------
Total due to affiliates.................. $ 55,722 $ 38,510 $123,584
======== ======== ========
Noncurrent:
Due from Williams...................... $ -- $ -- $ 97,097
======== ======== ========
Due to affiliates:
Williams............................ $794,175 $614,343 $ --
Other............................... 6,781 6,367 --
-------- -------- --------
Total due to affiliates.................. $800,956 $620,710 $ --
======== ======== ========
</TABLE>
F-35
<PAGE> 200
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest expense to Williams was $16,902,000, $4,157,000, $16,933,000,
$2,657,000 and $16,776,000 for the six months ended June 30, 1999 and 1998
(unaudited) and the years ended December 31, 1998, 1997 and 1996, respectively.
No amounts, net of interest capitalized, were paid to Williams for interest in
the six months ended June 30, 1999 (unaudited) or the years ended December 31,
1998, 1997 and 1996.
Interest income from Williams was $2,932,000 in 1997. There was no interest
income from Williams for the six months ended June 30, 1999 (unaudited) or the
years ended December 31, 1998 and 1996.
In connection with the formation of Solutions LLC, a $160,873,000 note
payable to Nortel was established which was paid by Solutions LLC in August
1997. Total interest expensed and paid on the note during 1997 was $2,491,000.
Solutions LLC purchased inventory from Nortel for use in equipment
installations for $467,476,000 in 1998 and $310,599,000 for the period from
April 30, 1997 (date on which Nortel became a related party) to December 31,
1997. Solutions LLC has a distribution agreement with Nortel that extends
through December 2002. If for two consecutive years the percentage of Nortel
products purchased by Solutions LLC falls below approximately 78% and the rate
of growth of the purchase of Nortel products by Solutions LLC during the
two-year period is below that of other Nortel distributors, Nortel may require
WCG to buy, or WCG may require Nortel to sell, Nortel's entire interest in
Solutions LLC at market value.
In addition, Network purchased from Nortel optronics for use on its network
for $99,311,000 in 1998 and $30,241,000 for the period from April 30, 1997 to
December 31, 1997.
15. COMMITMENTS AND CONTINGENCIES
During 1998, Solutions LLC and one of its equipment suppliers amended an
existing take-or-pay contract for equipment purchases. The amended purchase
commitment terms require Solutions LLC equipment purchases from the supplier
totaling $10,000,000, $19,000,000 and $25,000,000 during the twelve-month
periods ended March 31, 1999, 2000 and 2001, respectively. Solutions LLC met its
March 31, 1999 commitment.
On December 17, 1998, WCG entered into two agreements with WinStar
Communications, Inc. ("WinStar"). WCG has a 25 year indefeasible right to use
approximately 2% of WinStar's wireless local capacity in exchange for payments
equal to $400 million. WinStar has a 25 year indefeasible right to use four
strands of WCG's fiber over 15,000 route miles on the network, a transmission
capacity agreement with a minimum commitment for approximately $120 million in
specified circuits over a twenty-year term and colocation space rental and
maintenance services in exchange for monthly payments equal to an aggregate of
approximately $644 million over the next seven years. The $644 million will be
allocated between dark fiber, services related to co-location, maintenance and
capacity according to the relative fair value of each component. As of June 30,
1999, WinStar has paid WCG approximately $44.1 million. WinStar has constructed
approximately 60 hubs, or antenna sites, which are currently available to WCG.
WinStar intends to construct 270 hubs by the end of 2001, and WCG will have the
ability to use all of these hubs for a period of 25 years. WCG will pay WinStar
the $400 million over the next four years as WinStar completes construction of
the hubs. WCG will amortize the $400 million to be capitalized on a
straight-line basis over the 25-year usage term. As of June 30, 1999, WCG has
paid WinStar approximately $120 million.
F-36
<PAGE> 201
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Shrier v. Williams was filed on August 4, 1999, in the U.S. District Court
for the Northern District of Oklahoma. The plaintiff seeks to bring a nationwide
class action on behalf of all landowners on whose property we have installed
fiber optic cable without the permission of the landowner. The plaintiff is
seeking a declaratory ruling that we are trespassing, damages resulting from the
alleged trespass, damages based on our profits from use of the property and
damages from alleged fraud. Relief requested by the plaintiff includes
injunction against further trespass, actual and punitive damages and attorneys'
fees.
The plaintiff is an owner of property on which a pipeline right of way used
for the single-fiber network is located. We believe that we have all requisite
permission for our right of way over the plaintiff's land. We also do not
believe that the plaintiff has sufficient basis for certification of a class
action.
Other communications carriers have been successfully challenged with
respect to their rights over railroad rights of way, which are also challenged
by the plaintiff. Approximately 15% of the Williams network is installed on
railroad rights of way. In many areas, the railroad granting us the license
holds full ownership of the land, in which case its license should be sufficient
to give us valid rights to cross the property. In some states where the railroad
is not the property owner but has an easement over the property the law is
unsettled as to whether a landowner's approval is required. We did not generally
obtain landowner approval where our right of way was located on railroad
easements. In most states, we have eminent domain rights which we believe would
limit our liability for any trespass damages. It is likely that we will be
subject to other purported class action suits challenging our railroad or
pipeline rights of way but we cannot quantify the impact of such claims at this
time. Thus, we cannot be certain that the plaintiff's purported class action or
other purported class actions, if successful, will not have a material adverse
effect on us.
WCG is a party to various other claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management, the
ultimate resolution of all claims, legal actions and complaints after
consideration of amounts accrued, insurance coverage, or other indemnification
arrangements will not have a materially adverse effect upon WCG's future
financial position, results of operations or cash flows.
16. FINANCIAL INSTRUMENTS
FAIR VALUE METHODS
The following methods and assumptions were used by WCG in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
balance sheet approximate fair value due to the short-term maturity of
these instruments.
Investments -- cost method and advances to investees: Fair value of
other cost method investments and advances to investees are estimated to
approximate historically recorded amounts as the operations underlying
these investments are in their initial phases.
Long-term debt: WCG's long-term debt consists primarily of variable
rate borrowings, including amounts from affiliates, for which the carrying
value approximates the fair value.
F-37
<PAGE> 202
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OFF-BALANCE-SHEET CREDIT AND MARKET RISK
In 1997, WCG entered into an agreement with Williams whereby WCG would sell
to Williams, on an ongoing basis, certain of WCG's accounts receivable. At
December 31, 1998 and 1997, $33,767,000 and $25,664,000 of WCG's accounts
receivable have been sold, respectively, to Williams. On January 31, 1999, WCG's
agreement with Williams expired and was not renewed.
CONCENTRATION OF CREDIT RISK
WCG's customers include numerous corporations. Approximately 68% and 86% of
receivables at December 31, 1998 and 1997, respectively, are for Solutions
related services. Approximately 25% and 3% of receivables at December 31, 1998
and 1997, respectively, are for network related services. WCG serves a wide
range of customers, none of which is individually significant to its business.
While sales to these various customers are generally unsecured, the financial
condition and creditworthiness of customers are routinely evaluated.
17. SUBSEQUENT EVENTS
On February 8, 1999 WCG and SBC announced a series of alliance agreements
in addition to SBC's plans to acquire up to 10% of the common stock of WCG. The
private investment is expected to occur simultaneously with the initial public
offering. SBC's initial investment will be limited to $500 million, which will
be reinvested by WCG in its business. If SBC's investment equals less than 10%
of the common stock, SBC has the ability to purchase the remainder of the 10% in
subsequent public offerings, if they occur. SBC's purchase of WCG stock is
contingent upon due diligence, WCG completing its initial public offering and
the continuing existence of the agreement under which WCG provides network
transport services. The initial public offering price, less the underwriters'
discount will determine the price of the SBC shares.
Once SBC receives regulatory approval to enter the long-distance business
within one state in its local service territory, it will have one seat on the
WCG board of directors. WCG will serve as SBC's preferred provider for all
domestic U.S. transport services. SBC will be WCG's preferred provider for
platform products and certain international transport services, so long as such
preferred services are provided at mutually acceptable prices and regulations do
not prohibit such an arrangement. WCG will work with SBC to connect SBC's
international cables to WCG's domestic network. The agreement also will allow
both parties to cross-market certain of each others services, and specifically
enable Solutions to offer SBC-branded products and services as an addition to
its array of voice and data communication equipment products and network
services.
Williams has a call option to purchase not less than all of the shares of
stock acquired by SBC, in the event of the termination, other than due to a
breach by WCG, of certain agreements with SBC, provided that Williams has at
least a 50% interest in WCG. The purchase price is equal to the market price at
the time of exercise less the underwriting discounts and commissions applicable
to the shares at the time of the initial offering.
On May 21, 1999, WCG entered into two memoranda of understanding with
Metromedia Fiber Network, Inc. under which both parties agree to enter into
20-year agreements with the other, providing for the following:
- Metromedia will lease to WCG dark fiber on up to 3,200 route miles on
its local networks, 6 to 96 fibers per segment and will provide WCG
with maintenance
F-38
<PAGE> 203
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
services and dark fiber connectivity to approximately 250 points of
presence and data centers, in exchange for approximately $317 million
payable by WCG over the duration of the agreement
- Metromedia will lease from WCG six dark fibers over substantially all
of the Williams network and WCG will provide colocation and
maintenance services in exchange for approximately $317 million
payable by Metromedia over the duration of the agreement
On May 24, 1999, WCG and Intel Corporation, on behalf of Intel Internet
Data Services, entered into a long-term master alliance agreement. The alliance
agreement provides that WCG and Intel Internet Data Services will purchase
services from one another pursuant to a service agreement and create a
co-marketing arrangement, each of which will have shorter terms than that of the
master alliance agreement. The services WCG will provide include domestic
transport services and may also include Internet connectivity. Intel will
provide web hosting services pursuant to the co-marketing arrangement.
Intel also entered into a securities purchase agreement with WCG and
Williams to purchase at the closing of this offering the number of shares of
common stock equal to $200 million divided by the initial public offering price
less the underwriting discount. The parties' obligations under the securities
purchase agreement are subject to closing conditions, including that the
alliance agreement is in full effect and that at least $500 million is raised in
this offering and that necessary governmental approvals have been obtained.
In connection with its purchase of common stock, Intel has agreed not to
transfer any of its shares of common stock to anyone except affiliates for a
period of eighteen months, but this transfer restriction provision will be
terminated if we have a change of control. In addition, the transfer restriction
does not prohibit Intel from participating in future registered offerings
initiated by us or from engaging in hedging transactions commencing six months
from the date of the equity offering. Intel also has registration rights in
connection with its holdings.
On May 25, 1999, WCG entered into a non-exclusive alliance agreement with
Telefonos de Mexico. Under the terms of the agreement, both WCG and Telefonos de
Mexico must first seek to obtain select international wholesale services between
Mexico and the United States and various other services from each other. WCG and
Telefonos de Mexico will also sell each other's products to their respective
customers and negotiate the terms under which both parties will provide
installation and maintenance of communications equipment and other services for
the other. In addition, WCG and Telefonos de Mexico will interconnect their long
distance fiber-optic networks to jointly develop seamless voice, data and video
transport services to serve their respective markets.
In addition, on May 25, 1999, Telefonos de Mexico entered into a securities
purchase agreement with WCG and Williams to purchase at the closing of the
equity offering up to the number of shares of common stock equal to $100 million
divided by the initial public offering price less the underwriting discount.
Telefonos de Mexico's obligation and ability to make the investment is
subject to conditions at closing, including that the alliance agreement with
Telefonos de Mexico be in full effect and that SBC approves the portion of
Telefonos de Mexico's investment that exceeds $25 million, which would require
SBC's investment to be limited to $425 million.
F-39
<PAGE> 204
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with its purchase of WCG common stock Telefonos de Mexico has
agreed to certain restrictions and will receive certain privileges, including
the following:
- Telefonos de Mexico has agreed not to acquire more than 10% of WCG's
common stock for a period of 10 years
- Telefonos de Mexico has agreed not to transfer to anyone, except
affiliates, any of its shares of WCG's common stock for a period of 3 1/2
years, but this transfer restriction provision will be terminated if WCG
has a change of control
- Telefonos de Mexico has agreed that WCG has the right, for a period of
3 1/2 years, to repurchase WCG stock at market value less the
underwriter's discount if the alliance agreement is terminated for any
reason other than a breach by WCG
Telefonos de Mexico also has registration rights in connection with its
holdings.
On May 27, 1999, Williams contributed its investments in the holding
companies, which owned the investments in ATL, PowerTel and MetroCom, to WCG at
their historical book values. The assets were transferred at their historical
book values, similar to a pooling of interests, as Williams had common control
over WCG and the holding companies contributed.
F-40
<PAGE> 205
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Williams Communications Group, Inc.
We have audited the accompanying combined statements of income and changes
in net assets and combined statements of cash flows of the Direct Sales
Subsidiary, Nortel Communications Systems ("NCS") and TTS Meridian Systems, Inc.
("TTS") (collectively, the "Business") of Enterprise Networks of Northern
Telecom Limited ("Nortel") for the four months ended April 30, 1997 and the year
ended December 31, 1996. These financial statements are the responsibility of
the Business' 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 in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosure 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 combined results of the Business' operations and
changes in net assets and its cash flows for the four months ended April 30,
1997 and the year ended December 31, 1996, in conformity with generally accepted
accounting principles in the United States.
DELOITTE & TOUCHE LLP
Toronto, Ontario
March 26, 1999
F-41
<PAGE> 206
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
COMBINED STATEMENTS OF INCOME AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
1997 1996
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Sales....................................................... $250,205 $733,111
Cost of Sales............................................... 182,539 527,980
-------- --------
Gross Profit................................................ 67,666 205,131
-------- --------
Selling, general and administrative......................... 55,242 167,234
Other....................................................... -- 1,023
-------- --------
Operating income............................................ 12,424 36,874
Interest income............................................. 592 1,405
-------- --------
Income before provision for income taxes.................... 13,016 38,279
Provision for income taxes (Note 5)......................... 5,330 16,018
-------- --------
Net income.................................................. $ 7,686 $ 22,261
======== ========
Net Assets:
Beginning of period......................................... $131,505 $140,201
Net Income.................................................. 7,686 22,261
Distribution from/(to) Nortel............................... 8,339 (30,957)
-------- --------
End of period............................................... $147,530 $131,505
======== ========
</TABLE>
F-42
<PAGE> 207
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
1997 1996
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income.................................................. $ 7,686 $ 22,261
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 2,121 6,993
Deferred taxes............................................ 705 (2,508)
Loss on write-down of property and equipment.............. -- 1,108
Cash provided (used) by changes in:
Receivables............................................ (12,859) 3,928
Inventories............................................ (1,873) (3,721)
Prepaid expenses....................................... 69 428
Accounts payable and accrued liabilities............... (2,832) 4,236
Distribution from/(to) Nortel.......................... 8,339 (30,957)
Other.................................................. 396 4,308
-------- --------
Net cash provided by operating activities................... 1,752 6,076
-------- --------
INVESTING ACTIVITIES
Payments for purchases of property and equipment............ (1,752) (6,076)
-------- --------
Net cash used by investing activities....................... (1,752) (6,076)
-------- --------
Increase in cash............................................ -- --
Cash at beginning of periods................................ -- --
-------- --------
Cash at end of periods...................................... $ -- $ --
======== ========
</TABLE>
F-43
<PAGE> 208
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOUR MONTHS ENDED APRIL 30, 1997 AND YEAR ENDED DECEMBER 31, 1996
(THOUSANDS OF DOLLARS)
1. BASIS OF PRESENTATION OF THE COMBINED FINANCIAL STATEMENTS
On April 30, 1997 the combined net assets of the Direct Sales Subsidiary,
Nortel Communications Systems, Inc. ("NCS"), and TTS Meridian Systems, Inc.
("TTS"), (collectively the "Business") of Enterprise Networks of Northern
Telecom Limited ("Nortel") were sold to a newly formed entity. Under the terms
of the purchase and sale agreement, Williams Communications Group, Inc. ("WCG")
and Nortel formed a new entity, Wiltel Communications, LLC (today known as
Williams Communications Solutions, LLC or "WCS").
The accompanying combined statements of income and changes in net assets,
and combined statements of cash flows ("the statements") have been prepared to
reflect the income, changes in net assets and cash flows associated with the
Business as if it had operated on a stand alone basis rather than as part of
Nortel.
The Business is comprised of the following:
-- NCS, which includes the following divisions: NCS East and NCS West; and
the consolidated subsidiaries Nortel Federal Systems, Inc., and Bell
Atlantic Meridian Systems ("BA Meridian"). BA Meridian was a joint
venture general partnership previously owned 80% by NCS and 20% by Bell
Atlanticom Systems Inc. Immediately prior to transferring the combined
net assets of the Business to WCS, Nortel purchased the 20% interest in
BA Meridian held by Bell Atlanticom Systems Inc. On April 30, 1997, 100%
of BA Meridian's net assets were sold to WCS, as part of the combined
net assets contributed, and;
-- TTS
All transactions and balances between combined entities have been
eliminated.
The combined statements include 100% of the results of BA Meridian. The 20%
portion owned by Bell Atlanticom Systems Inc. and included in these combined
statements amounted to $386 and $2,089 of net income, for the four months ended
April 30, 1997 and the year ended December 31, 1996, respectively.
The transfer of the net assets of the Business was governed by the
following agreements: the Limited Liability Agreement of Wiltel Communications,
LLC, dated as of April 1, 1997; the Formation Agreement between Northern Telecom
Inc., and Williams Communications Group, Inc. dated as of April 1, 1997, and the
Share Purchase Agreements for TTS Meridian Systems, Inc., by and between
Northern Telecom Limited and Williams Telecommunications Systems, Inc. ("WTI"),
dated April 30, 1997, collectively referred to as the "Agreement."
2. THE BUSINESS
The Business' principal activity is the marketing, sales and distribution
of telecommunications equipment. The Business is highly dependent on Nortel, as
substantially all of the products distributed are purchased from Nortel.
F-44
<PAGE> 209
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES
REVENUES AND RELATED COST OF SALES
Revenues and related costs for contracts and customer service orders are
recognized on a percentage-of-completion basis for individual contracts or
elements thereof, based on work performed, date of delivery to customer site,
and the ratio of costs incurred, to total estimated costs. The equipment portion
of contracts is recognized upon shipment.
Maintenance contract revenue is deferred and recognized over the life of
the contract on a straight-line basis.
TRANSLATION OF FOREIGN CURRENCIES
Except for TTS, the functional currency of each of the combined entities is
the U.S. dollar. The functional currency of TTS is the Canadian dollar. TTS'
operations are translated as follows:
i. Assets and liabilities are translated at the exchange rates in
effect at the balance sheet date.
ii. Revenues and expenses, including gains and losses on foreign
exchange transactions, are translated at average rates for the period.
iii. The unrealized translation gains and losses on the Business' net
investment, including long-term intercompany advances, in these operations
are normally accumulated in a separate component of stockholders' equity,
which would be described as currency translation adjustment ("CTA").
For the purposes of these financial statements CTA was not material, and
has been included as part of the combined net assets.
DEPRECIATION
Depreciation is generally calculated under the straight-line method using
rates based on the expected useful lives of the assets of 5 to 10 years. The
underlying assets being depreciated consist principally of computers and
telecommunications equipment, furniture and fixtures, vehicles and leasehold
improvements.
The cost of maintenance and repairs, which do not significantly improve or
extend the life of the respective assets, is charged to expense as incurred.
GOODWILL
Goodwill represents the excess, at the dates of acquisition, of the costs
over the fair values of the net assets of certain companies acquired by the
Business, and is amortized on a straight-line basis over an estimated life of 3
years. The carrying value of goodwill is evaluated to determine whether a
potential permanent impairment exists, management considers the financial
condition and expected future earnings before tax using projected financial
performance. A permanent impairment in the value of goodwill is written off
against earnings in the year such impairment is identified.
F-45
<PAGE> 210
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Business, except for the TTS portion, was not a taxable entity when
operated by Nortel; rather, its tax position was considered as part of the
consolidated tax calculation performed for Nortel. For the purposes of
presenting the Business as a stand alone entity an estimate of the tax position
has been calculated. The Business used the asset and liability method of
accounting for deferred income taxes. Under this method, deferred income tax
assets and liabilities are provided for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes, computed based on the rates and
provisions as measured by tax laws.
USE OF ESTIMATES
The statements reflect the operations and cash flows of the Business. The
statements have been prepared from the books, records and accounts of the
Business (including combining workpapers and supporting entries) on the basis of
established accounting methods, policies, practices and procedures and the
judgements and estimation methodologies used by Nortel and the Business, in
accordance with the generally accepted accounting principles of the United
States. All of the allocations and estimates reflected in the statements are
based on assumptions and estimates that management believes to be reasonable.
Actual results could differ significantly from those estimates.
WARRANTIES
Warranty and product allowances on sales are estimated and charged to cost
of sales at the time the products are sold to customers.
RECENT ACCOUNTING STANDARDS
Due to the sale of the Business on April 30, 1997, the results of
operations, cash flows and financial position for the Business subsequent to
that date would be included in the financial statements of WCS. New accounting
standards would be taken into consideration by WCS in the preparation of their
financial statements.
4. GOODWILL
Total goodwill amortization charged to operations for the four months ended
April 30, 1997 and the year ended December 31, 1996 was $333 and $1,283,
respectively.
F-46
<PAGE> 211
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
FOUR MONTHS ENDED YEAR ENDED
APRIL 30, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Current
Federal..................................... $1,851 $13,868
State/Provincial............................ 601 2,150
------ -------
2,452 16,018
------ -------
Deferred
Federal..................................... 2,528 --
State/Provincial............................ 350 --
------ -------
2,878 --
------ -------
Total provision............................... $5,330 $16,018
====== =======
</TABLE>
Reconciliations of the benefit for income taxes from the statutory rate to
the provision for income taxes are as follows:
<TABLE>
<CAPTION>
FOUR MONTHS ENDED YEAR ENDED
APRIL 30, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Statutory rate................................ 35.00% 35.00%
Increases (reductions) in taxes from:
State/Provincial rate....................... 7.78 5.43
Goodwill.................................... 0.13 0.66
Other....................................... 0.58 0.83
----- -----
Total provision............................... 43.49% 41.92%
===== =====
</TABLE>
The tax provision above is an estimate to reflect what the Business would
have paid had it been a stand alone company. Therefore, cash taxes paid are not
disclosed in these statements. Actual income taxes payable, if any, were paid by
Nortel, on behalf of the Business, on a consolidated basis.
6. PLANS FOR EMPLOYEES' PENSIONS
As the Business was part of Nortel as of April 30, 1997 and December 31,
1996, the eligible employees of the Business were members of the Nortel pension
plans. Nortel has non-contributory defined benefit pension plans covering
substantially all of its employees. The benefits are based on length of service
and rates of compensation.
Nortel's policy is to fund pensions based on widely used actuarial methods
as permitted by pension regulatory authorities. The funded amounts reflect
actuarial assumptions regarding compensation, interest, and other projections.
Plan assets are represented primarily by common stocks, bonds, debentures,
secured mortgages, and property.
Pension costs reflected in the combined statements of income are based on
the unit credit method of valuation of pension plan benefits.
F-47
<PAGE> 212
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
The following disclosure presents the estimated expense and funded status
reconciliations for the portions of the Nortel plan allocated to WCS employees
as if the Business had operated on a stand alone basis. Subsequent to April 30,
1997, WCS curtailed the plan relating to the transferred employees and later
settled the plan. As a result the plan as described below no longer exists.
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
PLAN ASSETS AND LIABILITIES:
Plan assets at fair value............................. $45,464 $43,069
------- -------
Actuarial present value of benefit obligation
Accumulated benefit obligation
Vested........................................... 21,507 20,228
Non-vested....................................... 4,534 4,266
Effect of salary projection......................... 17,322 16,299
------- -------
Projected benefit obligation.......................... 43,363 40,793
------- -------
Excess of plan assets at fair value over projected
benefit obligations................................. 2,101 2,276
Less:
Unrecognized net transition assets.................. 1,000 1,030
Unrecognized prior service costs.................... (1,225) (1,251)
Unrecognized net gains.............................. 557 557
------- -------
Pension asset....................................... $ 1,769 $ 1,940
======= =======
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
PENSION EXPENSE:
Service cost -- benefits earned....................... $ 1,424 $ 3,702
Interest cost on projected plan benefits.............. 1,163 2,926
Estimated return on plan assets....................... (1,301) (3,254)
Other
Amortization of net asset........................... (29) (88)
Amortization of unrecognized prior service cost..... 26 59
Amortization of net loss............................ -- 2
------- -------
Total expense for the period.......................... $ 1,283 $ 3,347
======= =======
Assumptions:
Discount rates...................................... 7.75% 7.75%
Rate of return on assets............................ 9.00% 9.00%
Rate of compensation increase....................... 4.5% 4.5%
</TABLE>
F-48
<PAGE> 213
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
7. POST RETIREMENT BENEFITS
The eligible employees of the Business were included in the Nortel post
retirement plans. The plans provided certain benefits other than pension to the
employees. The net post retirement costs include the following components:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
PLAN ASSETS AND LIABILITIES:
Plan assets at fair value............................. $ -- $ --
Accumulated post retirement benefit obligation........ 14,435 13,621
-------- --------
Deficiency of plan assets at fair value over projected
benefit obligation.................................. (14,435) (13,621)
Unrecognized prior service costs...................... 4,447 4,548
Unrecognized net gains................................ (183) (183)
-------- --------
Post retirement liability............................. $(10,171) $ (9,256)
======== ========
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
POST RETIREMENT EXPENSE:
Service cost........................................... $429 $1,095
Interest cost.......................................... 385 966
Other
Amortization of unrecognized prior service costs..... 100 300
---- ------
Total expense for the period........................... $914 $2,361
==== ======
Assumptions:
Weighted average discount rate....................... 7.75% 7.75%
Rate of compensation increase........................ 4.50% 4.50%
</TABLE>
The effect of a 1% increase in the assumed health care cost trend is not
material. The plan was unfunded at April 30, 1997 and December 31, 1996.
8. RELATED PARTY TRANSACTIONS
Transactions with Nortel and affiliated companies are significant. These
transactions occur at prices established between the Business and Nortel.
The Business purchased equipment based on Distribution Agreements with
other Nortel operating units, in the amount of $91,500 for the four months ended
April 30, 1997 and $287,100 for the year ended December 31, 1996. These amounts
reflect transfer prices equivalent to amounts which would have been charged to
any other third party distributor.
Pursuant to service arrangements with Nortel the Business paid
approximately $15,309 to Nortel during the four months ended April 30, 1997 and
$50,867 during the year ended December 31, 1996 for fringe benefits, accounting,
computer and other administrative services provided by Nortel. The charges were
based on actual costs incurred or allocated costs based on relative factors such
as square foot occupancy or head count. In management's estimates, the allocated
methodologies used are reasonable. In addition these amounts reflect fair value,
and
F-49
<PAGE> 214
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
approximate amounts that would have been incurred by the Business had it
purchased these services from third parties.
9. INFORMATION ON BUSINESS SEGMENT BY GEOGRAPHIC AREA
The Business operates in one business segment, telecommunications
equipment, and its activity consists of the sales and distribution of Nortel
products in North America.
GEOGRAPHIC AREA
The point of origin (the location of the selling organization) of revenues
and the location of the assets determine the geographic areas. The following
table sets forth information by geographic area:
<TABLE>
<CAPTION>
FOUR MONTHS ENDED YEAR ENDED
APRIL 30, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Total revenues:
United States............................... $223,860 $651,429
Canada...................................... 26,345 81,682
-------- --------
Total customer revenues....................... 250,205 733,111
-------- --------
Contribution to operating earnings:
United States............................... 56,599 172,558
Canada...................................... 11,067 32,573
-------- --------
67,666 205,131
General corporate expenses.................... 54,650 166,852
-------- --------
Income before income taxes.................... $ 13,016 $ 38,279
======== ========
</TABLE>
10. STOCK-BASED COMPENSATION
Certain employees of the Business were participants of the Northern Telecom
Limited 1986 Stock Option Plan As Amended and Restated ("the Plan"). Under the
Plan, options to purchase common shares of Nortel were granted at the market
value on the effective date of the grant. Generally, options become exercisable
over two or three years, depending on the year of the grant, and expire after
ten years.
The Business' employee stock-based awards were accounted for under
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Common stock options do
not result in compensation expense, because the exercise price of the stock
options equals the market price of the underlying stock on the effective date of
grant.
SFAS No. 123, "Accounting For Stock-Based Compensation," requires that
companies who continue to apply APB Opinion No. 25 disclose pro forma net income
assuming that the fair-value method in SFAS No. 123 had been applied in
measuring compensation cost. Pro forma net income for the Business was $6,376
and $20,987 for the four months ended April 30, 1997 and the year ended December
31, 1996, respectively. Reported net income was $7,686 and $22,261, for the four
months ended April 30, 1997, and the year ended December 31, 1996,
F-50
<PAGE> 215
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
respectively. Since compensation expense from stock options is recognized over
the future years' vesting period for pro forma disclosure purposes, and
additional awards generally are made each year, pro forma amounts may not be
representative of future years' amounts.
These options were not assumed by WCS on the transfer of the net assets of
the Business, and employees could continue to hold the options of Nortel common
shares under the Plan.
<TABLE>
<CAPTION>
APRIL 30, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Options granted for the period.................... 144,200 135,900
Weighted-average grant date fair value............ $ 13.22 $ 9.92
Options outstanding at period end................. 282,600 240,286
Options exercisable at period end................. 60,850 54,786
</TABLE>
11. COMMITMENTS
As at April 30, 1997, the future minimum lease payments under operating
leases consisted of:
<TABLE>
<S> <C>
Remaining 8 months of 1997.................................. $10,017
1998........................................................ 12,276
1999........................................................ 8,330
2000........................................................ 5,276
2001........................................................ 1,532
Thereafter.................................................. 601
-------
Total....................................................... $38,032
=======
</TABLE>
Rent expense on operating leases for the four months ended April 30, 1997
and the year ended December 31, 1996 amounted to $4,738 and, $14,053,
respectively.
12. CONTINGENT LIABILITIES
The Business is, from time to time, a litigant in various claims and
proceedings arising from the normal course of business. Although the outcome of
these proceedings cannot be precisely determined, management believes, based on
currently known facts and circumstances, that the disposition of these matters
will not have a material adverse effect on the Business' financial position.
13. CREDIT RISK
The Business is exposed to credit risk from customers. Such risk is
minimized due to the nature of the telecommunications distribution business
which results in the Business transacting with a large number of diverse
customers.
F-51
<PAGE> 216
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
WILLIAMS COMMUNICATIONS GROUP, INC.
COMMON STOCK
LOGO
------------
PROSPECTUS
, 1999
------------
SALOMON SMITH BARNEY
LEHMAN BROTHERS
MERRILL LYNCH & CO.
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 217
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY CHANGE. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
OUR SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
[ALTERNATE INTERNATIONAL PAGE]
SUBJECT TO COMPLETION, , 1999
PROSPECTUS
_______ SHARES
[WILLIAMS COMMUNICATIONS LOGO]
WILLIAMS COMMUNICATIONS GROUP, INC.
COMMON STOCK
- --------------------------------------------------------------------------------
This is our initial public offering of shares of common stock. We will apply for
listing on the New York Stock Exchange under the symbol "WCG." We anticipate
that the initial public offering price will be between $ ___ and $ ___ per
share.
We are offering _______ shares. Of the shares being offered, _______ shares
are being offered outside the United States and Canada and _______ shares are
concurrently being offered in the United States and Canada.
We are a subsidiary of The Williams Companies, Inc., and following this offering
The Williams Companies, Inc. will continue to hold a controlling interest in our
shares.
Investing in the shares involves risks. "Risk Factors" begin on page 10.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds, before expenses, to Williams Communications Group,
Inc....................................................... $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to additional
shares of common stock on the same terms and conditions as set forth above
solely to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Lehman Brothers expects to deliver the shares to purchasers on or about
, 1999.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Joint Book-Running Managers Co-Lead Manager
LEHMAN BROTHERS SALOMON SMITH BARNEY MERRILL LYNCH
Structural Advisor INTERNATIONAL INTERNATIONAL
</TABLE>
CAZENOVE & CO.
BANK OF AMERICA INTERNATIONAL LIMITED
CIBC WORLD MARKETS
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
, 1999
<PAGE> 218
[ALTERNATE INTERNATIONAL PAGE]
SHARES
LOGO
WILLIAMS COMMUNICATIONS GROUP, INC.
COMMON STOCK
---------------------------------------
PROSPECTUS
, 1999
---------------------------------------
LEHMAN BROTHERS
SALOMON SMITH BARNEY INTERNATIONAL
MERRILL LYNCH INTERNATIONAL
CAZENOVE & CO.
BANK OF AMERICA INTERNATIONAL LIMITED
CIBC WORLD MARKETS
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
<PAGE> 219
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant estimates that expenses payable by the Registrant in
connection with the equity offering described in this registration statement
(other than the underwriting discount and commissions) will be as follows*:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee............... $ 208,500
NASD filing fee............................................. 30,500
New York Stock Exchange listing fee......................... 252,600
Blue sky fees and expenses.................................. 10,000
Accounting fees and expenses................................ 1,050,000
Legal fees and expenses..................................... 1,400,000
Printing and engraving fees................................. 1,000,000
Miscellaneous............................................... 48,400
----------
Total.................................................. $4,000,000
==========
</TABLE>
- -------------------------
* All fees except the Securities and Exchange Commission and NASD filing fees
are estimates.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is incorporated under the laws of the State of Delaware.
Section 145 ("Section 145") of the General Corporation Law of the State of
Delaware ("DGCL") provides that a Delaware corporation may indemnify any persons
who are, or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person is or was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding provided such
person acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his or
her conduct was illegal. A Delaware corporation may indemnify any persons who
are, or are threatened to be made, a party to any threatened, pending or
completed action or suit by or in the right of the corporation by reason of the
fact that such person was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the corporation's best
interests except that no indemnification is permitted without judicial approval
if the officer or director is adjudged to be liable to the corporation. Where an
officer or director is successful on the merits or otherwise in the defense of
any action referred to above, the corporation must indemnify him or her against
the expenses which such officer or director has actually and reasonably
incurred.
II-1
<PAGE> 220
Section 145 further provides that the indemnification provisions of Section
145 shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office. The Restated Certificate of Incorporation contains a provision
eliminating, to the fullest extent permitted by the DGCL as it exists or may in
the future be amended, the liability of a director to the Company and its
stockholders for monetary damages for breaches of fiduciary or other duty as a
director. However, the DGCL does not currently allow such provision to limit the
liability of a director for: (i) any breach of the director's duty of loyalty to
the Company or its stockholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of laws; (iii)
payment of dividends, stock purchases or redemptions that violate the DGCL; or
(iv) any transaction from which the director derived an improper personal
benefit. Such limitation of liability also does not affect the availability of
equitable remedies such as injunctive relief or rescission.
The Restated Certificate of Incorporation and the By-Laws also provide
that, to the fullest extent permitted by the DGCL as it exists or may in the
future be amended, the Company will indemnify and hold harmless any director who
is or was made a party or is threatened to be made a party to or is involved in
any manner in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was a director or officer of the Company or its
subsidiaries, and any person serving at the request of the Company as an
officer, director, partner, member, employee or agent of another corporation,
partnership, limited liability company, joint venture, trust, employee benefit
plan or other enterprise and may indemnify any officer, employee or agent of the
Company; provided, however, that the Company will indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors or is a proceeding to enforce such person's
claim to indemnification pursuant to the rights granted by the Restated
Certificate of Incorporation or By-Laws. In addition, the Company will pay the
expenses incurred by directors, and may pay the expenses incurred by other
persons that may be indemnified pursuant to the Restated Certificate and the
By-Laws, in defending any such proceeding in advance of its final disposition
upon receipt (unless the Company upon authorization of the Board of Directors
waives such requirement to the extent permitted by applicable law) of an
undertaking by or on behalf of such person to repay such amount if it is
ultimately determined that such person is not entitled to be indemnified by the
Company as authorized in the Restated Certificate of Incorporation or By-Laws or
otherwise. The Restated Certificate and the By-Laws also state that such
indemnification is not exclusive of any other rights of the indemnified party,
including rights under any indemnification agreements or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
II-2
<PAGE> 221
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.++
3.1 Form of Restated Certificate of Incorporation of the
Company.++
3.2 Form of Restated By-laws of the Company.++
4.1 Specimen certificate of common stock.++
4.2 Specimen certificate of Class B common stock.++
4.3 Form of certificate of designation of Series A Junior
Participating Preferred Stock.+
5.1 Opinion of William G. von Glahn, Esq.++
10.1 Securities Purchase Agreement among Williams Communications
Group, Inc., The Williams Companies, Inc. and Telefonos de
Mexico, S.A. de C.V., dated May 25, 1999.+
10.2 Amended and Restated Alliance Agreement Between Telefonos de
Mexico, S.A. de C.V. and Williams Communications, Inc.,
dated May 25, 1999.*
10.3 Securities Purchase Agreement dated as of May 24, 1999 by
and among Williams Communication Group, Inc., The Williams
Companies, Inc. and Intel Corporation.+
10.4 Master Alliance Agreement Between Intel Internet Data
Services and Williams Communications, Inc., dated as of May
24, 1999.*
10.5 Memorandum of Understanding Regarding the Lease of Fiber
Strands by Metromedia Fiber Network Services, Inc. to
Williams Communications, Inc., dated May 21, 1999.+*
10.6 Memorandum of Understanding Regarding the Lease of Fiber
Strands by Williams Communications, Inc. to Metromedia Fiber
Network Services, Inc., dated May 21, 1999.+*
10.7 Loan Agreement dated as of April 16, 1999 among Williams
Communications Group, Inc., Bank of America National Trust
and Savings Association, and the other financial
institutions party hereto, Nationsbanc Montgomery Securities
LLC, Chase Securities Inc., Bank of Montreal, and The Bank
of New York.+
10.8 Shareholders Agreement by and among Metrogas S.A., Williams
International Telecom (Chile) Limited, and Metrocom S.A.,
dated March 30, 1999 and Letter Agreement dated March 30,
1999.+*
10.9 Share Purchase Agreement by and Among Lightel, S.A.
Technologia de Informacao, Williams International ATL
Limited, Johi Representacoes Ltda and ATL-Algar Telecom
Leste, S.A., dated as of March 25, 1999.+
10.10 Master Alliance Agreement between SBC Communications Inc.
and Williams Communications, Inc. dated February 8, 1999.+*
10.11 Transport Services Agreement dated February 8, 1999, between
Southwestern Bell Communication Services, Inc. and Williams
Communications, Inc.*
10.12 Securities Purchase Agreement dated February 8, 1999,
between SBC Communications Inc. and Williams Communications
Group, Inc.+
10.13 Second Amended and Restated Credit Agreement dated as of
July 23, 1997 among The Williams Companies, Inc., Northwest
Pipeline Corporation, Transcontinental Gas Pipeline
Corporation, Texas Gas Transmission Corporation, Williams
Pipeline Company, Williams Holdings of Delaware, Inc.,
WilTel Communications, LLC, and Amendment thereto dated as
of January 26, 1999.+
</TABLE>
II-3
<PAGE> 222
<TABLE>
<C> <S>
10.14 Amended and Restated Lease for Bank of Oklahoma Tower, as of
January 1, 1999, by and between Williams Headquarters
Building Company and The Williams Companies, Inc.+
10.15 Lease as of January 1, 1999, for Williams Technology Center,
by and between Williams Headquarters Building Company and
Williams Communications Group, Inc.+
10.16 Lease as of January 1, 1999, for Williams Resource Center,
by and between Williams Headquarters Building Company and
Williams Communications Group, Inc.+
10.17 Wireless Fiber IRU Agreement by and between WinStar
Wireless, Inc. and Williams Communications, Inc., effective
as of December 17, 1998.+
10.18 IRU Agreement between WinStar Wireless, Inc. and Williams
Communications, Inc., dated December 17, 1998 (long haul),
together with Clarification Agreement effective as of
December 17, 1998 and Side Agreement dated March 31, 1999.+*
10.19 UtiliCom Networks, Inc. Note and Warrant Purchase Agreement
dated December 15, 1998.+
10.20 Consolidated IRU Agreement by and among IXC Carrier, Inc.,
Vyvx, Inc. and The WilTech Group, dated December 9, 1998 and
Amendment No. 4, dated December 22, 1998.*
10.21 Stock Purchase Agreement for CNG Computer Networking Group
Inc. by and among The Sellers (1310038 Ontario Inc., George
Johnston, Hayden Marcus, The H. Marcus Family Trust and Gary
White), WilTel Communications (Canada), Inc. and Williams
Communications Solutions, LLC, dated October 13, 1998.
10.22 Preferred Stock Purchase by and among UniDial Holdings, Inc.
and Williams Communications, Inc., dated October 2, 1998.*
10.23 Amended and Restated Lease between State Street Bank & Trust
Co. of Connecticut, National Association, as Lessor, and
Williams Communications, Inc., as Lessee, as of September 2,
1998.+
10.24 Amended and Restated Participation Agreement dated as of
September 2, 1998, among Williams Communications, Inc.;
State Street Bank & Trust Company of Conn., National
Association, as Trustee; Note Holders and Certificate
Holders; APA Purchasers; State Street Bank & Trust Co., as
Collateral Agent; and Citibank, N.A., as agent, with
Citibank, N.A. and Bank of Montreal as Co-Arrangers; Royal
Bank of Canada, as Documentation Agent; and Bank of America,
The Chase Manhattan Bank and Toronto Dominion, as Managing
Agents.+*
10.25 Capacity Purchase Agreement between Williams Communications,
Inc. and Intermedia Communications, Inc., dated January 5,
1998 and Amendment dated August 5, 1998.*
10.26 Settlement and Release Agreement by and between WorldCom
Network Services, Inc. and Williams Communications, Inc.,
dated July 1, 1998.*
10.27 Umbrella Agreement by and between DownTown Utilities Pty
Limited, WilTel Communications Pty Limited, Spectrum Network
Systems Limited, CitiPower Pty, Energy Australia, South East
Queensland Electricity Corporation Limited, Williams
Holdings of Delaware Inc. and Williams International
Services Company, dated June 19, 1998.+
10.28 Carrier Services Agreement between Vyvx, Inc. and U S WEST
Communications, Inc., dated January 5, 1998, and Amendment
No. 1, dated June 14, 1999.+*
10.29 Distributorship Agreement by and between Northern Telecom
Limited and WilTel Communications, L.L.C., dated January 1,
1998.*
</TABLE>
II-4
<PAGE> 223
<TABLE>
<C> <S>
10.30 Common Stock and Warrant Purchase Agreement by and among
Concentric Network Corporation and Williams Communications
Group, Inc., dated July 25, 1997.+
10.31 Note and Warrant Purchase Agreement by and among Concentric
Network Corporation and Williams Communications Group, Inc.,
dated June 19, 1997.+
10.32 Limited Liability Company Agreement of WilTel
Communications, LLC, by and between Williams Communication
Group, Inc. and Northern Telecom, Inc., dated April 30,
1997.
10.33 Share Purchase Agreement for TTS Meridian Systems Inc. by
and among Northern Telecom Limited, WilTel Communications,
LLC and 1228966 Ontario Inc., dated April 30, 1997.*
10.34 Formation Agreement by and between Northern Telecom, Inc.
and Williams Communications Group, Inc., dated April 1,
1997.*
10.35 Stock Purchase Agreement among ABC Industria e Comercio
S.A.-ABC INCO, Lightel S.A. Tecnologia da Informacao, Algar
S.A.-Empreendimentos e Participacoes and Williams
International Telecom Limited, dated January 21, 1997.+
10.36 Subscription and Shareholders Agreement among Lightel S.A.
Tecnologia da Informacao, Algar S.A.-Empreendimentos e
Participacoes and Williams International Telecom Limited,
dated January 21, 1997.+
10.37 Sublease Agreement as of June 1, 1996, by and between
Transcontinental Gas Pipeline Company and Williams
Telecommunications Systems, Inc.+
10.38 System Use and Service Agreement between WilTel, Inc. and
Vyvx, Inc. effective as of January 1, 1994.+*
10.39 Form of administrative services agreement.+
10.40 Form of service agreement.+
10.41 Form of tax sharing agreement.+
10.42 Form of indemnification agreement.+
10.43 Form of rights agreement.+
10.44 Form of registration rights agreement.+
10.45 Form of separation agreement.+
10.46 Call option agreement by and among Williams Holdings of
Delaware, Inc., Williams International Company, Williams
International Telecom Limited, and Williams Communications
Group, Inc. dated May 27, 1999.+
10.47 Form of cross-license agreement.+
10.48 Form of technical, management and administrative services
agreement.+
10.49 The Williams Companies, Inc. 1996 Stock Plan.+
10.50 The Williams Companies, Inc. Stock Plan for Nonofficer
Employees.+
10.51 Williams Communications Stock Plan.+
10.52 Williams Communications Group, Inc. 1999 Stock Plan.+
10.53 Williams Pension Plan.+
10.54 Solutions LLC Pension Plan.+
10.55 Williams Communications Change in Control Severance Plan.+
10.56 Stock purchase agreement by and between Williams
Communications, Inc. Conferencing Acquisition Corporation
and Genesys, S.A. dated as of June 30, 1999.
10.57 Form of loan agreement and promissory note between Williams
Communications, Inc. and The Williams Companies, Inc.+
</TABLE>
II-5
<PAGE> 224
<TABLE>
<C> <S>
10.58 Williams Communications, Inc. Senior Credit Facilities
Commitment Letter, dated June 2, 1999.+
12.1 Statement re: Computation of Ratios.
21 List of Subsidiaries.++
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen S/C.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of William G. von Glahn, Esq. (contained in opinion
filed as Exhibit 5.1).
23.5 Consent of H. Brian Thompson.+
23.6 Consent of Roy A. Wilkens.+
24 Power of Attorney.+
24.1 Power of Attorney of Michael P. Johnson, Sr. and Scott E.
Schubert.+
27.1 Financial Data Schedule -- Six Months Ended June 30, 1999.
27.2 Financial Data Schedule -- Six Months Ended June 30, 1998.
27.3 Restated Financial Data Schedule -- December 31, 1998.+
27.4 Restated Financial Data Schedule -- December 31, 1997.+
27.5 Restated Financial Data Schedule -- December 31, 1996.+
</TABLE>
- -------------------------
+ Previously filed.
++ To be filed by amendment.
* Portions of this exhibit have been redacted pursuant to a request for
confidential treatment which is currently being reviewed by the Securities
and Exchange Commission.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 225
(3) it will provide to the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit delivery to each
purchaser.
II-7
<PAGE> 226
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 6 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Tulsa, Oklahoma on the 18th day of August, 1999.
WILLIAMS COMMUNICATIONS GROUP, INC.
By: /s/ REBECCA H. HILBORNE
-------------------------------------
Rebecca H. Hilborne
Attorney-in-fact
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 6 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ * Chief Executive Officer and August 18, 1999
------------------------------------------------ President (Principal Executive
Howard E. Janzen Officer)
/s/ * Chief Financial Officer August 18, 1999
------------------------------------------------ (Principal Accounting and
Scott E. Schubert Financial Officer)
/s/ * Director August 18, 1999
------------------------------------------------
Keith E. Bailey
/s/ * Director August 18, 1999
------------------------------------------------
John C. Bumgarner, Jr.
/s/ * Director August 18, 1999
------------------------------------------------
Brian E. O'Neill
/s/ * Director August 18, 1999
------------------------------------------------
James R. Herbster
/s/ * Director August 18, 1999
------------------------------------------------
Michael P. Johnson, Sr.
/s/ * Director August 18, 1999
------------------------------------------------
Steven J. Malcolm
/s/ * Director August 18, 1999
------------------------------------------------
Jack D. McCarthy
</TABLE>
* Pursuant to a power of attorney.
II-8
<PAGE> 227
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Williams Communications Group, Inc.
We have audited the consolidated financial statements of Williams
Communications Group, Inc. as of December 31, 1998 and 1997, and for each of the
three years in the period ended December 31, 1998, and have issued our report
thereon dated April 7, 1999, except for the matters described in the third
paragraph of Note 10 and Note 17, as to which the date is July 27, 1999
(included elsewhere in this Registration Statement). The financial statements of
ATL-Algar Telecom Leste S.A., (an entity in which the Company has a 30%
interest, at December 31, 1998), have been audited by other auditors whose
report has been furnished to us; insofar as our opinion on the consolidated
financial statements relates to data included for ATL-Algar Telecom Leste S.A.,
it is based solely on their report. Our audits also included the financial
statement schedule listed in Item 16(b) of this Registration Statement. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Tulsa, Oklahoma
July 27, 1999
S-1
<PAGE> 228
WILLIAMS COMMUNICATIONS GROUP
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS(A)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------
CHARGED TO
BEGINNING COSTS AND ENDING
BALANCE EXPENSES OTHER DEDUCTIONS(B) BALANCE
--------- ---------- ----- ------------- -------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1998............................. 12,787 21,591 -- 10,802 23,576
1997............................. 4,950 7,837 7,799(c) 7,799 12,787
1996............................. 6,427 2,694 -- 4,171 4,950
</TABLE>
- ---------------
(a)Deducted from related assets.
(b)Represents balances written off, net of recoveries and reclassifications.
(c)Primarily relates to acquisitions of businesses.
S-2
<PAGE> 229
INDEX TO EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.++
3.1 Form of Restated Certificate of Incorporation of the
Company.++
3.2 Form of Restated By-laws of the Company.++
4.1 Specimen certificate of common stock.++
4.2 Specimen certificate of Class B common stock.++
4.3 Form of certificate of designation of Series A Junior
Participating Preferred Stock.+
5.1 Opinion of William G. von Glahn, Esq.++
10.1 Securities Purchase Agreement among Williams Communications
Group, Inc., The Williams Companies, Inc. and Telefonos de
Mexico, S.A. de C.V., dated May 25, 1999.+
10.2 Amended and Restated Alliance Agreement Between Telefonos de
Mexico, S.A. de C.V. and Williams Communications, Inc.,
dated May 25, 1999.*
10.3 Securities Purchase Agreement dated as of May 24, 1999 by
and among Williams Communication Group, Inc., The Williams
Companies, Inc. and Intel Corporation.+
10.4 Master Alliance Agreement Between Intel Internet Data
Services and Williams Communications, Inc., dated as of May
24, 1999.*
10.5 Memorandum of Understanding Regarding the Lease of Fiber
Strands by Metromedia Fiber Network Services, Inc. to
Williams Communications, Inc., dated May 21, 1999.+*
10.6 Memorandum of Understanding Regarding the Lease of Fiber
Strands by Williams Communications, Inc. to Metromedia Fiber
Network Services, Inc., dated May 21, 1999.+*
10.7 Loan Agreement dated as of April 16, 1999 among Williams
Communications Group, Inc., Bank of America National Trust
and Savings Association, and the other financial
institutions party hereto, Nationsbanc Montgomery Securities
LLC, Chase Securities Inc., Bank of Montreal, and The Bank
of New York.+
10.8 Shareholders Agreement by and among Metrogas S.A., Williams
International Telecom (Chile) Limited, and Metrocom S.A.,
dated March 30, 1999 and Letter Agreement dated March 30,
1999.+*
10.9 Share Purchase Agreement by and Among Lightel, S.A.
Technologia de Informacao, Williams International ATL
Limited, Johi Representacoes Ltda and ATL-Algar Telecom
Leste, S.A., dated as of March 25, 1999.+
10.10 Master Alliance Agreement between SBC Communications Inc.
and Williams Communications, Inc. dated February 8, 1999.+*
10.11 Transport Services Agreement dated February 8, 1999, between
Southwestern Bell Communication Services, Inc. and Williams
Communications, Inc.*
10.12 Securities Purchase Agreement dated February 8, 1999,
between SBC Communications Inc. and Williams Communications
Group, Inc.+
10.13 Second Amended and Restated Credit Agreement dated as of
July 23, 1997 among The Williams Companies, Inc., Northwest
Pipeline Corporation, Transcontinental Gas Pipeline
Corporation, Texas Gas Transmission Corporation, Williams
Pipeline Company, Williams Holdings of Delaware, Inc.,
WilTel Communications, LLC, and Amendment thereto dated as
of January 26, 1999.+
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10.14 Amended and Restated Lease for Bank of Oklahoma Tower, as of
January 1, 1999, by and between Williams Headquarters
Building Company and The Williams Companies, Inc.+
10.15 Lease as of January 1, 1999, for Williams Technology Center,
by and between Williams Headquarters Building Company and
Williams Communications Group, Inc.+
10.16 Lease as of January 1, 1999, for Williams Resource Center,
by and between Williams Headquarters Building Company and
Williams Communications Group, Inc.+
10.17 Wireless Fiber IRU Agreement by and between WinStar
Wireless, Inc. and Williams Communications, Inc., effective
as of December 17, 1998.+
10.18 IRU Agreement between WinStar Wireless, Inc. and Williams
Communications, Inc., dated December 17, 1998 (long haul),
together with Clarification Agreement effective as of
December 17, 1998 and Side Agreement dated March 31, 1999.+*
10.19 UtiliCom Networks, Inc. Note and Warrant Purchase Agreement
dated December 15, 1998.+
10.20 Consolidated IRU Agreement by and among IXC Carrier, Inc.,
Vyvx, Inc. and The WilTech Group, dated December 9, 1998 and
Amendment No. 4, dated December 22, 1998.*
10.21 Stock Purchase Agreement for CNG Computer Networking Group
Inc. by and among The Sellers (1310038 Ontario Inc., George
Johnston, Hayden Marcus, The H. Marcus Family Trust and Gary
White), WilTel Communications (Canada), Inc. and Williams
Communications Solutions, LLC, dated October 13, 1998.
10.22 Preferred Stock Purchase by and among UniDial Holdings, Inc.
and Williams Communications, Inc., dated October 2, 1998.*
10.23 Amended and Restated Lease between State Street Bank & Trust
Co. of Connecticut, National Association, as Lessor, and
Williams Communications, Inc., as Lessee, as of September 2,
1998.+
10.24 Amended and Restated Participation Agreement dated as of
September 2, 1998, among Williams Communications, Inc.;
State Street Bank & Trust Company of Conn., National
Association, as Trustee; Note Holders and Certificate
Holders; APA Purchasers; State Street Bank & Trust Co., as
Collateral Agent; and Citibank, N.A., as agent, with
Citibank, N.A. and Bank of Montreal as Co-Arrangers; Royal
Bank of Canada, as Documentation Agent; and Bank of America,
The Chase Manhattan Bank and Toronto Dominion, as Managing
Agents.+*
10.25 Capacity Purchase Agreement between Williams Communications,
Inc. and Intermedia Communications, Inc., dated January 5,
1998 and Amendment dated August 5, 1998.*
10.26 Settlement and Release Agreement by and between WorldCom
Network Services, Inc. and Williams Communications, Inc.,
dated July 1, 1998.*
10.27 Umbrella Agreement by and between DownTown Utilities Pty
Limited, WilTel Communications Pty Limited, Spectrum Network
Systems Limited, CitiPower Pty, Energy Australia, South East
Queensland Electricity Corporation Limited, Williams
Holdings of Delaware Inc. and Williams International
Services Company, dated June 19, 1998.+
10.28 Carrier Services Agreement between Vyvx, Inc. and U S WEST
Communications, Inc., dated January 5, 1998, and Amendment
No. 1, dated June 14, 1999.+*
10.29 Distributorship Agreement by and between Northern Telecom
Limited and WilTel Communications, L.L.C., dated January 1,
1998.*
</TABLE>
<PAGE> 231
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10.30 Common Stock and Warrant Purchase Agreement by and among
Concentric Network Corporation and Williams Communications
Group, Inc., dated July 25, 1997.+
10.31 Note and Warrant Purchase Agreement by and among Concentric
Network Corporation and Williams Communications Group, Inc.,
dated June 19, 1997.+
10.32 Limited Liability Company Agreement of WilTel
Communications, LLC, by and between Williams Communication
Group, Inc. and Northern Telecom, Inc., dated April 30,
1997.
10.33 Share Purchase Agreement for TTS Meridian Systems Inc. by
and among Northern Telecom Limited, WilTel Communications,
LLC and 1228966 Ontario Inc., dated April 30, 1997.*
10.34 Formation Agreement by and between Northern Telecom, Inc.
and Williams Communications Group, Inc., dated April 1,
1997.*
10.35 Stock Purchase Agreement among ABC Industria e Comercio
S.A.-ABC INCO, Lightel S.A. Tecnologia da Informacao, Algar
S.A.-Empreendimentos e Participacoes and Williams
International Telecom Limited, dated January 21, 1997.+
10.36 Subscription and Shareholders Agreement among Lightel S.A.
Tecnologia da Informacao, Algar S.A.-Empreendimentos e
Participacoes and Williams International Telecom Limited,
dated January 21, 1997.+
10.37 Sublease Agreement as of June 1, 1996, by and between
Transcontinental Gas Pipeline Company and Williams
Telecommunications Systems, Inc.+
10.38 System Use and Service Agreement between WilTel, Inc. and
Vyvx, Inc. effective as of January 1, 1994.+*
10.39 Form of administrative services agreement.+
10.40 Form of service agreement.+
10.41 Form of tax sharing agreement.+
10.42 Form of indemnification agreement.+
10.43 Form of rights agreement.+
10.44 Form of registration rights agreement.+
10.45 Form of separation agreement.+
10.46 Call option agreement by and among Williams Holdings of
Delaware, Inc., Williams International Company, Williams
International Telecom Limited, and Williams Communications
Group, Inc. dated May 27, 1999.+
10.47 Form of cross-license agreement.+
10.48 Form of technical, management and administrative services
agreement.+
10.49 The Williams Companies, Inc. 1996 Stock Plan.+
10.50 The Williams Companies, Inc. Stock Plan for Nonofficer
Employees.+
10.51 Williams Communications Stock Plan.+
10.52 Williams Communications Group, Inc. 1999 Stock Plan.+
10.53 Williams Pension Plan.+
10.54 Solutions LLC Pension Plan.+
10.55 Williams Communications Change in Control Severance Plan.+
10.56 Stock purchase agreement by and between Williams
Communications, Inc. Conferencing Acquisition Corporation
and Genesys, S.A. dated as of June 30, 1999.
10.57 Form of loan agreement and promissory note between Williams
Communications, Inc. and The Williams Companies, Inc.+
</TABLE>
<PAGE> 232
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10.58 Williams Communications, Inc. Senior Credit Facilities
Commitment Letter, dated June 2, 1999.+
12.1 Statement re: Computation of Ratios.
21 List of Subsidiaries.++
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen S/C.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of William G. von Glahn, Esq. (contained in opinion
filed as Exhibit 5.1).
23.5 Consent of H. Brian Thompson.+
23.6 Consent of Roy A. Wilkens.+
24 Power of Attorney.+
24.1 Power of Attorney of Michael P. Johnson, Sr. and Scott E.
Schubert.+
27.1 Financial Data Schedule -- Six Months Ended June 30, 1999.
27.2 Financial Data Schedule -- Six Months Ended June 30, 1998.
27.3 Restated Financial Data Schedule -- December 31, 1998.+
27.4 Restated Financial Data Schedule -- December 31, 1997.+
27.5 Restated Financial Data Schedule -- December 31, 1996.+
</TABLE>
- -------------------------
+ Previously filed.
++ To be filed by amendment.
* Portions of this exhibit have been redacted pursuant to a request for
confidential treatment which is currently being reviewed by the Securities
and Exchange Commission.
<PAGE> 1
Redacted portions have been marked with asterisks (****). Confidential treatment
has been requested for the redacted portions. The confidential redacted portions
have been filed separately with the Securities and Exchange Commission.
EXHIBIT 10.2
final Proprietary and Confidential
AMENDED AND RESTATED
ALLIANCE AGREEMENT
BETWEEN
TELEFONOS DE MEXICO, S.A. DE C.V.
AND
WILLIAMS COMMUNICATIONS, INC.
THIS ALLIANCE AGREEMENT (this "Agreement") between Williams
Communications, Inc., a Delaware corporation, and its Controlled
subsidiaries (collectively, "Williams") and Telefonos de Mexico, S.A.
de C.V., a Mexican corporation, and its Controlled subsidiaries
(collectively, "Telmex"), is effective May __, 1999 ("Effective Date").
Williams and Telmex are individually referred to as a "Party" and
collectively referred to as the "Parties." "Control or Controlled"
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies by one person or
entity or a group of related persons or entities acting in concert;
provided, however, that the legal or beneficial ownership, directly or
indirectly by one person or entity or a group of related persons or
entities acting in concert, of more than fifty percent (50%) of the
voting stock for the election of directors of a party shall always be
deemed Control. Exhibit A lists subsidiaries of each Party that shall
not be classified as Controlled subsidiaries, even though they may meet
the definition thereof. Exhibit A may be amended by either Party to add
or delete a listed subsidiary with the written consent of the other
Party, which consent shall not be unreasonably withheld
RECITALS
WHEREAS, Telmex provides telecommunications, exchange access, information
access, network management, networking services and network analysis in Mexico
and other parts of the world, including the United States;
WHEREAS, Telmex has investments in global telecommunications systems and has
established direct operating agreements and interconnection to foreign
carriers;
WHEREAS, Telmex is a provider of business communications equipment and
integration services for data, voice, video and advanced applications;
WHEREAS, Telmex together with Williams desires to offer its customers global
solutions for their voice, data, video and advanced application communications
needs,
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<PAGE> 2
final Proprietary and Confidential
and to implement a plan to enhance its competitive position in Mexico and the
United States;
WHEREAS, SBC Communications, Inc. owns equity in and has representation on the
board of directors of Telmex and intends to purchase equity in Williams;
WHEREAS, Williams is a nationwide, single source provider of business
communications equipment and integration services for data, voice, video and
advanced applications on a retail basis and a provider of facilities-based
network services for delivery of voice and data on a wholesale basis;
WHEREAS, Williams wishes to achieve additional geographic reach and economies
of scale that will enable Williams to lower its costs, increase its ability to
compete with established networks, and accelerate its construction program in
the wholesale market for voice and data network services in the United States
(the "United States" or the "U.S.") and use its domestic facilities to
interconnect with Telmex's Mexican network thereby providing seamless wholesale
services to its customers;
WHEREAS, the Parties are negotiating an alliance agreement with each other and
with SBC Communications Inc. (the "SBC/Telmex/WCI Alliance Agreement");
WHEREAS, the relationship contemplated by this Alliance will serve to broaden
the base of potential competitive opportunities for network services and other
applications for all market segments and to respond to the market's desire for
seamless product and service offerings throughout the United States and Mexico;
NOW THEREFORE, in consideration of the mutual covenants herein contained, and
subject to Telmex's and Williams' respective affiliates' contractual
obligations with third parties and to any applicable federal or state laws or
regulations, in both cases, either present or future, Telmex and Williams agree
as follows:
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<PAGE> 3
final Proprietary and Confidential
1. PURPOSE OF THE ALLIANCE
The purpose of this Agreement is to define a strategic, non-exclusive alliance
between the Parties in order to offer products and services through the
cooperative deployment of facilities and interconnection of networks that will
be designed to carry voice and data on a seamless nationwide and international
basis (the "Alliance").
The Parties acknowledge that the activities and relationships addressed by the
Alliance are subject to statutes and regulations of Mexico and the United
States. Notwithstanding anything to the contrary contained in any agreement
between the Parties including the prospective SBC/Telmex/WCI Alliance Agreement
and this Agreement, the Parties will not take any action and will not be bound
to act in connection with the Alliance which would constitute a violation of
applicable law or take an action which requires governmental or any third party
approval without first obtaining such approval.
2. RELATIONSHIP OF THE PARTIES
2.1. Preferred Provider
If either Telmex or Williams is designated in this Agreement as the
supplying party (the "Supplying Party") for a product or service as
agreed in writing by each of the Parties ("Alliance Product or
Service"), then whenever the other Party needs such Alliance Product or
Service, such supplied party (the "Supplied Party") will first seek to
obtain the needed Alliance Product or Service from the Supplying Party,
and therefore, the Supplying Party shall be the provider to the
Supplied Party of the Alliance Products or Services, provided, however,
that the Supplied Party shall not be obligated to use the other Party
as the Supplying Party and will be entitled to use the facilities of
any other provider or, if specified by contract or governmental
regulation, a specific third party provider in the following cases:
(i) if any customer of either Telmex or Williams
specifically requests the use of another provider;
(ii) if pursuant to existing contracts with third parties
as described in Exhibit B the Supplied Party is
required to obtain the product or service from any
other source;
(iii) if pursuant to governmental or regulatory
restrictions the Supplied Party is required to obtain
the product or service from any other source;
(iv) if an exception is provided for in any agreements
between the Parties including the proposed
SBC/Telmex/WCI Alliance Agreement; or
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<PAGE> 4
final Proprietary and Confidential
(v) if the Supplying Party is not offering Market Terms
and Conditions (as defined in the last paragraph of
this Section 2.1.), and technical performance or
quality comparable to competitive products and
services in accordance with the process in Section
3.3.
For purposes hereof, "Alliance Products and Services" specifically
shall include international switched voice traffic, international
private line, and international frame relay, as more fully described in
Section 1.1 and 1.2 of Schedule A which also includes current Alliance
pricing for them (including pricing for ancillary services) and the
identification of which Party is the Supplying Party. As contemplated
in Schedule A, the Parties agree to add to the Alliance Products and
Services any products that are developed and offered by either Party
during the term of this Agreement which products and services will be
made available to the other Party in accordance with the Preferred
Provider obligation. The Parties agree to exercise their best
reasonable efforts to develop and include new products, provided that,
no such product will be added without the prior agreement in writing by
both Parties. The product's description, pricing and performance
standards will be provided to the Supplied Party for review and
acceptance, in writing by both Parties, prior to such product being
added to the Alliance Products and Services. The term "Market Terms and
Conditions" shall mean the ****.
3. INTERNATIONAL WHOLESALE MARKET - MEXICAN ORIGINATED TRAFFIC BY TELMEX AND
U.S. ORIGINATED TRAFFIC BY WILLIAMS
3.1. Origin Country
This Section addresses the pricing and other terms and conditions
offered by each Party, as the Supplying Party, to the other for
Alliance Products and Services offered in connection with traffic
originated by a Party in its Origin Country for termination in the
other Party's Origin Country. Telmex's Origin Country is Mexico and
Williams' Origin Country is the United States. Unless otherwise
mutually agreed, traffic shall be designated as originating in the
country where the customer's principal place of business is located,
regardless of the city where the communications traffic is originated.
3.2. Most Favored Customer Treatment
The net settlements rate, inter-carrier pricing, revenue sharing
agreement, commission structure and other terms and conditions offered
by one Party to the other, for the Alliance Products and Services,
shall reflect the strategic and economic value of this relationship
and, in no event, be less favorable than that
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 5
final Proprietary and Confidential
granted to any other like entity in the market ("Most Favored Customer
Treatment"), provided, however, that such obligation will not be
applicable in any of the following cases:
(i) if more favorable terms and conditions are required
to be offered pursuant to existing contracts with
third parties as described in Exhibit B and/or in
accordance with governmental or regulatory
restrictions;
(ii) if an exception is provided for in any agreements
between the Parties including the proposed
SBC/Telmex/WCI Alliance Agreement or prohibited by
any law or regulations; or,
(iii) if the Supplied Party is not requesting technical
performance or quality comparable to competitive
products and services.
In the case of the Most Favored Customer Treatment offered to Williams
by Telmex, the term "like entity in the market" shall mean ****.
In the case of the Most Favored Customer Treatment offered to Telmex by
Williams, the term "like entity in the market" shall mean ****.
Further, Williams recognizes the strategic and economic value of the
Telmex relationship and the Most Favored Customer Treatment offered by
Williams will be commensurate with other large customers providing
similar value. Williams also recognizes that the value of the
relationship is likely to increase with the passage of time and
regulatory liberalization. Accordingly, Williams agrees annually to
revisit the Most Favored Customer Treatment accorded to Telmex in order
to reflect growth of the strategic and economic value to Williams.
3.3. Competitor's Pricing and Terms
If the Supplied Party receives a competing offer from another provider
offering to sell a product or service substantially similar to an
Alliance Product or Service upon terms and conditions that are better
than the Most Favored Customer Treatment offered by the Supplying
Party, the Supplied Party will, to the extent allowed by contract or
law, discuss with the Supplying Party the terms and conditions of
products and services offered by the competing provider and ****,
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 6
then the Supplied Party shall be free to use the competing provider's
product or services in accordance with the terms and conditions of the
competing offer which had been presented to the Supplying Party.
3.4. Cooperative Effort
If either Party is pursuing an strategic opportunity using an Alliance
Product or Service and the Party pursuing the opportunity indicates to
the Supplying Party that capturing the business opportunity with the
customer requires different pricing or other terms, the Supplying Party
agrees to exercise its best reasonable efforts to modify the pricing or
other terms of the Alliance Product or Service in order for the Parties
to provide the most competitive solution for the customer presenting
the strategic opportunity. ****
3.5. Withdrawal of the Most Favored Customer Treatment
Subject to the exception set forth in Section 4, **** Telmex shall
notify Williams by giving Williams thirty (30) days prior written
notice, and the Parties will attempt to negotiate what pricing will be
applicable to the Alliance Products and Services during this thirty
(30) day period. If the Parties can not reach agreement within the
thirty (30) day period, Williams shall, at its own discretion; ****
Williams must exercise this right within sixty (60) days of the receipt
date of the Telmex notice. No failure to exercise or no delay in
exercising the rights shall operate as a waiver of such right in the
future if a different situation arises again permitting the exercise of
such right.
****. The foregoing is only intended to describe those situations where
Williams has the option to terminate its obligation to offer Telmex
Most Favored Customer Treatment for Alliance Products or Services
purchased by Telmex to be offered in the U.S.
****. Williams shall notify Telmex by giving Telmex thirty (30) days
prior written notice, and the Parties will attempt to negotiate what
pricing will be applicable to the Alliance Products and Services during
this thirty (30) day period.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 7
final Proprietary and Confidential
If the Parties cannot reach agreement within the thirty (30) day period, Telmex
shall, at its own discretion, ****. Telmex must exercise this right within sixty
(60) days of the receipt date of the Williams notice. No failure to exercise or
no delay in exercising the rights shall operate as a waiver of such right in the
future if a different situation arises again permitting the exercise of such
right.
****
4. WHOLESALE MARKET - TELMEX BRANDED SWITCHED VOICE TRAFFIC U.S. ORIGIN
With respect to Telmex Branded Wholesale U.S. Switched Voice Traffic originating
within the U.S., based upon Williams' voice services as described in Section 1.2
of Schedule A, as further qualified in this paragraph (the "Exempt Wholesale
Service"), the parties agree to collaborate in the development of this product.
Telmex may offer this Telmex branded service by means of a distribution channel
or similar business structure that is established or maintained in the United
States for the purpose of offering this Exempt Wholesale Service and/or other
products to customers whose principal place of business is in the United States
who seek to terminate traffic on the Telmex network in the Mexican and the Latin
American markets, provided that this exception from Section 3.5 for the Exempt
Wholesale Service may be withdrawn by Williams, as the Supplying Party, if any
of the following occurs: (a) ****, and/or (b) ****. If either of provisos (a) or
(b) should occur, Williams shall, at its own discretion, (i) no longer be bound
to offer Exempt Wholesale Service Pricing (as defined in the following
paragraph) with respect to the Exempt Wholesale Service, and/or (ii) shall
terminate offering the Alliance Products and Services used by Telmex in offering
the Exempt Wholesale Service. Williams must exercise its rights in clauses (i)
and (ii) set forth directly above within sixty (60) days of when it learns or is
otherwise informed of the occurance of an event identified in provisos (a) or
(b). No failure to exercise or no delay in exercising the rights in clauses (i)
or (ii) shall operate as a waiver of such right in the future if a different
situation arises again permitting the exercise of such right.
Pricing for the Alliance Products and Services offered by Williams, as the
Supplying Party, which are used to collaborate in the development of the Exempt
Wholesale Service shall be established through the mutual agreement of the
Parties. Such pricing will be set on an individual case basis with the goal of
aggressively addressing the target market. In this regard, Williams will
exercise its best reasonable efforts to offer pricing to Telmex that captures
the opportunity and yields adequate compensation to both Parties ("Exempt
Wholesale Service Pricing"). In order to achieve the adequate compensation
anticipated by both Parties, **** Telmex recognizes that Williams obligation
under this Section is subject to the exceptions listed in Section 2.1 above and
Williams will be allowed to offer other wholesale products into Mexico for
customers under that provision.
****The term "Incremental Domestic Business" shall mean additional traffic
originating in the United States and terminating on the Williams network in the
U.S. from customers not previously utilizing the Williams network, which
additional traffic is secured in connection with such customer use of the Telmex
Branded Switched Voice Traffic U.S. Origin.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 8
final Proprietary and Confidential
5. RETAIL MARKET - TELMEX U. S. ORIGIN VOICE TRAFFIC
Williams agrees to develop with Telmex the Alliance Products and Services
identified in Section 1.2 of Schedule A so that Telmex can provide retail
service to customers originating traffic in the United States ("U. S. Retail
Voice Products"). The Parties will exercise their best reasonable efforts to
develop and deploy these U. S. Retail Voice Products in the market as soon as
possible.
For the U.S. Retail Voice Products, **** provided that (i) **** provides
Williams its written consent to this classification and (ii) contingent upon the
execution of a ****. This will allow Telmex to utilize the **** made available
to **** under the ****. Telmex shall be deemed a **** only for the purposes of
receiving the **** and shall not be bound by the other obligations under the
****, except as otherwise specifically agreed. Williams will provide the ****.
Until January 1, 2000, the withdrawal of **** is to be determined on a ****. If
on January 1, 2000, ****, then Williams and Telmex will negotiate as to whether
to continue the ****. The classification as an **** may be withdrawn
immediately upon notice by **** no longer desires that **** be classified as an
**** for the purposes of this Agreement.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 9
6. USE OF FACILITIES
Nothing in any agreement between the Parties including the proposed
SBC/Telmex/WCI Alliance Agreement shall be construed to prohibit either Party
from using its own facilities or services owned or leased by itself or its
Controlled subsidiaries as of the Effective Date. Also the Supplying Party may
use its assets to provide services or products to any third parties.
7. OTHER ALLIANCE AGREEMENTS
In addition to this Agreement, the Parties will use their respective reasonable
best efforts to promptly negotiate and execute (i) an Interconnection Agreement,
(ii) a Sales and Marketing Agreement (including gross revenue sharing procedures
as contemplated herein), and (iii) an International Transport Services
Agreement. The Parties intend to exercise reasonable best efforts to complete
these other "Alliance agreements" within thirty (30) days after the "Closing" as
that term is defined in the Securities Purchase Agreement referenced in Section
8 of this Agreement. Further, the Parties agree to discuss the benefits of
negotiating a CPE Installation and Maintenance Agreement and a Managed Services
Agreement. With respect to the Interconnection Agreement, the Parties agree that
the form of the Interconnection Agreement submitted for governmental or
regulatory approval shall include a term of at least five (5) years, subject to
any necessary regulatory limitations, although the Parties agree to negotiate
settlement pricing annually (the "Annual Settlement Price Adjustment"). If the
Parties can not agree on the settlement pricing in any year, the last agreed
upon price shall continue to apply until a new settlement price is agreed upon
(the "Interim Period"). Once the new settlement price is agreed upon, the
Parties shall apply the new settlement price retroactively to the date of the
Annual Settlement Price Adjustment and shall issue any necessary credits for any
overpayments made by a Party during the Interim Period. The Parties also agree
to exercise their reasonable best efforts to renew and/or extend the term of the
Interconnection Agreement so long as this Agreement remains in force and effect.
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<PAGE> 10
final Proprietary and Confidential
8. EQUITY INVESTMENT
Contemporaneously with this Agreement, Telmex and the parent company of
Williams are entering into a Securities Purchase Agreement of even date
herewith (the "Securities Purchase Agreement") whereby Telmex will purchase
equity (i.e., Class A common stock) in Williams Communications Group, Inc.
("WCG"), the parent company of Williams, in connection with the Initial Public
Offering of Williams Communications Group, Inc. stock ("IPO"). In recognition
of the strategic relationship set forth in this Agreement, if following the
IPO, Telmex owns Class A common stock and WCG plans to issue new or additional
common equity securities in a public offering solely for the purpose of raising
additional capital; WCG will negotiate with Telmex a right to purchase, with
respect to the issuance by the WCG of new or additional common equity
securities for cash, a portion of such new or additional equity securities in
order to reflect the development and the strength of the strategic relationship
formed by this Alliance. If the Parties agree that the strategic relationship
formed by this Alliance has been of increasing benefit to both Parties and that
additional equity is warranted by this increase in Alliance value, WCG shall
offer Telmex the right to purchase an agreed upon amount of such equity
securities, in a private transaction, at the price offered to the public in
connection with such issuance less any discounts or commissions per share from
the price offered to the public available to the underwriters.
9. GOVERNANCE
9.1. Alliance Governance
The Alliance shall be managed by an Alliance Council, Committees and
Alliance Managers.
9.2. Alliance Council
The "Alliance Council" shall consist of 3 members appointed by Telmex
and 3 members appointed by Williams. The Alliance shall be managed
under the direction of the Alliance Council, and the Alliance Council
shall have the authority to appoint, oversee, reorganize and direct the
activities of Committees (as defined below) provided that any binding
obligation will result only from the execution of a definitive
agreement by the Parties, if such an agreement is entered into. The
Alliance Council will also endeavor to resolve any disagreements
arising within a Committee. The Alliance Council shall meet every other
month for the first twelve months, and quarterly thereafter unless
otherwise agreed by the Parties. The initial chair of the Alliance
Council shall be appointed by Telmex for a one year term, and
thereafter the Party selecting the chair shall alternate between the
Parties each year.
9.3. Committees
The Alliance Council will form such other Alliance committees as to
which they may agree from time to time (the "Committees"). However, it
is anticipated that
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the Alliance Council will form Committees to address the design,
planning and implementation of network, operational support systems and
local access architectures and infrastructure associated with the
telecommunications facilities and associated services contemplated by
this Alliance. It is also expected that a Committee will be formed to
discuss common interfaces, methods and procedures, design, planning and
implementation of processes for service activation, service assurance,
capacity planning, billing and other operational functions.
The Alliance Council will establish Committee meeting times, Committee
objectives, initial "Projects" to be developed and other Committee
governance procedures when the Alliance Council creates a Committee. A
"Project" is a task pertaining to the telecommunications facilities and
services contemplated by the Alliance that is identified by the
Alliance Council or a Committee. The Project will be defined and
described in individual scope of work documents which shall be
developed by the Committee.
9.4. Regulatory Requirements
All activities of the Alliance Council and Committees shall be
conducted to ensure that both Parties are in full compliance with all
legal and regulatory requirements imposed upon either Party.
9.5. Timing and Notice
The Chairman of the Alliance Council shall determine the time and place
for meetings between the appointed representatives from each Party
("Meetings"). Meetings may also be called upon the agreement of any two
members provided that such two members were not appointed by the same
Party. Except in the event of an emergency, the Chairman or members
calling a Meeting shall provide each Committee or Alliance Council
member with at least fourteen (14) days advance written notice of the
time, place and agenda for such Meeting. No matter shall be finally
determined at any Meeting unless the matter was included in the agenda
distributed with the notice for that Meeting and described with
sufficient particularity to reasonably disclose the nature and
importance of the matter.
9.6. Quorum
At least one member appointed by each Party shall be required to be in
attendance in person or by phone in order to constitute a quorum for
any Meeting.
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9.7. Participation
Members may participate in a Meeting by teleconference or designate an
alternate member to participate in a Meeting on their behalf upon prior
written notice to the Chairman or members who called the Meeting.
9.8. Unanimous Vote
The Alliance Council and Committees shall act only by the unanimous
vote of all members participating in a Meeting upon a resolution
submitted in writing. Prior to the vote, the members will consult with
their respective Alliance Managers.
9.9. No Arbitration
The failure of a Committee or the Alliance Council to achieve a
unanimous vote with respect to a Project shall not be classified as a
Dispute subject to the arbitration procedures set forth in Section 11.4
and, if an unanimous vote cannot be attained, the Parties shall follow
the procedure set forth in Section 11.1 through 11.3 below and if a
unanimous vote still cannot be obtained, a Party's exclusive
alternative will be the ability to pursue the Project outside of the
Alliance pursuant to Section 9.10.
9.10. Further Cooperation
If a proposed Project and/or the scope of work associated with such
Project is not agreed to by both Parties, each Party will be free to
pursue such Project on its own or with third parties, subject only to
applicable restrictions on Confidential Information and use of
intellectual property. However, to the extent that the implementation
of the Project requires the cooperation of the other Party, each Party
will reasonably cooperate with the other in order to integrate the
Project into the Parties' networks.
10. ALLIANCE MANAGERS AND DEDICATED EMPLOYEES
10.1. Alliance Managers
The "Alliance Manager" is an individual appointed by each Party and
dedicated to managing the Alliance relationship. Telmex and Williams
will each designate one Alliance Manager from within their respective
organizations. It shall be the responsibility of the Alliance Manager
to:
10.1.1. Serve as the principal contact person for each Party to the other
concerning Alliance matters;
10.1.2. Expedite the accomplishment of accepted Projects;
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10.1.3. Coordinate the activities of the Parties in furtherance of the
goals of the Alliance;
10.1.4. Supervise dedicated employees that are employed by the Alliance
Manager's employer;
10.1.5. Consult with the members of the Alliance Council and keep them
informed of matters affecting the Alliance;
10.1.6. As agreed by the Parties, serve as spokespersons for the Alliance
in dealings with external constituencies; and
10.1.7. Seek any necessary internal approvals that may be necessary and
desirable to conduct the business of the Alliance.
10.1.8. Each Party will pay all the costs and expenses associated with
its Alliance Manager and dedicated employees, unless otherwise
specifically agreed.
11. DISPUTE RESOLUTION
11.1. Disputes.
The Parties shall attempt in good faith to resolve any controversy,
dispute or claim arising out of or relating to this Agreement or the
breach, termination, enforceability or validity thereof (collectively,
a "Dispute") promptly by negotiation between the Alliance Managers.
Either Party may give the other a written notice (a "Dispute Notice")
setting forth with reasonable specificity the nature of the Dispute and
the identity of any representative in addition to the Alliance Manager
who will attend and participate in the meetings at which the Parties
will attempt to settle the Dispute. Following the receipt of a Dispute
Notice, the representatives of both Parties shall meet as soon as is
practicable, but no later than in seven (7) days at a mutually
acceptable time and place to negotiate in good faith a settlement of
the Dispute, and shall meet thereafter as they reasonably deem
necessary.
11.2. Referral to CEO
If the Dispute has not been resolved within seven (7) days after
receipt of the Dispute Notice, then the Dispute shall be referred to
the Alliance Council to negotiate. If the Dispute can not be resolved
by the Alliance Council within seven (7) days after the referral, then
the Dispute shall be referred to the chief executive officer of the
ultimate parent corporation of each Party to the Dispute (the "CEO").
The CEOs shall promptly undertake good faith negotiations to settle
the Dispute, including meetings in person or by teleconference as the
CEOs may reasonably agree.
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11.3. Confidentiality of Negotiations
All negotiations pursuant to Sections 11.1 and 11.2 shall be
confidential and shall be treated as compromise and settlement
negotiations. Nothing said or disclosed, nor any document produced, in
the course of such negotiations which is not otherwise independently
discoverable shall be offered or received as evidence or used for
impeachment or for any other purpose in any current or future
arbitration or litigation.
11.4. Arbitration
If the Dispute is not resolved within sixty (60) days of the Dispute
Notice, the Parties agree that any controversies, disputes or claims
arising under or in connection with the scope of this Agreement, or
due to non-performance or breach hereof, shall be settled by
arbitration in accordance with the Rules of Arbitration of UNCITRAL
(United Nations Commission of International Trade Law).
Arbitration shall take place in the City of Toronto, Canada and three
arbitrators shall be designated as follows: One by Williams, another
by Telmex and a third arbitrator shall be appointed by the other two.
The arbitration award shall be issued no later than sixty (60) days
after the date arbitration was initiated and the resolution or award
shall be final and shall be in full force and effect.
The compensation and expenses of the arbitrators shall be borne
equally by the two Parties. Each Party to the dispute shall bear all
other expenses incurred by it, including its own attorney and witness
fees.
11.5. Waiver of Jury Trial
The Parties hereto hereby knowingly, voluntarily and intentionally
waive all right to trial by jury in any action, suit or proceeding
brought to resolve any Dispute whether sounding in contract, tort, or
otherwise, between the Parties here to arising out of, connected with,
related to, or incidental to this Agreement or the transactions
related hereto or any course or conduct, course of dealing, statements
(whether verbal or written) or actions of either Party. This provision
is a material inducement for the Parties hereto entering into this
Agreement.
11.6. Expenses
Except as otherwise expressly provided in this Agreement, each Party
hereto shall pay its own expenses incidental to the preparation of
this Agreement, the carrying out of the provisions hereof and the
consummation of the transactions contemplated hereby.
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11.7. Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the state of New York in the United States, without giving
effect to the conflict of law rules thereof.
12. CONFIDENTIAL INFORMATION
12.1. Telmex and Williams recognize and understand that it may be desirable
to exchange information deemed to be proprietary by either Williams or
Telmex ("Confidential Information"). The disclosing Party shall mark
the Confidential Information in a manner to indicate that it is
considered proprietary, confidential, trade secret or otherwise subject
to limited distribution as provided herein. When Confidential
Information is provided orally, the disclosing Party shall, at the time
of disclosure, clearly identify the information as being proprietary or
confidential or otherwise subject to limited distribution as provided
herein. Such Confidential Information will be protected by the
receiving Party in the same manner as the receiving Party protects its
own Confidential Information. The receiving Party shall use any such
Confidential Information only in connection with this Agreement.
Upon the written request of the disclosing Party, the receiving Party
will return to the disclosing Party all writings and copies thereof
containing the Confidential Information of the disclosing Party or
destroy such information.
12.2. Notwithstanding any other provisions of this Agreement, the
obligations specified in Section 12.1 will not apply to any
information that:
12.2.1. Is already in the possession of the receiving Party, its parent,
subsidiaries or affiliates, without any corresponding non-disclosure
obligation,
12.2.2. Is independently developed by the receiving Party, its parent,
subsidiaries or affiliates,
12.2.3. Is or becomes publicly available without breach of this Agreement
12.2.4. Is rightfully received by the receiving Party from a third Party;
12.2.5. Is released for disclosure by the disclosing Party with its prior
written consent; or
12.2.6. Is disclosed in response to a valid order of a court or other
governmental body of Mexico or the United States or any political
subdivisions thereof; provided, however, that the receiving Party shall
first have given notice to the disclosing Party and made a reasonable
effort to
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obtain a protective order requiring that the information and/or
documents so disclosed be used only for the purposes for which the
order was issued.
13. TERM AND TERMINATION
13.1. Term
This Agreement shall remain in force and effect for twenty (20)
years, unless earlier terminated pursuant to the provisions of this
Agreement.
13.2. Termination Events Requiring Prior Notice
This Agreement may be terminated by the Notifying Party (as
hereinafter defined) by providing twenty (20) days prior written
notice to the other Party, if:
(i) Without the written agreement of the Parties ****
by means of a distribution channel or similar
business structure that is established or maintained
for the ****;
(ii) the Parties can not execute the Interconnection
Agreement, the Sales and Marketing Agreement and the
International Transport Services Agreement within
thirty (30) days after the "Closing" as such term is
defined in the Securities Purchase Agreement or such
later time as the Parties may agree;
(iii) there is a "Change of Control" (as hereinafter
defined in Section 13.4) of either of the Parties;
(iv) if any change in law or regulation materially and
adversely affects the terms and conditions of the
Alliance;
(v) in the event that for any reason:
(a) the other Party fails to perform in any material
respect any of the terms of this Agreement or any of
the Alliance agreements, including, without
limitation, if such defaulting Party fails to make
any payment as agreed for any reason, including, but
not limited to, governmental monetary controls or
laws, regulations, decrees or restrictions of any
kind, and such default or breach shall continue
uncured for a period of thirty (30) days after the
non-defaulting Party gives the other written notice
of such default or breach;
(b) the other Party discontinues (after commencing)
the distribution of commercial quantities of any of
the Alliance Products or Services included in the
Alliance for any reason for a period of more than
thirty (30) days without the prior written consent of
the other Party, which consent shall not be
unreasonably withheld; or
(c) any part of this Agreement is not considered to
be, or ceases to be, in conformity with the laws,
regulations, consistent jurisprudence or court or
administrative decisions (relevant to this
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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Agreement) of the territory of this Alliance and, as
a result thereof, any provision material to this
Agreement cannot be legally performed or enforced; or
(vi) In the event that Telmex is unable to terminate the
**** (as defined in Exhibit B) by the time of
"Closing" as that term is defined in the Securities
Purchase Agreement referenced in Section 8 of this
Alliance Agreement, then either Williams or Telmex
shall have the right immediately to terminate this
Alliance Agreement.
Failure of any Party to terminate this Agreement shall not be deemed
a waiver of the right subsequently to do so under the same or any
other such reason. The Notifying Party shall exercise its termination
right within a reasonable period of time, but in no event more than
sixty (60) days from actual notice of the event or circumstances
permitting termination by such Party.
The "Notifying Party" shall be defined to mean either Party with
respect to the events set forth in Section 13.2 (ii), (iii), (iv),
(v) (c) and (vi). With respect to events in Section 13.2 (v) (a) or
(v) (b), the Notifying Party shall be the Party who has neither
defaulted nor failed to perform. With respect to Section 13.2 (i),
the Notifying Party shall be Williams.
13.3. Automatic Termination
This Agreement shall expire and terminate automatically and without
notice in the event that:
(i) any Party hereto commences a voluntary case or other
proceeding seeking liquidation, reorganization,
suspension of payments or other relief with respect
to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee,
receiver, liquidator, sindico, custodian or other
similar official of it or any substantial part of its
property, or consents to any such relief or to the
appointment of or taking possession by any such
official in an involuntary case or other proceeding
commenced against it, or makes a general assignment
for the benefit of creditors, or fails to pay a
substantial portion of its debts as they become due,
or takes any corporate action to authorize any of the
foregoing, or
(ii) any Party hereto or its business is nationalized, in
whole or part, or the shares of such Party or control
over such Party or over any substantial portion of
its assets or over its management is seized by any
government or any of its branches, departments or
agencies, including, but not limited to, the
military.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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13.4. Change of Control
A Change of Control means any transaction where one Party is acquired,
merged into or consolidated with or reorganized into another
corporation or legal entity and as a result of such transaction less
than a majority of the combined voting power of the then outstanding
securities of the Party immediately after the transaction are held in
the aggregate by the persons holding such securities immediately prior
to the transaction. A Change of Control shall not include any
transaction where the other party to the transaction is a wholly owned
subsidiary of the ultimate parent corporation of the Party.
13.5 Termination - Equity Investment
If this Agreement is terminated for any reason prior to the closing of
the IPO, then either Party shall have the option to terminate the
Securities Purchase Agreement.
13.6 Regulatory Frustration
In the event of any action or failure to act by any regulatory
authority that has the effect of materially frustrating or hindering
the purpose of one or more of the Alliance agreements or the ability
of the Parties to compete successfully by means of the Alliance, the
Parties will meet:
(i) to reevaluate the benefits of the Alliance,
(ii) to determine whether, and to what extent, the
Alliance may be continued, and
(iii) to negotiate in good faith regarding reasonable terms
and conditions for any termination of any of the
Alliance agreements or revisions to the Alliance
relationship.
If the Parties cannot reach agreement on the terms and conditions under
which the Alliance should continue, either Party shall have the right
to terminate the Alliance agreement which was the subject of such
action or failure to act by such regulatory authority upon twenty (20)
days prior written notice.
14. REPRESENTATIONS AND WARRANTIES OF TELMEX
Telmex hereby represents and warrants to Williams as follows:
14.1. Organization, Standing and Authority.
Telmex is a corporation duly organized, validly existing and in good
standing under the laws of Mexico. Telmex has all requisite corporate
power and authority
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to enter into this Agreement hereby and to consummate the transactions
contemplated herein. All corporate acts and other proceedings required
to be taken by Telmex to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and properly taken. This Agreement
has been duly executed and delivered by Telmex and constitutes the
legal, valid and binding obligation of Telmex, enforceable against
Telmex in accordance with its terms.
14.2. No Violation
The execution and delivery by Telmex of this Agreement and the
consummation of the transactions contemplated hereby and compliance
with the terms thereof will not, (i) conflict with or result in any
violation of any provision of the articles of incorporation or
by-laws, or the comparable organizational documents, (ii) conflict
with, result in a violation or breach of, or constitute a default, or
give rise to any right of termination, revocation, cancellation, or
acceleration, under, any material contract, concession or permit
issued to Telmex, except for any such conflict, violation, breach,
default or right which is not reasonably likely to have a material
adverse effect on the ability of Telmex to consummate the material
transactions contemplated by this Agreement or (iii) conflict with or
result in a violation of any judgment, order, decree, writ,
injunction, statute, law, ordinance, concession, permit, rule or
regulation applicable to Telmex or to the property or assets of
Telmex, except for any such conflict or violation which is not
reasonably likely to have such a material adverse effect.
14.3. Consents and Approvals
No consent, approval, license, permit, order or authorization of,
registration, declaration or filing with, or notice to, any domestic
or foreign court, administrative or regulatory agency or commission or
other governmental authority or instrumentality (each, a "Governmental
Entity") is required to be obtained or made by or with respect to
Telmex in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby.
15. REPRESENTATIONS AND WARRANTIES OF WILLIAMS
Williams hereby represents and warrants to Telmex as follows:
15.1. Organization, Standing and Authority
Williams is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Williams has all
requisite corporate power and authority to enter into this Agreement
and to consummate the transactions
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contemplated hereby. All corporate acts and other proceedings required
to be taken by Williams to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated thereby have been duly and properly taken. This Agreement
has been duly executed and delivered by Williams and constitutes the
legal, valid and binding obligation of Williams, enforceable against it
in accordance with its terms.
15.2. No Violation
The execution and delivery by Williams of this Agreement does not, and
the consummation of the transactions contemplated thereby and
compliance with the thereof will not (i) conflict with or result in
any violation of any provision of the certificate of incorporation or
by-laws of Williams, (ii) conflict with, result in a violation or
breach of, or constitute a default, or give rise to any right of
termination, revocation, cancellation, or acceleration, under, any
material contract, concession or permit issued to Williams, except for
any such conflict, violation, breach, default or right which is not
reasonably likely to have a material adverse effect on the ability of
Williams to consummate the material transactions contemplated by this
Agreement or (iii) conflict with or result in a violation of any
judgment, order, decree, writ, injunction, statute, law, ordinance,
concession, permit, rule or regulation applicable to Williams or to
the property or assets of Williams, except for any such conflict or
violation which is not reasonably likely to have such a material
adverse effect.
15.3. Consents and Approvals
No consent, approval, license, permit, order or authorization of,
registration, declaration or filing with, or notice to, any
Governmental Entity is required to be obtained or made by or with
respect to Williams in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated
hereby.
16. GENERAL PROVISIONS
16.1. Assignment
Neither Party may assign nor delegate any of its rights or obligations
under this Agreement without the consent of the other Party.
16.2. Costs and Expenses
Except as otherwise specifically agreed to by the Parties in writing,
each Party will be responsible for its own expenses arising under this
Agreement.
16.3. Amendment
No amendment of this Agreement shall be valid or binding on the
Parties unless such amendment shall be in writing and duly executed by
an authorized representative of each Party.
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16.4. Headings
Headings contained herein shall in no way limit the subject matter
they introduce and shall not be used in construing this Agreement.
16.5. Publicity
Neither Party shall make a public announcement about this Agreement or
the Parties' discussions related to any aspect of it without the
written consent of the other Party on the exact wording of such public
announcement. Either of the Parties may at anytime make announcements
which are required by applicable law, regulatory bodies, or stock
exchange or stock association rules, so long as the Party so required
to make the announcement, promptly upon learning of such requirement,
notifies the other Party of such requirement and discusses with the
other Party in good faith that exact wording of any such announcement.
16.6. Execution
This Agreement shall be executed in two duplicate copies, one for each
Party, each of which copies shall be deemed an original.
16.7. Limitation of Liability
Except to the extent expressly set forth in one of the Alliance
agreements, neither Party, nor its officers, employees, agents,
partners, affiliates or subcontractors shall be liable to the other
Party, its officers, employees, agents, partners, affiliates or
subcontractors for claims for incidental, indirect, consequential,
exemplary, punitive, or other special damages, including, but not
limited to, damages for a loss of profits or opportunity costs,
connected with or resulting from any performance or lack of
performance under any Alliance agreement regardless of whether a claim
is based on contract, warranty, tort (including negligence), theory of
strict liability, or any other legal or equitable principle.
16.8. Force Majeure
Neither Party shall be liable to the other for any failure to perform
or delay in performance due to causes beyond its reasonable control,
provided however, that the Party whose performance is impeded or
delayed agrees to take reasonable steps to overcome the same and to
promptly notify the other Party of the condition causing such failure
or delay and of the reasonable steps being taken.
16.9. Relationship of Parties
This Agreement and any other agreement between the Parties relating to
this Alliance shall not, individually or in the aggregate, create or
be construed to create a partnership, joint venture or any other form
of legal entity, either in law or in fact. The Parties intend that
their relationship or that their individual and collaborative
activities under this Agreement or any other agreement between the
Parties relating to this Alliance shall not be treated as a partnership
or association taxable as a corporation for United State federal
income tax purposes. Neither Party shall constitute either a partner
or agent of the other, and neither Party shall have authority to bind
the other. Any agreement relating to the Alliance shall be entered
into by either or both of the Parties in their separate and individual
capacities, and no agreement shall be deemed to be entered into solely
in the name of the Alliance. In the event of a conflict between this
Section 16.9 and any other provision of this Agreement, this Section
16.9 shall control.
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16.10. Notices
Any notice, request, instruction or other document to be given
hereunder by any Party to any other Party under any section of this
Agreement shall be in writing and shall be deemed given upon receipt
if delivered personally or by telex or facsimile, the next day if by
express mail or five (5) days after being sent by registered or
certified mail, return receipt requested, postage prepaid to the
following addresses (or at such other address for a Party as shall be
specified by like notice provided that such notice shall be effective
only after receipt thereof):
If to Telmex: Telefonos de Mexico, S.A. de C.V.
Parque Via No. 190, piso 10
Col. Cuauhtemoc
Mexico, 06599, D.F.
ATTN: General Counsel
Fax (525) 2551776
Telephone: (525) 222-57-80
If to Williams: Williams Communications, Inc.
One Williams Center, Suite 26-B
Tulsa, OK 74172
Attn: Contract Administration
Fax: 918-573-6578
Telephone: 918-573-6277
with a copy Williams Communications, Inc.
(which shall One Williams Center, Suite 4100
not constitute Tulsa, OK 74172
notice) to: Attn: General Counsel
Fax: 918-573-3005
Telephone: 918-573-4205
16.11. Severability
In case any one or more of the provisions contained in this Agreement
shall for any reason be held to be invalid, illegal or unenforceable
in any respect by a court or other authority of competent
jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provision hereof and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had
never been contained herein and, in lieu of each such illegal, invalid
or unenforceable provision, there shall be added automatically as a
part of this Agreement a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable, it being the intent of the Parties to
maintain the benefit of the bargain for both Parties.
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16.12. Rules of Construction
Words used in this Agreement, regardless of the gender and number
specifically used, shall be deemed and construed to include any other
gender and any other number, as the context requires. As used in this
Agreement, the word "including" is not limiting, and the word "or" is
not exclusive. Except as specifically otherwise provided in this
Agreement in a particular instance, a reference to a Section, Schedule
or Exhibit is a reference to a Section of this Agreement or a Schedule
or Exhibit hereto, and the terms "this Agreement," "hereof," "herein,"
and other like terms refer to this Agreement as a whole, including the
Schedules to this Agreement, and not solely to any particular part of
this Agreement. The descriptive headings in this Agreement are
inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
The Parties to this Agreement do not intend that any other Person
shall obtain any rights as third party beneficiaries of this
Agreement.
This Agreement is executed in two counterparts this ____ of May 1999.
TELEFONOS DE MEXICO S.A. de C.V. WILLIAMS COMMUNICATIONS, INC.
- --------------------------------------- --------------------------------------
Signature of Authorized Representative Signature of Authorized Representative
- --------------------------------------- --------------------------------------
Printed Name Printed Name
- --------------------------------------- --------------------------------------
Title Title
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EXHIBIT A - EXCLUDED SUBSIDIARIES
TELMEX
****
WILLIAMS
****
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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EXHIBIT B - EXISTING CONTRACTS
WILLIAMS COMMUNICATIONS:
Intersys - Williams is using the services of Intersys, a subsidiary,
involved in the network integration business located in Mexico.
SBC Communications Inc. - Master Alliance Agreement Between SBC
Communications Inc. and Williams Communications, Inc. dated as of
February 8, 1998 and the agreements negotiated thereunder such as
Network Development and Operations Agreement, Platform Services
Agreement, Transport Services Agreement, Sales and Marketing Agreement,
International Services Agreement, Consulting Services Agreements and
CPE Installation and Maintenance Agreement.
TELMEX:
Existing Interconnection Agreements between Telmex and AT&T, MCI,
WorldCom, Sprint and SBC.*
Operating Data Service Agreement executed by and between Global One
Communications LLC and Uninet S.A. de C.V.*
*Telmex has no preferred provider, most favored customer or similar
arrangement any of these entities under these agreements or otherwise.
Notwithstanding anything else set forth in this Alliance Agreement,
Telmex and Williams recognize that ****.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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SCHEDULE A--ALLIANCE PRODUCTS AND SERVICES
1. CURRENT ALLIANCE PRODUCTS AND SERVICES
1.1 Mutually Offered Services: Telmex and Williams will be the Supplying
Party to the other party for the following products and services.
1.1.1 Description of Private Line Service. Circuits which are
specifically dedicated to the use of Telmex or its customers and
Williams or its customers between a point on the Telmex network and a
point on the Williams network. Services are offered in DS-1, DS-3, and
optical SONET (OC-N) bandwidths in the US and E1, E3 and SDH (STM - X)
bandwidths in Mexico, with the required network interface being
applied at the network interconnection point to reconcile the
disparate national standards.
1.1.2 Description of Frame Relay Service. Frame Relay Service is a
multi-service technology that allows commercial end-users to use a
network of shared private lines to send and receive data from
geographically distant locations. Frame Relay can be defined as
packet-switched, multiplexed data networking technology supporting
connectivity between user equipment, such as routers, and a carrier's
frame relay network equipment. Description of International Frame
Relay Service. International Frame Relay Service is Frame Relay
Service offered between locations connected to the Telmex network and
locations connected to Williams network.
1.1.3 Description of International Switched Voice Service.
International Switched Voice Service is voice telecommunications
traffic which is transported over a public switched telephone network
in one country to a public switched telephone network in another
country. International Switched Voice Services include:
- International Direct Dial
- Home Country Direct
- International calling card calling
- International sent paid operator assisted calling
- International Toll-Free Service
1.2 Further Description of the Section 1.1.3 International Switched Voice
Service. The following are general descriptions of the individual
International switched voice services in Section 1.2.3 above. Detailed
product/service description will be defined in the International
Transport Services Agreement.
1.2.1. 1+ Voice Service - 1+ Voice Service provides On-Net
interexchange Service via Feature Group D in selected exchanges or
dedicated access lines for origination and transmission on the
Williams Network and termination of communications. Dedicated access
may be provided by Telmex, Williams or a
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final Proprietary and Confidential
Local Access Provider. Feature Group D access is provided by the Local
Exchange Carrier and allows Telmex to use its own CIC to route traffic
to Williams' facilities.
Except where Local Access Service is provided via dedicated access
facilities, Williams' 1+ Voice Service is available only in Feature
Group D local exchanges where the End User's telephone line(s) can be
programmed by the Local Exchange Carrier to automatically route "1+"
interLATA toll calls to the Williams Network.
Assuming CIP is provided by the originating office and each Telmex
Corporation Affiliate provides a separate CIC, PIC verification
(1-700-555-4141) will correctly brand the Services of Telmex and its
Affiliates, and such additional brands as Telmex or its Affiliates may
employ. The parties agree to explore and implement, if mutually
agreeable, a technical solution for such branding where alternative
solutions may be required.
Williams shall have principal responsibility for obtaining Local
Access facilities in the US for traffic originating on the Telmex US
or Mexico systems. Telmex shall have the principal responsibility for
obtaining Local Access facilities for traffic originating on the
Williams systems needing termination in Mexico.
1.2.2 Toll Free Service - offers Customers a toll free number (e.g.,
800, 888 or 877) and allows callers to reach the subscriber without
toll charges. The subscriber pays for all incoming calls made on its
assigned toll free number. Toll Free Service consists of a basic
service (assignment of a toll free telephone number and a toll free
calling area selected by the Customer) and additional features that
Customers can select.
1.2.3 Switched Toll Free Service - is an inbound long distance
service. This service terminates calls over the local telephone line
of Customer or its End Users, and calls are toll-free to the calling
party.
1.2.4 Dedicated Toll Free Service - is an inbound long distance
service. This service terminates calls over dedicated access lines
from Company's POP to the service location(s) of Customer or its End
Users, and calls are toll-free to the calling party.
1.2.5 Directory Assistance Service - offers Customers the ability to
provide their End Users with phone numbers, addresses and NPA/Country
codes and automatic call completion. A per-call charge is assessed
against the Customer for each call made by the Customer's
persubscribed End-Users. This charge applies whether or not the
Directory Assistance operator furnishes the requested telephone
number(s), e.g., the requested number is unlisted, non-published or no
record can be found. Requests for information other than telephone
numbers will be charged for as requests for telephone numbers.
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final Proprietary and Confidential
1.2.6 Directory Assistance Service - gives the option of completing a
call to the called station telephone number received from the
Directory Assistance operator without hanging up and originating a new
call. A call completion charge applies in addition to the Directory
Assistance per-call charge if the caller accepts the offer. The call
completion charge will not apply if the call cannot be completed.
1.2.7 Calling Card Service - is an inbound long distance service. This
service allows customer or its End Users to place long distance call
from locations other than their primary service location through the
use of 800 number network access and an authorization code.
1.2.8 Prepaid Calling Card Service - allows Telmex's End Users to
originate outbound, Direct Dial long distance call on a prepaid basis
via an 800 access number. All calls are rated on a flat-rate basis,
and are rounded for billing purposes to the next higher full minute.
Calls may only be charged against an account that has a sufficient
available balance. Customer shall be given notice two (2) minutes
before the available account balance is depleted, based upon the
applicable rates for the call in progress. When the available balance
is depleted, the call shall be terminated. A prepaid calling account
shall expire on the date specified on the card, unless replenished by
a charge to a commercial credit card as authorized by the Customer
beforehand. The End-User will use the access number on the Pre-Paid
Calling Card to access Williams Network. A flat per-minute rate will
be deducted on a real-time basis as the card is used until the full
amount of the card is exhausted.
1.2.9 Operator Service - consists of all call completion functions
performed either by a live operator or by automated systems. Such
functions include collect calling, third party billing and calling
card services. Access to Williams Operator Services can be obtained by
the following dialing methods: (A) "00" from a telephone subscribed to
Williams Network in a Feature Group D (FGD) area; (B) "0+
(NPA-NXX-XXXX)" from a telephone subscribed to Williams Network in a
FGD area; (C) "101XXXX+0: from any non-pay telephone in FGD area; and
(D) "1-800-XXXX" from an location.
2. PRODUCTS AND SERVICES TO BE CONSIDERED BY TELMEX AND WILLIAMS. The following
products and services are available to Telmex by Williams as the Supplying
Party. Telmex is not positioned to offer these products as a Supplying Party to
Williams at this point but has committed to submit these products and services
to Williams as Alliance Products and Services in accordance with the terms of
this Agreement as they are developed and offered within the Telmex markets.
2.1 Description of On-Net ATM Service. Asynchronous Transfer Mode Service
(the "ATM Service") is multi-service technology on the Williams Network
that provides
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final Proprietary and Confidential
integration of disparate networks onto a single communications
infrastructure and meets the Technical Specifications for ATM Service
set forth in Schedule B. ATM technology encapsulates user data into
53-byte cells and transmits them over an ATM network. Williams' On-Net
ATM Service is designed for two (2) primary applications. These
applications include ATM transport and backbone connectivity. ATM
transport provides multimedia aggregation and video transmission.
Multimedia transmission is suited for transporting voice, data and
video while video transmission is best designed for point-to-point
video services. Backbone connectivity provides for the interconnection
of local area networks ("LAN(s)") as well as interconnection of
existing network access points ("NAP(s)") or private peering backbones.
2.2 Description of Internet Services.
2.2.1 IP Transport - IP Transport service provides the user with the
capability to interconnect an ISP to a point on the provider's
network. This may include connectivity to another ISP for peering, to
a data center, telehousing facility, Network Access Point or Internet
exchange point facility. Typical capacity is in the DS3 to OCN levels.
2.2.2 IP Transit - Dedicated access connectivity at the IP layer to
provide full Internet access to the customer service provider. IP
packets exchanged between the customer network and external networks
traverse the provider network, using Border Gateway Protocol (BGP) or
a similar routing protocol to establish the appropriate routing.
Dedicated Internet access provides connectivity at speeds ranging from
DS1 to OC3. Connectivity is provided into the most available Williams
POP.
2.2.3 Dedicated Access - Dedicated Access connectivity at the IP layer
to connect one or more associated customer end user sites. Dedicated
access provides full Internet connectivity at speeds ranging from DS1
to OC3.
2.2.4 Remote Access - Remote access connectivity to provide
traditional analog and ISDN connectivity to the Williams IP Network.
This service will be available at speeds up to 56kb in most major MSAs
where Williams has a Williams POP.
2.3 Description of Collocation Service. Collocation Service is a service
pursuant to which Telmex and its customers may place equipment in a
facility owned, leased or licensed and operated by Williams for the
purpose of interconnecting that equipment, including switches and
associated equipment, with the Williams network, the network of Telmex
or any Controlled subsidiary, or other third party network ("Collocation
Service"), Telmex shall complete a mutually agreed upon Collocation
Service Order.
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3. ANCILLARY SERVICES. Ancillary Services are those services incidental to
Williams' provision of the Product or Service, as the Supplying Party, as such
Services are identified in Schedule A (e.g. reconfiguration), or services
incidental to service provided by a Third Party for which such party imposes a
fee as established by that party.
4. PRICING FOR ALLIANCE SERVICES AND PRODUCTS. See Exhibits I and II,
respectively, for the Williams and Telmex pricing for the Alliance Products and
Services.
DEFINITIONS
"CIC" means carrier identification code.
"CIP" means carrier identification parameter.
"End User" means a natural person or legal entity which either; (1) orders
service through Telmex or Williams or (2) uses Williams' Casual Calling service
directly as a customer through dialing Williams' designated access code or
other access number.
"Feature Group D" or "FGD" means such feature as defined in the tariff of the
National Exchange Carrier Association.
"InterLATA Service" means long distance telecommunications service between
local access transport areas in the United States.
"ISP" means Internet Service Provider.
"Local Access" means the intraLATA telecommunications facilities connecting an
End User, including a Buyer-designated termination point, to an interexchange
carrier's POP within the same LATA, including, but not limited to Seller's POP.
"Local Exchange Carrier" or "LEC" means the local telephone company that
provides exchange telephone services.
"NAP" means network access point
"Off-Net" means a circuit that is not On-Net.
"On-Net" means a circuit traversing the Seller's network both end points of
which originate or terminate at a Seller designated Seller POP.
"PIC" means primary interexchange carrier.
"POP" or "Point of Presence" means a point of presence as commonly understood in
the industry.
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final Proprietary and Confidential
EXHIBIT I TO SCHEDULE A
WILLIAMS'S NETWORK PRICING SCHEDULE
This Pricing Schedule is made as of this _____ day of ________________, 1999,
and is part of Schedule A to the Alliance Agreement by and between Williams's
Network, a division of Williams's Communications, Inc., a Delaware corporation
("Williams"), and Telefonos de Mexico, S.A. de C.V., a Mexican corporation
("Telmex"). The prices stated herein and any other term or condition of this
Schedule are applicable only to On-Net Services. Third-Party Services are
provided only on an individual case basis.
A. WILLIAMS ON-NET ATM SERVICES
1. Recurring Rates & Charges: ATM service has three basic rate elements;
Local Access, Port Connections, and Bandwidth.
a. Local Access. Pricing for Local Access is determined in
accordance with the terms and conditions set forth in
applicable Alliance Agreements.
b. UNI Port Connections. Pricing for User Network Interface (UNI)
Port Connections is determined on the port speed connections
selected by Telmex. UNI Port Connections are currently
available at DS3, OC3 and OC12 speeds. Monthly recurring
charges for Port Connections are set forth in Table A.1 below.
Table A.1 Monthly Recurring Port Charges
<TABLE>
<CAPTION>
Monthly Recurring Port Charges
- -------------------------------------------------------
Port Speed Monthly Recurring CoS
Port Charge
- -------------------------------------------------------
<S> <C> <C>
DS3 **** VBR(nrt) or
CBR
- -------------------------------------------------------
OC3 **** VBR(nrt) or
CBR
- -------------------------------------------------------
OC12 **** VBR(nrt) or
CBR
- -------------------------------------------------------
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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c. Bandwidth.
final Proprietary and Confidential
(i) There are two types of Bandwidth which can be selected,
the Virtual Channel Connection (VCC) or the Virtual Path
Connection (VPC). The type of bandwidth selected by the
Telmex does not determine the price.
(ii) Pricing for Bandwidth is determined based on the Class
of Service (CoS). Two Classes of Service are offered by
Williams: Constant Bit Rate (CBR) and Variable Bit Ratenon
real time (VBRnrt). CoS charges are stated in Committed
Information Rates (CIR) which are stated in Megabit per
second (Mbps) increments for one-way (Simplex) VCCs or VPCs.
CIR increments are available in 1Mbps increments up to 40Mbps
for DS3 ports, 5 Mbps increments up to 150 Mpbs for OC3 ports
and 25 Mbps increments up to 600 Mbps for OC12 ports. Monthly
recurring charges for Bandwidth are set forth in Table A.2
below.
Table A.2 Monthly Recurring Bandwidth Charges
MONTHLY RECURRING CHARGES
<TABLE>
<CAPTION>
PORT CIR PRICE PER
SPEED CoS (Mbps) Mbps
----- --- ------ ---------
UNI PORTS
<S> <C> <C> <C>
DS3 VBRnrt 1-9 ****
VBRnrt 10-19 ****
VBRnrt 20-29 ****
VBRnrt 30-40 ****
OC3 VBRnrt 5-20 ****
VBRnrt 25-35 ****
VBRnrt 40-55 ****
VBRnrt 60-75 ****
VBRnrt 80-95 ****
VBRnrt 100-120 ****
VBRnrt 125-150 ****
OC12 VBRnrt 25-75 ****
VBRnrt 100-175 ****
VBRnrt 200-275 ****
VBRnrt 300-350 ****
VBRnrt 375-475 ****
VBRnrt 500-600 ****
DS3 CBR 1-9 ****
CBR 10-19 ****
CBR 20-29 ****
CBR 30-40 ****
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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final Proprietary and Confidential
<TABLE>
<S> <C> <C> <C>
OC3 CBR 5-20 ****
CBR 25-35 ****
CBR 40-55 ****
CBR 60-75 ****
CBR 80-95 ****
CBR 100-120 ****
CBR 125-150 ****
OC12 CBR 25-75 ****
CBR 100-175 ****
CBR 200-275 ****
CBR 300-350 ****
CBR 375-475 ****
CBR 500-600 ****
</TABLE>
2. Non-Recurring Charges:
Non-recurring charges include installation, configuration
changes, order cancellations, and order changes that may be
incurred for the Port, VCC or VPC. Such non-recurring charges
are set forth in Table A.3 below.
Table A.3
<TABLE>
<CAPTION>
Non-Recurring Charges
Description of Charge Charges
- --------------------- -------
<S> <C>
Installation:
DS3 Port ****
OC3 Port ****
OC12 Port ****
per PVC or VP ****
Expedite Charge ****
Change of Service Order Charges:
Configuration Change Charge ****
Order Cancellation Charge ****
Port Order Change Charge ****
Change of Service Charge:
Configuration Change Charge ****
Port Order Change Charge ****
</TABLE>
Configuration change charges are applied when the bandwidth
sizes of a VCC or VPC are changed.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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final Proprietary and Confidential
Order Cancellation Charges apply when a PVC, VP or Port has
been ordered and needs to be canceled prior to the PVC, VP,
or Port having been installed and accepted.
Port Order Change Charges apply when Telmex requests to
change the port size ordered. If the Port has been installed
and accepted, Telmex will be charged for a new port
installation.
B. WILLIAMS' ON-NET PRIVATE LINE SERVICES
1. Williams On-Net Private Line Service has three basic rate elements;
Interexchange charges, Local Access Charges and non-recurring charges.
a. Interexchange rates are determined in accordance with Table
B.3 below. Pricing for any Service not listed in such Table
is determined on an individual case basis and will be set
forth on Telmex's Service Order.
The minimum monthly charge for any Interexchange Circuit
ordered by Telmex shall be as follows:
Table B.1
<TABLE>
<CAPTION>
Minimum Monthly Charges
------------------------
<S> <C>
DS-3 ****
OC-3 ****
OC-12 ****
OC-48 ****
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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final Proprietary and Confidential
b. Non-Recurring Charges:
Table B.2
<TABLE>
<CAPTION>
- ---------------------------------------------- -------------- ------------- -------------- ------------- --------------
Non-Recurring Charges DS-1 DS-3 OC-3 OC-12 OC-48
- ---------------------------------------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
New Order Installation **** **** **** **** ****
Order Change (1st change free) **** **** **** **** ****
Order Cancellation
Pre-Engineering **** **** **** **** ****
Post-Engineering **** **** **** **** ****
ASR (new or disconnect) Special Access **** **** **** **** ****
ASR Supplement **** **** **** **** ****
Order Expedite **** **** **** **** ****
Reconfiguration **** **** **** **** ****
Additional Installation/Maintenance/
Engineering **** **** **** **** ****
Additional Installation/Maintenance/
Engineering (After Hours) **** **** **** **** ****
- ---------------------------------------------- -------------- ------------- -------------- ------------- --------------
</TABLE>
<TABLE>
<CAPTION>
Cross-Connect Charge Monthly Recurring Non-Recurring
- -------------------- ----------------- -------------
<S> <C> <C>
DS-1 **** ****
DS-3 **** ****
OS-3 **** ****
OC-12 **** ****
OC-48 **** ****
</TABLE>
Installation charges shall apply to the normal installation
of equipment necessary to provide the requested Circuit to
the point of demarcation at the Telmex's premises. Additional
installation charges shall apply when Williams is required to
install equipment other than that normally required to
provide the Circuit or when Telmex requests special
equipment.
Non-recurring charges not described above will be considered
special requests and will be handled on an individual case
basis. All of the charges stated above are subject to change
with thirty (30) days' notice.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 36
final Proprietary and Confidential
<TABLE>
<CAPTION>
Table B.3
- -------------------------------------------------------------------------------
Private Line Rates
- -------------------------------------------------------------------------------
Rate Per VGE V+H Mile DS-1 DS-3 OC-3 OC-12 OC-48
- --------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
**** 0 **** 0 **** 5 **** 5 **** 0
</TABLE>
C. WILLIAMS' ON-NET FRAME RELAY SERVICES
1. Rates & Charges: Williams's Network On-Net Frame Relay Service has
four principal rate elements: Local Access, Port Connections,
Permanent Virtual Circuits (PVCs), and Trunking charges.
Port Connections and PVCs can be categorized as being either a
User-to-Network Interface (UNI) type or Network-to-Network Interface
(NNI) type. An NNI port is defined as one end of a connection between
Williams's frame relay network and another carrier's network. The
connecting carrier could be either a customer or Off-Net service
provider. Similarly, an NNI PVC is defined as one which has each end
of the PVC residing in two different carrier's frame relay networks,
rather than the originating and terminating points being in the same
carrier's network.
2. Conventional Frame Relay Services:
a. Local Access: Pricing for Local Access is determined in accordance
with the Terms and Conditions set forth in the applicable Alliance
Agreement.
b. Port Connections: Both UNI and NNI port charges are based solely on
the speed of the port selected by the Telmex. Available port speeds
range from 64 Kilobits per second (Kbps) to 1.536 Megabits per second
(Mbps). Available speeds are set forth in Table C.1 below. Monthly
recurring charges and installation charges for frame relay ports are
set forth in Table C.1 below. Other non-recurring charges are set
forth in Table C.3 below.
c. Permanent Virtual Circuit (PVC) bandwidth charges: UNI and NNI PVC
charges are both based solely on the bandwidth selected by Telmex.
Bandwidth charges are stated in Committed Information Rates (CIR)
which are stated in Kbps increments for one-way (Simplex) PVCs.
Available PVC-CIR speeds range from 4 Kbps to 1.024 Mbps. Available
speeds are set forth in Table C.1 below. Monthly recurring charges and
installation charges for Frame Relay PVCs are set forth in Table C.1
below. Other non-recurring charges are set forth in Table C.3 below.
d. Trunking Charges: The trunking charge is for the communication line
between the Williams's Network switch and Telmex's switch. The
trunking charge is added to the rates set forth in Table C.1 below.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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final Proprietary and Confidential
Table C.1 Monthly Recurring Charges (MRC) and Installation Charges
<TABLE>
<CAPTION>
- --------------------------------------------------- ---------------- ---------------- ----------------
FRAME RELAY SERVICE SPEED/CIR 16.13. MRC 16.14.
COMPONENTS (KBPS) Install
- --------------------------------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
NNI Port (Private NNI) 64 $ **** $
(Add: 'NNI Trunking) 128 $ **** $
192 $ **** $
256 $ **** $
320 $ **** $
384 $ **** $
448 $ **** $
512 $ **** $
576 $ **** $
640 $ **** $
704 $ **** $
768 $ **** $
1024 $ **** $
1536 $ **** $
- --------------------------------------------------- ---------------- ---------------- ----------------
NNI PVC 4 $ **** $
(Simplex Pricing) 18 $ **** $
16 $ **** $
32 $ **** $
48 $ **** $
64 $ **** $
128 $ **** $
192 $ **** $
256 $ **** $
320 $ **** $
384 $ **** $
448 $ **** $
512 $ **** $
576 $ **** $
640 $ **** $
704 $ **** $
768 $ **** $
832 $ **** $
896 $ **** $
960 $ **** $
1024 $ **** $
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 38
final Proprietary and Confidential
<TABLE>
<CAPTION>
------------------------------------------- ---------------- ---------------- ----------------
FRAME RELAY SERVICE SPEED/CIR 16.13. MRC 16.14.
COMPONENTS (KBPS) Install
------------------------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
UNI Ports 64 ***** $
128 ***** $
192 ***** $
256 ***** $
320 ***** $
384 ***** $
448 ***** $
512 ***** $
576 ***** $
640 ***** $
704 ***** $
768 ***** $
1,024 ***** $
1,536 ***** $
------------------------------------------- ---------------- ---------------- ----------------
UNI PVCs 4 ***** $
(Simplex Pricing) 8 ***** $
16 ***** $
32 ***** $
48 ***** $
64 ***** $
128 ***** $
192 ***** $
256 ***** $
320 ***** $
384 ***** $
448 ***** $
512 ***** $
576 ***** $
640 ***** $
704 ***** $
768 ***** $
832 ***** $
896 ***** $
960 ***** $
1,024 ***** $
------------------------------------------- ---------------- ---------------- ----------------
Local Access DS-O/DDS ICB ICB
FT-1 ICB ICB
DS-1 ICB ICB
NNI Trunking DS-0/DDS ICB ICB
Charge FT-2 ICB ICB
DS-2 ICB ICB
------------------------------------------- ---------------- ---------------- ----------------
</TABLE>
3. Enhanced On-Net Frame Relay Services:
a. Frame Relay/ATM Service Interworking:
Frame Relay/ATM Service Interworking ("FRASI") gives Telmex the
ability to communicate seamlessly between ATM and Frame Relay
locations. There is no additional charge for locations requiring ATM
beyond the standard ATM charges set forth in Section A of this Pricing
Schedule. Only Frame Relay PVCs can be
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 39
final Proprietary and Confidential
used for FRASI service, as the smaller Frame Relay ports are unable to
handle the higher bandwidth ATM PVCs.
b. Flex-CIR Services: Williams's Flex-CIR Service is designed to help
end-users in two ways:
1. Telmex can reserve the exact amount of bandwidth needed by
the end-user during the hours it is most critical.
2. Telmex can minimize network costs by 'turning off' excess
bandwidth during the hours when it is least required.
Specifically, Telmex will be able to plan adjustments to PVC speeds
(or CIR) at quarter-hour increments (e.g. 8:00, 8:15, 8:30, 8:45,
etc.). Once Telmex has made a speed change, Telmex will not be able to
make another change for at least two (2) hours. Telmex shall have the
option of establishing different speed schedules for the same PVC
depending on the day of the week (e.g. turning a Flex-CIR PVC down
from its `weekday speed' of 256 Kbps CIR to 64 Kbps CIR on the
weekend). Telmex and any end users will experience a momentary network
`hiccup' of one second or less at those predefined times when the
network adjusts the Telmex's CIR, per the Telmex's predefined
schedule, for a PVC which uses a Flex-CIR schedule. The configuration
charges for this Enhanced Frame Relay Service are provided in Table
C.2 below.
Table C.2
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
TIME-OF-DAY/DAY-OF-WEEK FLEX-CIR
PVC CHARGES
-------------------------------------------------------------------------------------
DESCRIPTION NRC (PER PVC) MRC (PER PVC)
-------------------------------------------------------------------------------------
<S> <C> <C>
Basic PVC Charge (Standard NRC charge (Standard MRC charge
(Based on Weighted for average CIR level) For average CIR level)
average of CIRs)
TOD Configuration **** ****
Charge (2 CIR Adjustments
Per Day)
DOW Configuration **** ****
Charge (2 CIR adjustments
per wk)
Each additional CIR **** ****
adjustment per period
(per day or per week)
</TABLE>
Example:
Pricing Step 1: Telmex establishes the necessary CIR and times for the
TOD Flex-CIR Service as follows:
8 a.m. to 5 p.m.:1.024Mbps
5 p.m. to 8 a.m.: 64 Kbps
Once the times and CIR are known, Williams and Telmex may then prorate
the charges, based on the percent of time each CIR speed is scheduled
for use. In this example, assuming the standard Monthly Recurring
Charges are $600 for a 1.024Mbps CIR and $40 for a 64Kbps CIR, the
prorated charge would be calculated as follows:
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 40
final Proprietary and Confidential
Business Hours: 9/24 hours * $600 (1.024Mbps CIR) = $225
Nonbusiness Hours: 15/24 hours * $40 (64Kbps CIR) = $25
Total Prorated Flex-CIR Charge: = $250.00 per month
Pricing Step 2: Next, Williams adds the speed change configuration
charges. There is a $30 fee every time the CIR is changed during a
Time-of-Day (TOD) schedule. In this example, the CIR speed changes two
times each day (i.e. 8 a.m. to 5 p.m. and 5 p.m. to 8 a.m.). The TOD
configuration charges would be calculated as follows:
TOD Configuration Charge = $30/daily speed change * 2 Changes
= $60 per month
Pricing Step 3: In order to determine the total monthly Flex-CIR cost
for this PVC, the Williams adds the "Prorated Charge" calculated in
Step 1 with the "TOD Configuration Charge" calculated in Step 2.
Monthly Recurring Flex-CIR PVC Cost: $250 + $60 = $310 per
month
Pricing Step 4: In order to determine the non-recurring charges for
this example, you first determine the installation charges. The
Installation charges for PVC's are $25 (you would add to this the
installation charge for the ports chosen by Telmex as well. Since
ports were not part of this example, the Port installation charges and
MRC have not been included). Since there are 2 PVC's (64 & 1.024 Mbps)
the total installation charge for the PVC's is $50. In addition,
Telmex would pay a one time non-recurring charge of $40 for the TOD
configuration. Therefore, in this example, Telmex's non-recurring
charges for the PVC's only would be $90.
4. Additional Non-recurring Charges: In addition to the non-recurring
installation charges set forth in Tables C.1 & C.2 above, Telmex may
incur additional non-recurring charges as set forth in Table C.3
below.
Table C.3
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
Additional Non-Recurring Charges
---------------------------------------------------------------------------------
Description of Charge Charge
----------------------------------------- ---------------------------------------
<S> <C>
Configuration Changes ****
Order Cancellation Charge ****
PVC Order Change Charge ****
Port Order Change Charge ****
</TABLE>
Configuration charges are applied when the CIR of PVCs for Basic Frame
Relay Service are changed or when Telmex desires a change to the CIR
of PVCs in an
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
-40-
<PAGE> 41
final Proprietary and Confidential
already established Flex CIR Schedule (i.e. Telmex will not be charged
the $50 fee for changes to the CIR when establishing its initial
Flex-CIR schedule).
Order Cancellation Charges apply when a Telmex cancels an order prior
to its installation.
PVC Order Change Charges apply after design, but prior to installation
on a per PVC basis, when Telmex makes a change to the PVC size
ordered. If the PVC has been installed and accepted, Telmex will be
charged for a new PVC installation.
Port Order Change Charges apply after design, but prior to
installation on a per port basis, when Telmex requests to change the
port size ordered. If the Port has been installed and accepted, Telmex
will be charged for a new port installation.
D. VOICE SERVICES
Williams Network voice services will remain consistent with the
interconnect agreement until such time that the regulatory constraints
allow for a flexible international switched voice interconnect
settlement fee.
E. PRICING GENERAL CONDITIONS
1. All pricing set forth in Sections A, B and C above is Williams's
current pricing. Such pricing and discounts are subject to change upon
thirty (30) days written notice by Williams to Telmex. Price changes
shall only be effective on a going-forward basis and shall not apply
to Service Orders previously placed by Telmex and accepted by
Williams. All pricing is subject to Preferred Provider and other
applicable provisions, including but not limited to Sections 2 through
5 of this Alliance Agreement.
-41-
<PAGE> 42
final Proprietary and Confidential
EXHIBIT II TO SCHEDULE A (TELMEX PRICING)
PRIVATE LINE PRICING
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
TARIFFS: "LADA ENLACES" 2 MBPS (E1) INTERNATIONAL CIRCUIT
MONTHLY
INSTALLATION RECURRING
CHARGE: CHARGE: DISTANCE (KM) FIXED CHARGE CHARGE/KM
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2MBPS $18,440 0-81 **** ****
> 81-161 **** ****
>161-805 **** ****
> 805 **** ****
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
TARIFFS: "LADA ENLACES" N X 64 KPBS INTERNATIONAL CIRCUIT
MONTHLY
INSTALLATION RECURRING
CHARGE: CHARGE: DISTANCE (IN KM) FIXED CHARGE CHARGE/KM
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
64KBPS $ 4,865 0-81 **** ****
> 81-161 **** ****
>161-805 **** ****
> 805 **** ****
128KBPS $ 6,081 0-81 **** ****
> 81-161 **** ****
>161-805 **** ****
> 805 **** ****
192KBPS $ 6,448 0-81 **** ****
> 81-161 **** ****
>161-805 **** ****
> 805 **** ****
256KBPS $ 7,522 0-81 **** ****
> 81-161 **** ****
>161-805 **** ****
> 805 **** ****
384KBPS $ 8,597 0-81 **** ****
> 81-161 **** ****
>161-805 **** ****
> 805 **** ****
512KBPS $ 9,761 0-81 **** ****
> 81-161 **** ****
>161-805 **** ****
> 805 **** ****
768KBPS $10,746 0-81 **** ****
> 81-161 **** ****
>161-805 **** ****
> 805 **** ****
1024KBPS $11,821 0-81 **** ****
> 81-161 **** ****
>161-805 **** ****
> 805 **** ****
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
-42-
<PAGE> 43
final Proprietary and Confidential
PRIVATE LINE PRICING:
o Private Line pricing is composed of three separate charges:
o Non-Recurring Installation Charge
o Monthly Recurring Fixed Charge
o Additional charge per kilometer based on distance from Telmex POP to
nearest border crossing point
o Additional local access is required from Telmex POP to customer site
o Additional fees, terms and conditions are provided in the product
commercial policies document
-43-
<PAGE> 44
final Proprietary and Confidential
- --------------------------------------------------------------------------------
FRAME RELAY PRICING
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
FRAME RELAY MONTHLY PVC RECURRING CHARGE
Bandwidth 0-49 KMS 50-99 KMS 100-199 200-399 400-749 750-1199 >1200 KMS
(KBPS) KMS KMS KMS KMS =
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
10 **** **** **** **** **** **** ****
- -----------------------------------------------------------------------------------------------------------------
16 **** **** **** **** **** **** ****
- -----------------------------------------------------------------------------------------------------------------
20 **** **** **** **** **** **** ****
- -----------------------------------------------------------------------------------------------------------------
32 **** **** **** **** **** **** ****
- -----------------------------------------------------------------------------------------------------------------
40 **** **** **** **** **** **** ****
- -----------------------------------------------------------------------------------------------------------------
64 **** **** **** **** **** **** ****
- -----------------------------------------------------------------------------------------------------------------
128 **** **** **** **** **** **** ****
- -----------------------------------------------------------------------------------------------------------------
256 **** **** **** **** **** **** ****
- -----------------------------------------------------------------------------------------------------------------
384 **** **** **** **** **** **** ****
- -----------------------------------------------------------------------------------------------------------------
512 **** **** **** **** **** **** ****
- -----------------------------------------------------------------------------------------------------------------
768 **** **** **** **** **** **** ****
- -----------------------------------------------------------------------------------------------------------------
1024 **** **** **** **** **** **** ****
- -----------------------------------------------------------------------------------------------------------------
1792 **** **** **** **** **** **** ****
- -----------------------------------------------------------------------------------------------------------------
2048 **** **** **** **** **** **** ****
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Port Monthly
Installation Charge Recurring Charge
- ---------------------------- ----------------------------
Bandwidth Tariff Bandwidth Tariff
(KBPS) (KBPS)
- ---------------------------- ----------------------------
<S> <C> <C> <C>
10 **** 10 ****
- ---------------------------- ----------------------------
16 **** 16 ****
- ---------------------------- ----------------------------
20 **** 20 ****
- ---------------------------- ----------------------------
32 **** 32 ****
- ---------------------------- ----------------------------
40 **** 40 ****
- ---------------------------- ----------------------------
64 **** 64 ****
- ---------------------------- ----------------------------
128 **** 128 ****
- ---------------------------- ----------------------------
256 **** 256 ****
- ---------------------------- ----------------------------
384 **** 384 ****
- ---------------------------- ----------------------------
512 **** 512 ****
- ---------------------------- ----------------------------
768 **** 768 ****
- ---------------------------- ----------------------------
1024 **** 1024 ****
- ---------------------------- ----------------------------
1792 **** 1792 ****
- ---------------------------- ----------------------------
2048 **** 2048 ****
- ---------------------------- ----------------------------
</TABLE>
FRAME RELAY PRICING:
o Frame Relay pricing is composed of three separate charges:
o Non-Recurring Installation Charge
o Port Monthly Recurring Fixed Charge
o Monthly PVC Recurring Charge per kilometer based on distance from
Telmex POP to nearest border crossing point
o Additional local access is required from Telmex POP to customer site
o Additional fees, terms and conditions are provided in the product
commercial policies document
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
-44-
<PAGE> 1
Redacted portions have been marked with asterisks (****). Confidential treatment
has been requested for the redacted portions. The confidential redacted portions
have been filed separately with the Securities and Exchange Commission.
CONFIDENTIAL TREATMENT
EXHIBIT 10.4
Proprietary and Confidential
MASTER ALLIANCE AGREEMENT
BETWEEN
INTEL INTERNET DATA SERVICES
AND
WILLIAMS COMMUNICATIONS, INC.
THIS MASTER ALLIANCE AGREEMENT (this "Agreement") between Williams
Communications, Inc. ("Williams"), a Delaware corporation, and Intel Corporation
("Intel") on behalf of its Internet Data Services business, ("IDS"), is
effective May 24, 1999 ("Effective Date") contingent upon the Parties completing
their due diligence activities, to be concluded by June 15, 1999, and the
simultaneous execution by the Parties of the Securities Purchase Agreement.
Williams and Intel are individually referred to, together with their respective
Affiliates, as a "Party" and collectively referred to as the "Parties." Persons
or entities that Intel or Williams Controls are referred to as "Affiliates" of
such Controlling Party. Unless otherwise explicitly set forth, the use of
"Intel" or "Williams" shall be deemed to include the respective Affiliates of
such Party. Control means the possession, directly or indirectly, of the legal
power and authority to direct or cause the direction of the management and
policies by one person or entity or a group of related persons or entities
acting in concert; provided, however, that the legal or beneficial ownership of
more than fifty percent (50%) of any such person or entity shall be deemed
"Control".
RECITALS
WHEREAS, Intel directly or through its Affiliates intends to provide mission
critical Internet web-hosting services on a global basis;
WHEREAS, Williams directly or through its Affiliates is a nationwide, single
source provider of business communications equipment and integration services
for data, voice, video and advanced applications on a retail basis and a
provider of network services for delivery of voice and data on a wholesale basis
and intends to expand such business internationally;
WHEREAS, the capabilities of each Party are complementary, and the relationship
contemplated by this Agreement (the "Alliance") will serve to broaden the base
of potential competitive opportunities for network services and other
applications for all market segments;
WHEREAS, the Parties or their Affiliates are entering into additional agreements
to implement the Alliance;
-1-
<PAGE> 2
Proprietary and Confidential
WHEREAS, the Parties are entering into this Master Alliance Agreement to set
forth general provisions concerning the Alliance; and
NOW THEREFORE, in consideration of the mutual covenants herein contained, Intel
and Williams agree as follows:
1. RELATIONSHIP OF THE PARTIES
1.1. Allocation of Responsibilities
1.1.1. Agreements
The Parties or their Affiliates are entering into the
following agreements to implement the Alliance, in addition
to this Agreement: (1) a Services Agreement ("SA") to cover
the following: (i) Williams' provision of domestic transport
services (with possibility of expansion to include
international transport services), (ii) Williams' provision
of professional consulting services, (iii) Williams'
provision of collocation opportunities, and (iv) Intel's
provision of IDS hosting services, and (2) a Co-Marketing
Agreement (the "CMA") to cover the sales and marketing
arrangement between Williams and IDS. Collectively, those two
Agreements, together with this Agreement, are referred to as
the "Alliance Agreements."
The Parties are in the process of negotiating the final terms
and conditions the Alliance Agreements. The Parties shall
complete and execute the Alliance Agreements by June 15,
1999, or such later date as the Parties may agree. In the
event the Parties cannot reach agreement by such date, either
Party may terminate the negotiations, in which event this
Master Alliance Agreement, and the Securities Purchase
Agreement shall terminate. Neither Party shall be liable for
any damages as a result of such termination.
1.1.2. Primary Responsibilities
Pursuant to the Alliance Agreements, Williams will be the
"Supplying Party" for (a) domestic transport services (and,
if applicable, international transport services) in
accordance with the SA, (b) professional consulting services
in accordance with the SA, and (c) collocation opportunities
in accordance with the SA. IDS will be the "Supplying Party"
for hosting services in accordance with the SA. The term
"Supplying Party" means the Party supplying a product or
service to the other Party under any of the Alliance
Agreements and the term "Procuring Party" means the Party
procuring a product or service from the Supplying Party under
any of the Alliance Agreements. The Parties will co-market
and sell each others services, as identified and as specified
in the CMA.
-2-
<PAGE> 3
Proprietary and Confidential
1.2. Strategic Supplier Relationship
Intel and Williams will make commercially reasonable best efforts to
work together to find joint solutions for IDS' telecommunications needs
for US-based backbone, Internet connectivity and International-based
backbone. To facilitate the provision of Williams' products and
services and to further Williams understanding of IDS data transport
needs, Intel will allow Williams' employees, at Williams' instance, to
be situated in IDS' facility(ies), the number and location of such
Williams' personnel to be at Intel's sole discretion. Intel will,
without charge, provide such Williams' personnel with office space,
telephone(s) and access to IDS employees. In addition, pursuant to
appropriate conditions of confidentiality as further set forth in
Section 5, Intel will share anticipated IDS plans and
telecommunications requirements with Williams as well as encourage
Williams to participate in IDS' planning process. Additional teams or
committees will be formed as appropriate pursuant to the process set
forth in Section 10. Intel will assign an IDS Executive Sponsor to
Williams to assist Williams in its supplier relationship with IDS.
Intel would encourage Williams to put POPs into IDS data centers, where
possible and mutually agreeable.
Notwithstanding the foregoing, subject to Williams' compliance with
pricing and quality of service provisions as further set forth in
Section 1.3, Intel will purchase from Williams **** of all IDS domestic
backbone transport requirements ("Domestic Commitment") as measured
annually based on the aggregate bandwidth miles IDS has agreed to
purchase over the preceding 12-month period.
Subject to pricing and quality of service provisions as set forth
herein, Intel will select Williams as one of its IDS IP transport
carriers. There is no minimum purchase commitment to Williams from IDS
for IP transport volume.
1.3. Pricing of Products and Services
1.3.1. Subject to compliance with any minimum purchase commitment(s) as may be
set forth in the Alliance Agreements, a Party shall receive "MFC
Pricing" with respect to any procurement under the Alliance Agreements.
"MFC Pricing" shall mean that the Procuring Party shall receive pricing
from the Supplying Party which is as good or better than that price
provided by the Supplying Party to any third party for the service or
product provided **** Notwithstanding the foregoing, MFC Pricing shall
not include any pricing provided by the Supplying Party to ****. With
regard to pricing provided to ****, the Procuring Party shall receive
pricing which is **** that provided to **** as measured by the extent
of the ****. In either instance, the obligation to offer MFC Pricing
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
-3-
<PAGE> 4
Proprietary and Confidential
shall not apply to (i) any transaction where a substantial portion of the
consideration received by either Party for the offered product or service is in
the form of equity, products or services from a third party, (ii) rates
provided by Supplying Party to Affiliates of the Supplying Party or
intraWilliams or intraIntel transfer rates (except for such rates for services
that are resold to third parties),; or (iii) rates provided by the Supplying
Party to any department, branch or agency of a federal, state or local
government within the United States. For MFC Pricing exclusions regarding rates
provided by the Supplying Party to any foreign (i.e. Non-U.S.) government
entity, the Parties shall mutually agree on such exclusions on a case by case
basis.
1.3.2. No Investment Obligation
The Supplied Party will not be required to make any initial capital or
ongoing investment beyond the commitment of business pursuant as
further set forth in Section 1.2 and the Alliance Agreements.
1.3.3. Condition Precedent of Procurement via Competitive Pricing
The Procuring Party shall not be obligated to purchase a
product or service from the Supplying Party unless the offered
price is as low as the lowest price for which the Supplied
Party can acquire the product or service from third parties
with similar terms, conditions and product quality and/or
quality of service. The Procuring Party will discuss with the
Supplying Party any issues pertaining to the pricing of
products and services to be provided to the Procuring Party
compared to the market price for comparable products and
services, or third party offers otherwise available to the
Procuring Party to ensure that competitive pricing is
maintained.
1.3.4. Resale Restrictions
If IDS resells the transport capacity acquired from Williams
pursuant to the SA ("SA Capacity") by means of a wholesale
distribution channel or similar business structure that is
established or maintained for the purpose of offering the SA
Capacity to customers doing business in the United States that
are primarily engaged in the business of distributing
transport capacity to other third parties (e.g., carriers),
then Williams shall no longer be bound to offer MFC Pricing
to IDS with respect to such resold SA Capacity. If Williams
resells the hosting services acquired from Intel pursuant to
the SA ("SA Hosting Service") except in accordance with the
provisions of the CMA, then Intel shall no longer be bound to
offer MFC Pricing to Williams with respect to such SA Hosting
Service.
-4-
<PAGE> 5
Proprietary and Confidential
1.4. Future Services
The Parties recognize that the telecommunications industry is
undergoing dramatic transformation due to radical technological
improvements and regulatory developments. Thus, notwithstanding the
alliance pricing system set forth in this Section, subject to
regulatory restraints, each Party will develop a mechanism to ****
to the other the benefits of increased efficiencies (e.g., due to
technology development or regulatory evolution).
1.5. Use of Facilities
Nothing in any Alliance Agreement shall be construed to prohibit either
Party from using its own facilities or services owned or leased as of
the Effective Date.
1.6. Ownership and Control
The Supplying Party will retain ownership and/or control of the assets
used to provide services or products to the Procuring Party and the
Supplying Party can use these assets to provide services or products to
third parties.
2. EFFECTIVE DATE AND TERM
This Agreement shall become effective on the Effective Date and shall
continue for a term of **** years (the "Term"). All other Alliance
Agreements shall have an initial term of **** years, with a rolling
renewal provision for additional one (1) year terms, to be exercised
within thirty (30) days of the Effective Date anniversary each year
commencing with the completion of the first year of the initial term
and subject to good faith negotiations between the Parties.
3. AUDIT RIGHTS
3.1. Audit
Supplying Party will maintain complete and accurate records of the
services performed under this Agreement for a period of three (3) years
after the completion of these services. Records relating to the
performance of this Agreement shall be made available to the Procuring
Party for audit upon reasonable notice. Each Party may, at any time,
but not more than once per calendar year request an audit of the other
Party (the "Audited Party"), with respect to services and other
deliverables provided under the Alliance Agreements (an "Audit"),
including, without limitation, to determine the accuracy and integrity
of any of the following:
3.1.1. The calculation of pricing as set forth in Section 1, including the
duty to provide MFC Pricing.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
-5-
<PAGE> 6
Proprietary and Confidential
3.2. Initiation
At the request of the Party requesting the Audit (the "Initiating
Party"), the Parties shall mutually agree on a nationally recognized
accounting firm as a third party auditor (the "Auditor") to Audit the
Audited Party's books, contracts and records with respect to the
matters specified in Section 3.1 (or any other matter as agreed by the
Parties). The Initiating Party shall request an Audit by giving written
notice of such request to the other Party, whereupon the Parties shall
enter into good faith negotiations to effectuate the Audit provisions
as set forth herein in a timely manner.
3.3. Engagement of Auditor
The Parties will agree on the scope and materiality standards aspects
of the Audit and jointly instruct the Auditor. The terms of the
engagement of the Auditor shall:
3.3.1. Specifically define the scope of the Audit and materiality standards.
3.3.2. Require, in the case of a quantitative evaluation, a valid statistical
sampling of any information reviewed.
3.4. Cooperation
The Audited Party shall cooperate fully with the Auditor and its
representatives in connection with any Audit, providing reasonable
access to any and all relevant books and records and causing its
employees, accountants and other representatives and agents to
cooperate fully with the Auditor.
3.5. Report
The Auditor shall provide a copy of its report to both Parties, and the
report shall specify the conformity or extent of non-conformity with
the Audited Party's obligations under an Alliance Agreement that were
the subject of the Audit. The Auditor must keep confidential the names
and specific pricing applicable to all other purchasers of similar
products and services from the Audited Party. The determination of the
Auditor will be final and binding on both Parties.
3.6. Cost
The Parties will share equally the cost of the Auditor, provided that
(1) if the net dollar amount of any identified errors favors the
Initiating Party and exceeds three percent (3%) of the total dollar
amount of billings covered by the Audit, then the Audited Party shall
pay all of the costs of the Audit, and (2) if the net dollar amount of
any identified errors does not favor the Initiating Party, then the
Initiating Party shall pay all of the costs of the Audit. In the event
that the Auditor determines that the Audited Party is not in compliance
with its obligations relating to pricing that were the subject of the
Audit, the Audited Party will adjust pricing on a retroactive basis in
accordance with the findings of the Auditor.
-6-
<PAGE> 7
Proprietary and Confidential
4. DISPUTE RESOLUTION
4.1. Disputes.
Prior to initiating any litigation, the Parties shall attempt in good
faith to resolve any controversy, dispute or claim arising out of or
relating to any of the Alliance Agreements or the breach, termination,
enforceability or validity thereof (collectively, a "Dispute") as
follows:
The senior management of both Parties shall meet to attempt to resolve
such Disputes. If the Disputes cannot be resolved by the senior
management, either Party may make a written demand for formal Dispute
resolution and specify therein the scope of the Dispute. Within thirty
days after such written notification, the Parties agree to meet for one
day with an impartial mediator and consider Dispute resolution
alternatives other than litigation. If an alternative method of Dispute
resolution is not agreed upon within thirty days after the one day
mediation, either Party may begin litigation proceedings.
Notwithstanding the foregoing, either Party shall have the right,
without the requirement of first seeking a remedy through mediation, to
seek preliminary injunctive or other equitable relief in any proper
court in the event that such Party determines that eventual redress
through mediation will not provide a sufficient remedy for any
violation of an Alliance Agreement by the other Party. The Parties
agree that preliminary injunctive or other equitable relief will be a
necessary and proper remedy in the event of misuse by one Party of the
other Party's intellectual property. Each Party further agrees that in
the event such equitable relief is granted in the United States, it
will not object to Non-U.S. courts granting provisional remedies
enforcing such U.S. judgments.
All negotiations pursuant to this Section 4.1 shall be confidential and
shall be treated as compromise and settlement negotiations. Nothing
said or disclosed, nor any document produced, in the course of such
negotiations which is not otherwise independently discoverable shall be
offered or received as evidence or used for impeachment or for any
other purpose in any current or future alternate dispute resolution
process or litigation.
5. CONFIDENTIAL
5.1. General
The existence, terms, and conditions of this Agreement and of the
Alliance Agreements, together with any information exchanged by the
Parties in performance of their respective obligations hereunder, are
confidential and neither Party may make any
-7-
<PAGE> 8
Proprietary and Confidential
disclosures with respect thereto without the express prior written
consent of the other, with the following exceptions:
a. subject to (c) below, as otherwise may be required by law or legal
process, to legal and financial advisors in their capacity of
advising a Party in such matters; or
b. any disclosure required by federal or state securities laws, or by
requirement of the Securities Exchange Commission or applicable
state blue sky commission; or
c. during the course of litigation so long as the disclosure of such
terms and conditions are restricted in the same manner as is the
confidential information of other litigating Parties and so long
as (i) the restrictions are embodied in a court-entered Protective
Order and (ii) the disclosing Party informs the other Party in
writing in advance of the disclosure; or
d. in confidence to its legal counsel, accountants, banks and
financing sources and their advisors solely in connection with
complying with financial requirements and transactions.
Disclosures of confidential and proprietary information by either Party
to the other Party shall otherwise be governed by the Intel/Williams
Corporate Non-disclosure Agreement ("CNDA") number _______, and related
Confidential Information Transmittal Records ("CITR(s)") or other
non-disclosure agreements as appropriate and executed in writing by the
Parties. Attached as Exhibit A is the above referenced CNDA.
5.2. Nondisclosure Agreements
To the extent that a disclosing Party agrees to allow the receiving
Party to disclose the disclosing Party's confidential information to
any third party person or entity, the receiving Party shall assure that
such third party agrees in writing to be bound to protect and not to
disclose such confidential information on substantially equivalent
conditions as exist between the Parties with respect to such
confidential information.
5.3. Other Agreements Regarding Confidentiality
The personnel of either Party may be required to enter into additional
agreements regarding confidential information as a pre-condition of
gaining access to the other Party's premises. Personnel of one Party
present at the premises of the other Party shall refrain from obtaining
access to information that is proprietary to the customers of the other
Party. Such personnel shall comply with the other Party's reasonable
measures established to restrict such access.
6. ADDITIONAL COVENANTS
6.1. Insurance
At all times during the term of the Alliance, each Party shall carry
and maintain workers' compensation and employers' liability insurance
adequate to insure fully
-8-
<PAGE> 9
Proprietary and Confidential
against losses or damages to Intel's or Williams' personnel, customers,
property or other contractor's personnel or property caused by their
respective activities. If requested, each Party will furnish to the
other certificates of insurance or other appropriate documentation
(including evidence of renewal of insurance) evidencing all coverage
referenced above and naming the other Party as an additional insured.
Each Party will furnish the other notice of the expiration of
cancellation of any insurance policy required pursuant hereto.
6.2. No Solicitation
During the term of the Alliance for a period of twelve months
thereafter, neither Party nor such Party's Affiliates shall, directly
or indirectly, for itself or on behalf of any other person, actively
induce or attempt to induce any employee of the other Party's
Affiliates engaged in Alliance activities to leave his or her
employment. However, general employment advertisements in media of
general or industry specific circulation shall be permissible. Nothing
contained herein shall prevent an employee of one of the Parties from
independently seeking and obtaining employment from the other Party so
long as such employee does not do so in violation of his employment
agreement with the other Party.
7. TERMINATION AND TRANSITION
7.1. General
While the Parties intend to develop a long term relationship, under the
following circumstances, the Alliance may be terminated in whole or in
part by either Party.
If either Party breaches any Alliance Agreement in a manner that has a
material adverse effect on the commercial value of the Alliance to the
other Party; or in the event that the technology used to provide the
Supplying Party's services, in the reasonable opinion of the Procuring
Party, becomes incapable of meeting the requirements set forth in the
SA or by the Procuring Party. In such event, the right to cure set as
set forth in Section 7.2 shall only apply if the condition giving rise
to the right to terminate is capable of being cured, without the
likelihood of its recurrence.
7.1.1. The Party having the right to terminate shall exercise its termination
right within a reasonable period of time, but in no event more than 180
days from actual notice of the event or circumstances permitting
termination by such Party.
7.2. The rights to terminate provided in this Section 7 are contingent upon
the Party seeking to terminate providing written notice of its intent
to terminate, and the passage of a sixty-day (60) period during which
the non-terminating Party, if applicable, may cure the conditions
giving rise to such right to terminate. Provision of such cure
extinguishes the right to terminate on the basis for which the cure has
been provided.
-9-
<PAGE> 10
Proprietary and Confidential
8. REPRESENTATIONS AND WARRANTIES OF THE PARTIES
Intel hereby represents and warrants to Williams as follows:
8.1. Organization, Standing and Authority.
Intel, and each of its Affiliates executing an Alliance Agreement, has
all requisite corporate power and authority to enter into the Alliance
Agreement(s) to which it is a party and to consummate the transactions
contemplated thereby. All corporate acts and other proceedings required
to be taken by Intel and its Affiliates to authorize the execution,
delivery and performance of the Alliance Agreements to which it is a
party and the consummation of the transactions contemplated thereby
have been duly and properly taken. Each of the Alliance Agreements to
which it is a party has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of it, enforceable
against it in accordance with its terms.
8.2. No Violation
The execution and delivery by Intel and its Affiliates of the Alliance
Agreements to which it is a Party and the consummation of the
transactions contemplated thereby and compliance with the terms thereof
will not, (i) conflict with or result in any violation of any provision
of the certificate of incorporation or by-laws of any of them, or the
comparable organizational documents of any of them, (ii) conflict with,
result in a violation or breach of, or constitute a default, or give
rise to any right of termination, revocation, cancellation, or
acceleration, under, any material contract, except for any such
conflict, violation, breach, default or right which is not reasonably
likely to have a material adverse effect on the ability of Intel and
its Affiliates to consummate the material transactions contemplated by
the Alliance Agreements or (iii) conflict with or result in a violation
of any judgment, order, decree, writ, injunction, statute, law,
ordinance, rule or regulation applicable to Intel or any of its
Affiliates or to the property or assets of Intel or any of its
Affiliates, except for any such conflict or violation which is not
reasonably likely to have such a material adverse effect.
8.3. Consents and Approvals
Except as set forth in any Alliance Agreement, no consent, approval,
license, permit, order or authorization of, registration, declaration
or filing with, or notice to, any domestic or foreign court,
administrative or regulatory agency or commission or other governmental
authority or instrumentality (each, a "Governmental Entity") is
required to be obtained or made by or with respect to Intel or any of
Intel' Affiliates in connection with the execution and delivery of the
Alliance Agreements or the consummation of the transactions
contemplated thereby.
-10-
<PAGE> 11
Proprietary and Confidential
9. REPRESENTATIONS AND WARRANTIES OF WILLIAMS
Williams hereby represents and warrants to Intel as follows:
9.1. Organization, Standing and Authority
Williams is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Williams has all
requisite corporate power and authority to enter into the Alliance
Agreements and to consummate the transactions contemplated thereby. All
corporate acts and other proceedings required to be taken by Williams
to authorize the execution, delivery and performance of the Agreement
and the Alliance Agreements to which it is a party and the consummation
of the transactions contemplated thereby have been duly and properly
taken. Each of the Alliance Agreements has been duly executed and
delivered by Williams and constitutes the legal, valid and binding
obligation of it, enforceable against it in accordance with its terms.
9.2. No Violation
The execution and delivery by Williams of the Alliance Agreements to
which it is a party do not, and the consummation of the transactions
contemplated thereby and compliance with the thereof will not (i)
conflict with or result in any violation of any provision of the
certificate of incorporation or by-laws of Williams, (ii) conflict
with, result in a violation or breach of, or constitute a default, or
give rise to any right of termination, revocation, cancellation, or
acceleration, under, any material contract, except for any such
conflict, violation, breach, default or right which is not reasonably
likely to have a material adverse effect on the ability of Williams to
consummate the material transactions contemplated by the Alliance
Agreements or (iii) conflict with or result in a violation of any
judgment, order, decree, writ, injunction, statute, law, ordinance,
rule or regulation applicable to Williams or to the property or assets
of Williams, except for any such conflict or violation which is not
reasonably likely to have such a material adverse effect.
9.3. Consents and Approvals
Except as set forth in any Alliance Agreement, no consent, approval,
license, permit, order or authorization of, registration, declaration
or filing with, or notice to, any Governmental Entity is required to be
obtained or made by or with respect to Williams in connection with the
execution and delivery of the Alliance Agreements or the consummation
of the transactions contemplated thereby.
10. ALLIANCE GOVERNANCE
During the Term, the Parties shall designate and maintain one
individual from each Williams to serve as its representative for the
activities of the Parties under this Master Alliance Agreement or any
of the Alliance Agreements (the "Representative"). Neither
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Proprietary and Confidential
Representative need be dedicated to the Alliance, but needs to be
available as the primary day-to-day interface between the Parties.
Either Party may change their designated Representative upon notice to
the other Party pursuant to Section 12.13.
In addition, the Representative shall be responsible for initiating any
requests to form ad-hoc or permanent committees. If mutually agreed,
the Parties shall form such committees which would be empowered to
discuss and implement specific concepts or to oversee certain activity.
In any such event, the Parties will establish such committee by way of
written amendment to this Agreement (but not for regular meetings of
the Parties' employees in the ordinary course of doing business with
one another) specifying the purpose of the committee, membership,
meeting times, and any authority such committee may have.
11. SPECIAL COVENANT NOT TO SUE
11.1. Definitions
"Assert" means to bring an action of any nature before any legal, judicial,
arbitration, administrative, executive or other type of body or tribunal that
has or claims to have authority to adjudicate such action in whole or in part.
Examples of such body or tribunal include, without limitation, United States
State and Federal Courts, the United States International Trade Commission and
any foreign counterparts of any of the foregoing.
"Chipset" means any integrated circuit designed to be connected directly to an
Intel microprocessor.
"Williams' Products" means all products manufactured by or for Williams other
than those that are either (i) Intel architecture compatible microprocessors or
Chipsets; or (ii) capable of being substituted for a product first manufactured
by or for Intel without a loss of some material functionality.
"Intel's Products" means
all microprocessors manufactured by or for Intel; and
all Chipsets manufactured by or for Intel; and
all software developed by or for Intel;
all Internet service offerings offered by Intel; and
all products manufactured by or for Intel that cannot be substituted for a
product first manufactured by or for Williams without a loss of some material
functionality.
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Proprietary and Confidential
****
11.2. Covenant Not To Sue
Covenant Not to Sue. Williams agrees that for so long as Intel **** as defined
and specified in the Securities Purchase Agreement, Williams shall not Assert
any **** against Intel, its subsidiaries or affiliates, or their customers
(direct or indirect), distributors (direct or indirect), agents (direct or
indirect) and contractors (direct or indirect) for **** Intel does not Assert
**** against Williams, its subsidiaries or affiliates, or their customers
(direct or indirect), distributors (direct or indirect), agents (direct or
indirect) and contractors (direct or indirect) for ****. This covenant not to
sue shall survive any termination or expiration of this Agreement and shall
remain in full force and effect until mutually agreed otherwise by the Parties.
11.3. Assignment.
If Williams assigns or attempts to **** to a third party not bound by this
covenant not to sue (whether directly or by operation of law), then effective
immediately prior to such assignment or attempted assignment, Williams agrees
that Intel shall have ****. This **** shall survive any termination or
expiration of this Agreement and shall remain in full force and effect until
mutually agreed otherwise by the Parties.
12. GENERAL PROVISIONS
12.1. Further Agreements
Further agreements to implement the Alliance may be appropriate.
Therefore, upon reasonable request of a Party, the Parties shall meet
and negotiate in good faith to determine if additional Alliance
Agreements are appropriate and the terms and conditions of any such
agreements.
12.2. Assignment
Except for the assignment of the Agreement by either Party pursuant to
the sale or transfer of all or substantially all of such Party's
assets, neither Party may assign nor delegate any of its rights or
obligations under this Agreement without the written consent of the
other Party, provided that each Party may assign this Agreement to any
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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Proprietary and Confidential
Affiliate, so long as such assigning Party guarantees the Affiliate's
performance. Notwithstanding the foregoing, the Parties mutually Agree
that as of the Agreement Effective Date, Intel had not yet determined
the final legal entity status for its IDS business and that Intel
Corporation may assign this Agreement, including any Alliance
Agreements executed pursuant hereto, to such IDS legal entity when
finally determined and established by Intel.
12.3. Force Majeure
If either Party's performance of this Agreement or any obligation
(other than the obligation to make payments for services rendered under
one of the Alliance Agreements) hereunder is prevented, restricted or
interfered with by causes beyond its reasonable control including, but
not limited to, acts of God, fire, explosion, vandalism, power grid
outages (beyond any required battery back-up or generator capacity),
storm or other similar occurrence including rain fade or other
atmospheric conditions, any law, order, regulation, direction, action
or request of the United States Government or national, state or local
governments, or of any department, agency, commission, court, bureau,
corporation or other instrumentality of any one or more of said
governments, or of any civil or military authority, or by national
emergencies, insurrections, riots, wars, acts of terrorism, strikes,
lockouts or work stoppages or other labor difficulties, supplier
failures, shortages, breaches or delays, then the Party affected by
such force majeure event (the "Affected Party") shall be excused from
such performance for a time period commensurate with the duration of
such prevention, restriction or interference. The Affected Party shall
use commercially reasonable efforts under the circumstances to avoid
and remove such causes of non-performance and shall proceed to perform
with reasonable dispatch whenever such causes cease.
12.4. Regulatory Compliance
The Parties acknowledge that the services provided by Williams to Intel
under the Services Agreement are subject to federal and state statutes
and regulations, including without limitation the Communications Act of
1934 (as amended from time to time) (the "Act") and the regulations
promulgated by the Federal Communications Commission ("FCC").
Notwithstanding anything to the contrary contained in any Alliance
Agreement, the Parties will not take any action in connection with the
Alliance which would constitute a violation of applicable law or take an
action which requires FCC or other approval without first obtaining such
approval.
12.5. Third Party Warranties
Each Party shall enforce any rights, warranties, licenses, terms and
conditions and other benefits accruing to it under each of its
agreements with third parties participating in or providing equipment,
software or other services used in connection with the provision of
services under the Alliance Agreements wherever and whenever such
Party's failure to enforce any such rights, warranties, licenses,
terms, conditions and
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Proprietary and Confidential
other benefits could materially impair its ability to provide such
services in accordance with the terms and conditions of the Alliance
Agreements.
12.6. Costs and Expenses
Except as otherwise specifically agreed to by the Parties in writing,
each Party will be responsible for its own expenses arising under this
Agreement.
12.7. Amendment
No amendment of this Agreement shall be valid or binding on the Parties
unless such amendment shall be in writing and duly executed by an
authorized representative of each Party.
12.8. Headings
Headings contained herein shall in no way limit the subject matter they
introduce and shall not be used in construing this Agreement.
12.9. Publicity
Neither Party shall make a public announcement or disclosure about this
Agreement or the Parties' discussions related to any aspect of it
without the written consent of the other Party. Subject to obligations
of confidentiality as set forth in Section __5__, either of the Parties
may at anytime make announcements which are required by applicable law,
regulatory bodies, or stock exchange or stock association rules, so
long as the Party so required to make the announcement, promptly upon
learning of such requirement, notifies the other Party of such
requirement and discusses with the other Party in good faith that exact
wording of any such announcement.
12.10. Execution
This Agreement shall be executed in two duplicate copies, one for each
Party, each of which copies shall be deemed an original.
12.11. Limitation of Liability
Except as may otherwise be expressly set forth in a specific Alliance
Agreements with regard thereto, neither Party, nor its officers,
employees, agents, partners, Affiliates or subcontractors shall be
liable to the other Party, its officers, employees, agents, partners,
Affiliates or subcontractors for claims for incidental, indirect,
consequential, exemplary, punitive, or other special damages,
including, but not limited to, damages for a loss of profits or
opportunity costs, connected with or resulting from any performance or
lack of performance under any Alliance Agreement regardless of whether
a claim is based on contract, warranty, tort (including negligence),
theory of strict liability, or any other legal or equitable principle.
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Proprietary and Confidential
12.12. Relationship of Parties
The Alliance Agreements individually or in the aggregate shall not be
construed to create a partnership, joint venture, or any other form of
legal entity.
12.13. Notices
Any notice, request, instruction or other document to be given
hereunder by any Party to any other Party under any section of this
Agreement shall be in writing and shall be deemed given upon receipt if
delivered personally or by telex or facsimile, the next day if by
express mail or three days after being sent by registered or certified
mail, return receipt requested, postage prepaid to the following
addresses (or at such other address for a Party as shall be specified
by like notice provided that such notice shall be effective only after
receipt thereof):
If to IDS: Intel Internet Data Services
20400 NW Amberwood Drive
Beaverton, OR 97006
Attn: General Manager
(408) 765-4280 - voice
(408)765-6767 - fax
with a copy
(which shall
not constitute
notice) to: Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95052
Attn: General Counsel
(408) 765-1136 - voice
(408) 765-1859 - fax
If to Williams: Williams Communications, Inc.
One Williams Center, Suite 26-B
Tulsa, OK 74172
Attn: Contract Administration
Fax: 918-573-6578
Telephone: 918-573-6277
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<PAGE> 17
Proprietary and Confidential
with a copy Williams Communications, Inc.
(which shall One Williams Center, Suite 4100
not constitute Tulsa, OK 74172
notice) to: Attn: General Counsel
Fax: 918-573-3005
Telephone: 918-573-4205
12.14. Severability
In case any one or more of the provisions contained in this Agreement
shall for any reason be held to be invalid, illegal or unenforceable in
any respect by a court or other authority of competent jurisdiction,
such invalidity, illegality or unenforceability shall not affect any
other provision hereof and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained
herein and, in lieu of each such illegal, invalid or unenforceable
provision, there shall be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and
enforceable, it being the intent of the Parties to maintain the benefit
of the bargain for both Parties.
12.15. Governing Law
Any claims arising under or relating to this Agreement shall be
governed by the internal substantive laws of the State of Delaware or
federal courts located in Delaware, without regard to principles of
conflict of laws. Each Party hereby agrees to jurisdiction and venue in
the courts of the State of Delaware for all disputes and litigation
arising under or relating to this Agreement. This provision is meant to
comply with 6 Del. C. Section 2708(a).
12.16. Rules of Construction
Words used in this Agreement, regardless of the gender specifically
used, shall be deemed and construed to include any other gender as the
context requires. As used in this Agreement, the word "including" is
not limiting, and the word "or" is not exclusive. Except as
specifically otherwise provided in this Agreement in a particular
instance, a reference to a Section, Schedule or Exhibit is a reference
to a Section of this Agreement or a Schedule or Exhibit hereto, and the
terms "this Agreement," "hereof," "herein," and other like terms refer
to this Agreement as a whole, including the Schedules to this
Agreement, and not solely to any particular part of this Agreement. The
descriptive headings in this Agreement are inserted for convenience of
reference only and are not intended to be part of or to affect the
meaning or interpretation of this Agreement. The Parties to this
Agreement do not intend that any other Person shall obtain any rights
as third party beneficiaries of this Agreement.
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Proprietary and Confidential
12.17. Survival and Provisions Applicable to Other Alliance Agreements
Sections 1, 3, 4, 5, 8, 9, and 12 of this Agreement shall apply to and
be deemed incorporated into the other Alliance Agreements and shall
continue to be in force for the duration of such Alliance Agreements,
regardless of the term of this Agreement. Upon any expiration or
termination of this Agreement, Sections hereof which by their nature
ought to survive shall so survive.
INTEL CORPORATION WILLIAMS COMMUNICATIONS, INC.
- ------------------------------- ----------------------------------
Signature Signature
- ------------------------------- ----------------------------------
Printed Name Printed Name
- ------------------------------- ----------------------------------
Title Title
- ------------------------------- ----------------------------------
Date Date
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<PAGE> 1
Redacted portions have been marked with asterisks (****). Confidential treatment
has been requested for the redacted portions. The confidential redacted portions
have been filed separately with the Securities and Exchange Commission.
CONFIDENTIAL TREATMENT
EXHIBIT 10.11
TRANSPORT SERVICES AGREEMENT
AGREEMENT NO. _______________
This Transport Services Agreement (this "Agreement") is made as of the
Effective Date, by and between Williams Communications, Inc. d/b/a Williams
Network, a Delaware corporation ("Williams"), with its principal place of
business at One Williams Center, 26th Floor, Tulsa, Oklahoma 74172, and SBC
Operations, Inc. and Southwestern Bell Communications Services, Inc., Delaware
corporations (collectively "SBCS" and together with Williams, the "Parties"),
with their principal places of business at 175 East Houston, San Antonio, Texas
78205, for the provision of telecommunications services, subject to this
Agreement and as set forth in this Agreement.
WHEREAS, Williams and SBC Communications Inc. have entered
contemporaneously into that certain Master Alliance Agreement (as defined
herein), which sets forth a business relationship between the parties, and
which calls for the execution of this Agreement;
WHEREAS, SBCS's parent company, SBC Communications Inc. ("SBC"), is
executing a National-Local and Global Strategy under which it and certain of
its Affiliates are developing the capacity to "follow" large and mid-size
customers wherever they may go and provide them with a full range of local,
long distance, data and other services and, having secured these "anchor
tenants," then provide service to small business and residential customers
out-of-region; and
WHEREAS SBC has entered into an Agreement and Plan of Merger with
Ameritech Corporation ("Ameritech"), under which Ameritech will, subject to
regulatory approvals, become a wholly-owned subsidiary of SBC in order to
provide the customer base, human resources and financial resources needed to
execute the National-Local and Global Strategy; and
WHEREAS, Williams provides business communications equipment and
integration services for data, voice, video and advanced applications on a
retail basis, and network services for the delivery of voice and data on a
wholesale basis; and
WHEREAS, SBC and Williams, in light of their complementary
capabilities and goals, are entering into a Master Alliance Agreement to
establish an alliance pursuant to which the parties (subject in all events to
and consistent with the Telecommunications Act of 1996 and other applicable
law), can work together to strengthen their ability to meet the competitive
opportunities for network services to the markets that they serve and, assuming
the completion of the Ameritech merger, which will help make the National-Local
and Global Strategy viable; and
WHEREAS, the Master Alliance Agreement contemplates the execution of
this Agreement and other Alliance Agreements to implement the Alliance and
<PAGE> 2
WHEREAS, SBCS desires to order various telecommunications services as
identified herein;
WHEREAS, Williams desires to provide such services to SBCS;
NOW, THEREFORE, the parties agree that the provision of such
telecommunications services shall be pursuant to the terms and conditions
contained in this Agreement.
1. SCHEDULES AND DEFINITIONS
1.1 Schedules
The following schedules are attached to this Agreement and incorporated into
the Agreement as if fully set forth herein.
Schedule A - Williams Network Supplemental Product Description and Pricing
Schedule
Schedule B - Williams Network Technical Specifications
Schedule C - Williams Network Collocation Service
Schedule D - OSS Interoperability
Schedule E - Operations Schedule
Schedule F - Early Entry Support
Schedule G - Testing Requirements
Schedule H - Out-of-Region Services
Schedule I - Customer Network Management for On-Net Private Line and Data
Services, Description and Specifications
Schedule J - Williams On-Net City List
Schedule K - Comprehensive Cost Model Example and Explanation
Schedule L - Transition
Schedule M - Williams Intrastate Authorizations
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<PAGE> 3
Schedule N - Access Agreement
1.2 Priority of Agreement and Schedules
In the event of any inconsistency between a schedule and this Agreement, the
terms and conditions of this Agreement shall control.
1.3 Definitions
Except as otherwise defined in this Agreement, the terms used in this Agreement
shall have the meanings given them in the Master Alliance Agreement.
"1+ Voice Service" as defined in Section 2.5 of this Agreement.
"271 Approval" - The grant of authority to SBC or any Affiliate of authority
pursuant to Section 271 of the Communications Act to provide InterLATA
telecommunications services originating in an in-region state.
"Access Costs" -means Access Costs as defined in Schedule N.
"Access Line" - means a facility arrangement which connects SBCS's or an End
User's location to Williams' network switching center.
"Actual Start Date" - as defined in Section 5.5 hereof.
"Additional Charges" - as defined in Section 9.1 hereof.
"Agreement" - as defined in the preamble hereof.
"Alliance Price" - means the rate for On-Net Transport Service or On-Net
Ancillary Service chargeable to SBCS during the Pricing Period using the
lowest of the Price Cap, **** or MFN Pricing Based upon actual data from the
Pricing Period.
"Ancillary Services" - as defined in Section 2.8 of this Agreement.
"ANI" - means automatic number identification or a call or line bearing such
automatic number identification.
"ATM Service" - means On-Net Service as defined in Section 2.2 of this
Agreement.
"Applicable Rates" - as defined in Section 3.3 of this Agreement, means the
then-current rates for On-Net Transport Services and On-Net Ancillary Services.
"Authorization Code" - means a numerical code, one or more of which are
available to SBCS's End Users to enable them to access the Williams' Network,
and which are used
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
3
<PAGE> 4
by Williams both to prevent unauthorized access to its facilities and to
identify End Users for billing purposes.
"Available" or "Availability" - means: (1) with respect to On-Net Services, the
condition in which Williams has the facilities necessary to provide On-Net
Service and such facilities are not already committed to other parties and are
accessible for On-Net Service to SBCS, as determined by Williams, in its sole
but reasonable discretion, directly from the Williams' Network in areas or
cities which are then in service by Williams; not including any areas or cities
for which facilities are planned but not yet completed, or any cities only
available through facilities leased from a Third Party; (2) with respect to any
Off-Net Services, the condition in which the Third Party Provider, including
any SBC LEC Affiliate, makes available such Off-Net Service.
"Business Day" - means a day other than a Saturday, Sunday, or other day on
which commercial banks in Tulsa, Oklahoma are authorized or required by law to
close.
"CAP" - means a competitive access provider.
"Cap Price" or "Price Cap" - means the maximum price, applicable only to On-Net
Transport Services or On-Net Ancillary Services as set forth in the relevant
portion of Schedule A, that SBCS will be charged by Williams based on volume as
set forth in Schedule A.
"Capacity" - means capacity which may be provided On-Net or Off-Net, for
telecommunications in DS-1, DS-3, OC-3, OC-12, OC-48 and OC-192 interexchange
carrier services, including ATM Service and Frame Relay Service.
"Casual Calling" - means access to Williams' Network and the subsequent use of
Service by an End User through the dialing of a carrier access code in the
format of 101XXXX, where the four (4) digits represented by the "X" are the
unique Carrier Identification Code (CIC) assigned to Williams or to SBCS or one
of its Affiliates.
"CIC" - means a carrier identification code.
"CIP" - means carrier identification parameter.
"Circuit" - means a dedicated communication path with a specified bandwidth.
"CLEC" - means a competitive local exchange carrier.
"Collocation Service Order" - means the order to be developed in accordance
with Section 5.1.
"Collocation Services" - as defined in Section 2.4 hereof.
4
<PAGE> 5
"Communications Act" - means the Communications Act of 1934, as amended from
time to time (including the Telecommunications Act of 1996).
"Cost" - has the meaning set forth in Section 3.5.1.
"Cost Plus" - means the price charged to SBCS for a service based ****
Williams **** cost ****
"Cross Connect" - means a physical connection between equipment collocated by
SBCS and an entity other than Williams through the Williams' cross connect
panel at a Williams POP.
"DS-0 Service" - means a dedicated, full duplex digital channel with nominal
line speeds of 2.4, 4.8, 9.6, 56 or 64 Kbps.
"DS-1" - means a dedicated, high capacity, full duplex channel with a nominal
line speed of 1.544 Mbps asynchronous serial data having a line signal format
of either alternate mark inversion (AMI) or B8ZS and either Superframe (D4) or
Extended Superframe formats. DS-1 Service has the equivalent capacity of 24
voice grade services or 24 DS-0 Services. AMI can support 24 56 Kbps channels
and (ESF) B8ZS can support 24 64 Kbps channels.
"DS-3" - means a two-point channel for the bidirectional transmission of
isochronous serial data/video at a nominal rate of 44.736 megabits per second.
(DS-3 Service is a dedicated, high capacity, full duplex channel with a line
speed of 44.736 Mbps asynchronous serial data having a line code of bipolar
with three zero substitution (B8ZS). DS-3 Service has the equivalent capacity
of 28 DS-1 Services at 1.544 Mbps or 672 voice grade equivalent (VG) services
or 672 DS-0 Services at 56/64 Kbps.)
"Due Date" - means the date, as set forth in Section 9.1, upon which payment of
charges shall be received by Williams.
"Effective Date" - as defined in Section 4.1 hereof.
"End User" - means the natural person or legal entity which either; (1) orders
service through SBCS or (2) uses the Williams' Casual Calling service directly
as a customer through dialing Williams' designated access code or other access
number.
"Escalation to Alliance Management" means weekly reports and readouts to the
Alliance Managers on the steps Williams is taking to eliminate provisioning
delays.
"FCC" - means the Federal Communications Commission, or any successor agency.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
5
<PAGE> 6
"Feature Group C" - means such feature as defined in the tariff of the National
Exchange Carrier Association.
"Feature Group D" - means such feature as defined in the tariff of the National
Exchange Carrier Association.
"FOC" - means firm order commitment as defined in Section 5.2.1.
"Force Majeure Event" - means an event described in Section 15.4 of the Master
Alliance Agreement, incorporated herein by reference; provided, that: (1) a
power outage shall be an event of force majeure under this Agreement only to
the extent (a) that Williams has in place the power backup systems required
herein, and such backup systems have been exhausted, and (b) the cause of the
power outage is a grid-wide electricity failure; and, (2) a cable cut shall be
an event of force majeure under this Agreement only to the extent that it is
caused by an act of God . Rain fade shall be a Force Majeure Event under this
Agreement only with respect to wireless Services.
"Frame Relay Service" - means On-Net Service as defined in Section 2.3 of this
Agreement.
"ILEC" - means incumbent local exchange carrier as that term is defined in the
Communications Act.
"Individual Case Basis (ICB)" - means determinations involving situations where
nonstandard arrangements are required to satisfy specialized needs. The nature
of such Service requirements makes it difficult or impossible to establish
general provisions for such circumstances. When it becomes possible to
determine specific terms and conditions for such offerings, they shall be
offered pursuant to such terms and conditions as the parties may mutually agree
and set forth in writing.
"InterLATA Service" - means long distance telecommunications service between
local access transport areas.
"Legal or Regulatory Event" - means a situation where either Party reasonably
believes that the provision of a requested Service would violate any
governmental law, order, or regulation and which would trigger Williams' rights
to suspend or cancel Services or Ancillary Services under Sections 11 or 24
hereof, if the Parties were unable, after consultation prior to any suspension
or cancellation, to avoid the illegality or other situation which gave rise to
the concerned Party's reasonable belief that the situation would violate any
governmental law, order or regulation.
"Local Access Provider" - means an entity providing Local Access.
6
<PAGE> 7
"Local Access" - means the intraLATA telecommunications facilities connecting
an End User, including an SBCS-designated termination point, to an
interexchange carrier's POP within the same LATA, including, but not limited to
a Williams POP.
"Local Access Service" - means the provision of service for the purpose of
originating or terminating a toll telecommunication service between the End
User, including an SBCS-designated termination point, and an interexchange
carrier's POP, including, but not limited to any Williams POP.
"Local Exchange Carrier (LEC)" - means the local telephone company that
provides exchange telephone services.
"Master Alliance Agreement" - means the Master Alliance Agreement between SBC
Communications, Inc. and Williams of even date herewith.
"NDOA" - means the Network Development and Operation Agreement of even date
with this Agreement.
"Network Standards" or "Technical Specifications" - means those specifications
for digital telecommunications and analog video transmission services, as
applicable respectively, to the Williams Network and as set forth in Schedule
B.
"OC-3" - means On-Net Service as defined in Schedule B.
"OC-12" - means On-Net Service as defined in Schedule B.
"OC-48" - means On-Net Service as defined in Schedule B.
"Off-Net" - means a circuit that is not On-Net.
"On-Net" - means a circuit traversing the Williams Network or the Intermedia
Communications, Inc. ("ICI") network both end points of which originate or
terminate at a Williams designated Williams POP.
"On-Net Transport Services" - means the following On-Net Services: Private Line
Service as set forth in Section 2.1 of this Agreement; ATM Service as set forth
in Section 2.2 of this Agreement; Frame Relay Service as set forth in Section
2.3 of this Agreement; and, 1+ Voice Service as set forth in Section 2.5 of
this Agreement.
"Pass Through Basis" - means reimbursement of ****.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
7
<PAGE> 8
"Payphone Charges" - means any telephone compensation charges or other
assessments attributable to origination of calls from a pay telephone to the
extent SBCS or its customers, or direct or indirect end users of such
customers, originate such calls.
"Performance Improvement Plan" means a plan developed by Williams and approved
by the Service Delivery Committee (defined in the NDOA), which will outline the
causes of, and propose remedies for, any Williams' process or activity which has
caused, or contributed significantly to, the delays in service activation. This
plan must be developed by Williams and submitted to the Service Delivery
Committee within 15 (fifteen) days of the failure to meet either the service
performance levels as set forth in Section 27 or the Service provisioning
intervals set forth in Section 5, and shall be implemented promptly upon
approval by the Service Delivery Committee.
"Person" - means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"POP" or "Point of Presence" - means a point of presence as commonly understood
in the industry.
"Private Line Service" - means On-Net Service as defined in Section 2.1 of this
Agreement.
"Provider" - means Williams or any Third Party whose own service constitutes
part of the Service or whose own service is procured by Williams on behalf of
SBCS.
"Renewal Term" - means Renewal Term as defined in Section 4.1 hereof.
"Requested Start Date" - means the Requested Start Date as defined in Section
5.2.1 hereof.
"SBCS" - means the entities as identified in the preamble to this Agreement and
any Affiliate other than an SBCS LEC Affiliate; provided that SBCS, or its
designated Affiliate, shall in all instances serve as the single point of
contact to Williams.
"SBCS LEC Affiliate" - means a LEC which is an Affiliate of SBCS.
"Service Affecting" - means a condition in the Williams Network which results
in a loss or degradation of Service except for a loss or degradation of fifty
(50) milliseconds or less.
"Service Intervals" - means Williams' time periods for responding to SBCS's
requests for Capacity as defined in Section 5.3 hereof.
"Service Metric" - means the Williams' Network performance parameter set forth
in Schedule B to this Agreement.
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"Service Orders" - as defined in Section 5.1 hereof.
"Service" or "Services" - mean any service described in Section 2 hereof or any
additional or new services, features or function as the Parties may mutually
agree upon or is added pursuant to the NDOA.
"SLA" - means service level agreement, as that phrase is commonly understood in
the industry.
"Start of Service Date" - means the date On-Net Service begins in Section 5.5.
"Term" - as defined in Section 4.1 hereof.
"Third Party" - means a party which is not an Affiliate of the party in
question.
"Warranted Service" - means Service which Williams is obligated to have
available pursuant to an SBCS usage forecast as set forth in Section 26.1.
"Williams' Network" - means the fiber optic digital telecommunications
transmission system, switching infrastructure, network management systems,
operational support systems, and customer network management systems operated
by Williams and which is capable of providing and is used for the provision of
On-Net Service between the cities set forth in Schedule J (at the times
indicated for each Williams POP) or as subsequently expanded to other cities.
"Williams POP" - means a POP that is part of the Williams Network.
2. DESCRIPTION OF SERVICES
SBCS may order from Williams the Services set forth in this Section 2, the
terms and conditions of which are set forth in this Agreement and in the Master
Alliance Agreement. SBCS shall pay for Services in accordance with the terms of
this Agreement, and with respect to On-Net Services and On-Net Ancillary
Services at the rates set forth in Schedule A, as that Schedule may be amended
periodically by mutual agreement of the Parties, or pursuant to the NDOA, to
include new services, features or functions. All Services as defined in this
Section 2 are subject to Availability, except as provided in Schedule F or as
otherwise expressly set forth herein. Williams hereby covenants and agrees that
it shall keep the Williams Network upgraded with the most recent generic
releases of system operating software which are generally available, unless
otherwise agreed to pursuant to the NDOA.
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2.1 Description of On-Net Private Line Service. Williams
On-Net Private Line Service (the "Private Line Service") provides
domestic DS-1, DS-3, and optical SONET (OC-N) circuits which are
specifically dedicated to the use of SBCS or its customers between two
(2) points specified by the parties in a Service Order on the Williams
Network and meeting the Technical Specifications for Private Line
Service set forth in Schedule B.
2.2 Description of On-Net ATM Service. Williams On-Net
Asynchronous Transfer Mode Service (the "ATM Service") is
multi-service technology on the Williams Network that provides
integration of disparate networks onto a single communications
infrastructure and meets the Technical Specifications for ATM Service
set forth in Schedule B. ATM technology encapsulates user data into
53-byte cells and transmits them over an ATM network. Williams' On-Net
ATM Service is designed for two (2) primary applications. These
applications include ATM transport and backbone connectivity. ATM
transport provides multimedia aggregation and video transmission.
Multimedia transmission is suited for transporting voice, data and
video while video transmission is best designed for point-to-point
video services. Backbone connectivity provides for the interconnection
of local area networks ("LAN(s)") as well as interconnection of
existing network access points ("NAP(s)") or private peering
backbones.
2.3 Description of On-Net Frame Relay Service. Williams
On-Net Frame Relay Service ("Frame Relay Service") is a multi-service
technology that allows commercial end-users to use a network of shared
private lines to send and receive data from geographically distant
locations and meets the Technical Specifications for Frame Relay
Service set forth in Schedule B. Frame Relay can be defined as
packet-switched, multiplexed data networking technology supporting
connectivity between user equipment, such as routers, and a carrier's
frame relay network equipment.
2.4 Description of Collocation Service.Collocation Service is
a service, defined more specifically in Schedule C to this Agreement,
pursuant to which SBCS and its customers may place equipment in a
facility owned, leased or licensed and operated by Williams for the
purpose of interconnecting that equipment, including switches and
associated equipment, with the Williams Network, the network of SBCS
or any Affiliate, or other Third Party network ("Collocation
Service"), SBCS shall complete a mutually agreed upon Collocation
Service Order. The terms and conditions relating to Collocation
Service are attached hereto as Schedule C and are a part of this
Agreement and incorporated herein by reference.
2.5 Description of 1+ Voice Service. "1+ Voice Service"
provides On-Net interexchange Service via Feature Group D, Feature
Group C in selected exchanges or dedicated access lines for
origination and transmission on the Williams Network and termination
of communications. Dedicated access may be
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provided by SBCS, Williams or a Local Access Provider. Feature Group D
and Feature Group C access is provided by the Local Exchange Carrier
and allows SBCS to use its own CIC to route traffic to Williams'
facilities while allowing SBCS's End Users to recognize SBCS as the
End User's interexchange carrier or interexchange carrier carrying the
End User's Casual Call. Feature Group D and Feature Group C service in
In-region States of SBC will be provided in accordance with Sections
3.7 and Schedule N of this Agreement and Section 3.9 of the Master
Alliance Agreement. Dedicated Local Access Service will be provided in
accordance with Section 6.0 of this Agreement. Technical issues with
respect to Sub-CIC routing will be resolved by mutual agreement of the
parties pursuant to Section 23 or the NDOA.
2.5.1 Except where Local Access Service is provided
via dedicated access facilities, Williams' 1+ Voice Service
is available only in Feature Group D local exchanges where
the End User's telephone line(s) can be programmed by the
Local Exchange Carrier to automatically route "1+" interLATA
toll calls to the Williams Network; however, Williams will
provide 1+ Feature Group C Switched Service in California at
requested locations on ****.
2.5.2 Assuming CIP is provided by the originating
office and each SBC Affiliate provides a separate CIC, PIC
verification (1-700-555-4141) will correctly brand the
Services of SBCS and its Affiliates, and such additional
brands as SBCLD or its Affiliates may employ. The parties
agree to explore and implement, if mutually agreeable, a
technical solution for such branding where alternative
solutions may be required.
2.5.3 Williams shall have principal responsibility
for obtaining Local Access facilities. Notwithstanding the
foregoing, SBCS shall have final decision making authority
regarding architectural and design decisions for Local Access
facilities to the extent that the access costs which Williams
will charge SBCS pursuant to this Agreement will be
materially adversely affected by Williams' decisions,
provided that SBCS's decision does not have a material
adverse effect on Williams, in accordance with the provision
of Section 3.8 of the Master Alliance Agreement.
2.5.4 The states in which Williams currently has
intrastate authority are listed in Schedule M.
2.6 Description of Wireless Local Access Services. Williams
will provide wireless Local Access in accordance with Schedule A ****, or as
mutually agreed.
2.7 Description of Third-Party Services
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2.7.1 Local Access Arrangements. Williams will
provide SBCS with access to and use of any Local Access
Services provided pursuant to any existing or future local
access arrangements and agreements Williams has or will have
with ILECs, CAPs, CLECs, wireless access providers and any
other Local Access Provider with which Williams has existing
and/or future agreements. Subject to non-disclosure or other
contractual obligations, Williams will make the terms of such
arrangements available to SBCS. This access will encompass
and include all service capabilities within those agreements
and will be provided by Williams to SBCS ****.
2.7.2 Other Local Access Services. Williams shall
provide switched Local Access Services in accordance with the
provisions of Section 3.8 of the Master Alliance Agreement
and pursuant to Section 3.7, of this Agreement and dedicated
Local Access Services in accordance with Section 6 of this
Agreement. Williams will use its reasonable best efforts, in
consultation with SBCS, to obtain Local Access Service for
SBCS at the lowest competitive rates for the quality of
access service required by SBCS, to configure Local Access
Service in a manner designed to minimize the costs of that
service and which meets SBCS's quality of service and
architecture requirements, provided that these requirements
do not adversely affect the cost to Williams or quality of
service received by Williams' other customers.
2.7.3 Off-Net InterLATA Services. Williams will
provide, upon SBCS's request, Off-Net InterLATA Services.
SBCS shall provide notice in its Service Order that Off-Net
InterLATA Services are requested and provide Williams with
such information as Williams may reasonably require to secure
such Service. SBCS shall be responsible for all charges,
including without limitation, monthly charges, usage charges,
installation charges, non-recurring charges, or applicable
termination/cancellation liabilities, of the Off-Net
InterLATA Service provider(s) on a ****.
2.7.4 Non-collocated Facilities. Where Williams and
SBCS facilities are located in the same community or market,
Williams will provide, on a **** leased interconnection
facilities between the SBCS and Williams' equipment,. Any
interconnection facility requiring construction will be
subject to mutual agreement.
2.8 Ancillary Services. Ancillary Services are those services
incidental to Williams' provision of the Service, as such
Services are identified in Schedule A (e.g. reconfiguration),
or services incidental to service provided by a Third Party,
including any SBC LEC Affiliate, for which such party imposes
a fee as established by that party.
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2.9 Services Generally
2.9.1 Origination or Termination of International
Service. The Services are available only within the United
States of America and its territories, but include the
origination or termination of international Service pursuant
to the International Services Agreement between the Parties
of even date.
2.9.2 Availability. The Private Line, Frame Relay,
and ATM Services set forth in this Section will be available
on the Effective Date at the locations and times specified in
Schedule J. Except as provided in Schedule F, the 1+ Switched
Voice Services will be available on a State by State basis in
States other than SBC's In-region States by no later than ****
and in SBC's In-region States when SBC's In-Region ILECs
receive 271 Approval in that State (but not before ****.
2.10 Use of SBCS Facilities. Nothing in this Agreement shall
preclude SBCS from using the facilities and networks of its Affiliates
in SBC States, as defined in the Master Alliance Agreement, to obtain
any of the Services Williams would otherwise provide under this
Agreement.
2.11 InterLATA CAP Facilities. Nothing in this Agreement
shall preclude SBCS or its Affiliates from using the interLATA
facilities of any CAP or CLEC, which, in either case, SBCS or its
Affiliates acquire or where Williams otherwise consents, such consent
not to be unreasonably withheld, conditioned or delayed.
2.12 Monitoring. As a part of providing its Services,
Williams shall: (i) actively monitor the Williams Network and respond
to alarms and troubleshoot problems; and (ii) serve as an interface to
Local Access Providers, and use reasonable efforts to troubleshoot
problems with the Local Access portion of a Service.
2.13 Remote Access to Switches. With respect to any On-Net
Transport Service which requires equipment not available in a
particular Williams POP (the "First POP"), Williams will provide
backhaul via On-Net Transport Service from the First POP to the nearest
Williams POP containing the needed equipment (the "Equipped POP"), at
**** Service beyond the Equipped POP is subject to the **** set forth
herein.
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3. PRICING
3.1 Rates.
3.1.1 On-Net Transport Services and On-Net Ancillary Services.
The rates for On-Net Transport Services and On-Net Ancillary
Services are as stated in the relevant portion of Schedule A,
which shall serve as the Price Caps for those On-Net Transport
Services and On-Net Ancillary Services.
3.1.2 Collocation Services. The rates for Collocation
Services shall be calculated based upon the Cost Plus Model.
The current estimated rates for Collocation Services are set
forth in Schedule A. Notwithstanding anything to the contrary
herein, no Price Cap applies to Collocation Services.
3.1.3. Local Access Services. Section 6 Local Access Services
are provided ****. Section 3.7 Local Access shall be provided
in accordance with Schedule N. Notwithstanding anything to the
contrary herein, no Price Cap applies to Local Access
Services.
3.1.4 Off-Net InterLATA Services. Off-Net InterLATA Services
are provided ****. Notwithstanding anything to the contrary
herein, no Price Cap applies to Off-Net InterLATA Services.
3.1.5 Ancillary Services. SBCS shall pay for (a) On-Net
Ancillary Services as provided in Section 3.1.1 of this
Agreement and (b) charges for Ancillary Services from Third
Parties or SCBS LEC Affiliates ****
3.2 Rate Adjustment. The Price Caps for On-Net Transport
Services and On-Net Ancillary Services set forth in Schedule A shall
serve as the rates for such Services as of the Effective Date, are firm
for a period of six months from the Effective Date of this Agreement
and, subject to the provisions of Schedule A for review of the
Ancillary Service charges (i.e. to assure they are at market rates),
shall be deemed to have satisfied the pricing criteria set forth in
Sections 3.4.1 to 3.4.3 of the Master Alliance Agreement. Thereafter,
the rates shall be adjusted in accordance with the provisions of this
Section 3.
3.3 Cost Plus Model Implementation. Following the six month
period after the Effective Date, Williams shall, fifteen (15) days
prior to the end of each calendar quarter, present to SBCS a schedule
showing the proposed rates for On-Net Transport Services and On-Net
Ancillary Services for the following quarter (the "Pricing Period")
based on the Cost Plus Model (the "Applicable Rates"). The analysis
period for determining the Applicable Rates under the Cost Plus Model
shall include the three (3) full months preceding the presentation of
the proposed Applicable Rates (the "Measurement Period"). Williams
shall provide
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the average of the Cost Plus pricing for the Measurement Period. The
Applicable Rates shall be modified at the beginning of each quarter to
reflect the lowest of the Price Cap as shown in Schedule A, the Cost
Plus pricing for the preceding Measurement Period, or the MFN Pricing
as described in Section 3.4.3. of the Master Alliance Agreement. The
parties shall document any revised pricing in writing.
3.4 True-Up
3.4.1 If, during the Pricing Period, the Applicable Rate
charged to SBC for any particular On-Net Transport
Service or On-Net Ancillary Service is determined
to exceed the Alliance Price, then Williams shall
provide a refund in the form of a credit equal to
the difference between the rate charged during the
Pricing Period and the price derived from the
Alliance Price for the applicable month times the
number of units billed to SBC during the month when
such difference exists. No true-up shall apply for
the first six months following the Effective Date
of the Agreement.
3.4.2 If, during the Pricing Period, the Applicable Rate
charged to SBCS for any particular On-Net Transport
Service or On-Net Ancillary Service is lower than
the rate as determined using the Alliance Pricing
and the Price Cap, then Williams shall be entitled
to bill the difference between the rate charged
during the Pricing Period and the price derived from
the Alliance Price for the applicable months, or the
Price Cap, whichever is lower, times the number of
units billed to SBCS during the month when such
difference exists. No true-up shall apply for the
first six months following the Effective Date of the
Agreement.
3.5 Additional Provision. In addition to the principles of
the Cost Plus Model as set forth in Section 3.4.1 of the Master
Alliance Agreement, the following provisions shall apply to the
determination of product or service costs with respect to On-Net
Transport Services and On-Net Ancillary Services under the Cost Plus
Model:
3.5.1 The Cost Plus Model is intended to capture Williams cost
incurred to ****
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3.5.2 ****
3.5.3 Williams' capitalization policy is shown in Schedule
K(iii).
3.5.4 The allocation methodology for the Cost Plus Model is a
**** allocation of Williams' Cost ****
3.5.5 The rates charged under the Cost Plus Model will
reflect **** Costs plus **** with the following exceptions:
****
3.5.6 An example of the Cost Plus Model is included in
Schedule K.
3.5.7 All changes to the provisions outlined in this Section
3.5 must be approved by the Finance Committee under the
procedures set forth in the Master Alliance Agreement.
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3.6 Audit. SBCS shall have the right to conduct an audit of
the cost information utilized to produce the Williams Cost Plus Model
according to the provisions set forth in Section 8 of the Master
Alliance Agreement.
3.7 Access Charges.
Williams shall charge and SBCS shall pay for access services in
accordance with Schedule N.
3.8 Additional **** Charges. Williams will also charge SBCS
**** any interstate or intrastate charges assessed on Williams as a
result of Service taken under this Agreement by SBCS related to
Payphone Charges, operator pass through, PIC, Universal Service,
database queries, local number portability, any other charges ancillary
to call set up completion or billing, or any other charges imposed or
hereafter established pursuant to the laws, policies or rules of any
governmental body.
4. Effective Date, Term and Termination.
4.1 This Agreement shall become effective on the date on
which Williams and SBCS sign this Agreement ("Effective Date") and
shall continue for a term of twenty (20) years (the "Term"). Each
Service Order placed under this Agreement shall have its own term, as
indicated on such Service Order. This Agreement shall automatically
renew for successive one-year periods (the "Renewal Term(s)") unless
canceled by either party by giving written notice of such cancellation
not less than ninety (90) days before the end of the current Term, or
any Renewal Term. Unless Williams or SBCS is in default, any Service
being provided at the time of termination shall continue until the
natural end of such Service as specified in the applicable Service
Order upon the terms and conditions of this Agreement, unless the
parties mutually agree to terminate the Service at an earlier date.
4.2 The Parties recognize that the Services provided pursuant
to this Agreement are vital to SBCS and must be continued in
accordance with the terms of this Agreement after the Termination of
this Agreement while SBCS transitions to the new arrangements required
for its continued provision of service to its customers. Accordingly,
the Parties hereby agree, in addition to the provisions of Section 12
of the Master Alliance Agreement, to cooperate in developing and
implementing an orderly and efficient transition pursuant to the
provisions of Schedule L of this Agreement, that will minimize any
adverse effects (a) on the quality and availability of the Services,
(b) on SBCS' ability to provide the quality and variety of services
offered to its customers prior to termination, and (c) on SBCS'
customers. Unless SBCS is in material default on account of
non-payment, Williams will, as part of such transition and if
requested by SBCS prior to the end of the Term, continue to provide
the Services for a period of not less than nine (9) months after the
expiration of the then current Term on the terms and conditions
(including the rates and charges in effect at the
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date of the expiration of the Term, subject to such adjustments as may
be made under this Agreement pursuant to the Cost Plus Model, or on
**** pricing), without the introduction or imposition of any new or
additional charges, unless otherwise specifically allowed under this
Agreement. Beginning nine (9) months after the expiration of the then
current Term, the Applicable Rates shall no longer be in effect and
SBCS shall pay prevailing market prices charged to similarly situated
customers for any Services that it purchases.
4.3 In accordance with Section 12.2.2 of the Master Alliance
Agreement, Williams will, as part of the transition, make available to
SBCS IRUs and other transport services in accordance with the terms and
at the prices set forth in Schedule L, subject to such other terms and
conditions as the parties may mutually agree upon.
5. Service Orders and Provisioning of Circuits
5.1 Services requested by SBCS hereunder shall be requested
on a mutually agreed upon Service Order form ("Service Order(s))".
Unless the Service to be provided is a Warranted Service or the
Service will be provided pursuant to Schedule F, Williams reserves the
right not to accept a Service Order under this Agreement if the
Service is not Available.
5.2 The Parties recognize that providing world class services
requires prompt and responsive services. In order to assure that SCBS
is in a position to provide such prompt and responsive service,
Williams hereby covenants and agrees that it will make available to
SCBS Service Intervals for On-Net Transport Services that are at least
equal, if not superior, to industry standards. In all events, the
Service Intervals for On-Net Transport Services shall not be longer
than those set forth in this Section 5. The On-Net Service Intervals
set forth in this Section 5 comport with industry standards today and
are not subject to change for 6 (six) months except by mutual
agreement.
5.2.1 When a Service Order is placed, SBCS will
indicate a requested start date (the "Requested Start Date")
for the On-Net Transport Service and, except for 1+ Voice
Services, the desired term of the On-Net Transport Service,
the specific city pairs, the applicable bandwidth and any
other information required pursuant to the Service Order form
developed pursuant to Section 5.1. Williams will acknowledge
receipt of a Service Order **** during Business Days of
receipt of such Service Order (the "Acknowledgment"). Within
**** of the Acknowledgment, Williams will issue a firm order
commitment (the "FOC") indicating the anticipated Start Date
for such On-Net Transport Service, and indicating the status,
if any, of any request for Local Access Services or Off-Net
InterLATA Services that SBCS requested in the Service Order.
Williams will make all reasonable efforts to meet SBCS's
Requested Start Date. In the event that SBCS requests a
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change in the Requested Start Date, SBCS's Requested Start
Date will be changed to reflect the number of days of delay,
or advance, as mutually agreed upon.
5.2.2 Williams will activate ANIs and will order
service from the Local Access Service Provider for 1+ Voice
Service within **** of the request for such Service, unless
otherwise specified by SBCS.
5.3 Standard On-Net Service Intervals
5.3.1 Williams' standard Service Interval for Williams POP to
Williams POP On-Net Transport Services will be:
****
5.3.2 The standard Service Interval for OC-N level Service
shall be mutually agreed upon.
5.3.3 The standard service implementation interval for
Off-Net Services either partially or wholly off of the
Williams' Network shall be determined on an Individual Case
Basis, but in no event shall it be longer than the service
implementation interval actually taken by the Third Party
provider.
5.4 Request for Expediting On-Net Service. SBCS may request
that a Service Order be expedited to permit the installation of the
Service in a time frame shorter than the Service Intervals set forth
above. In such case, the expedite charges set forth in Schedule A would
apply. Where Williams is arranging the provision of Local Access
Services, it will cooperate with SBCS in arranging for expedited
service from the Local Access Provider and order expedited service from
the Local Access Provider. SBCS shall reimburse Williams **** for any
expedite charges assessed by the Local Access Provider.
5.5 Start of Services. On-Net Services shall begin on the
date Williams issues notice that such On-Net Service is available (the
"Start of Service Notice" or "SOSN"), indicating that the On-Net
Service has been tested by Williams in accordance with the general
industry standards (DS-1, DS-3, and for OC-N level Service), and in
accordance with Williams' standard testing procedures and that the
On-Net Service meets or exceeds those Technical Specifications set
forth in Schedule B (the "Actual Start Date").
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5.5.1 SBCS shall notify Williams in writing within
**** after Williams issues the SOSN if the On-Net Service is
in material non-compliance with the applicable Technical
Specifications. Williams shall promptly correct the
deficiencies in the On-Net Service as noted by SBCS in its
notice and shall issue a new SOSN when it has satisfied SBCS'
concerns. SBCS shall have another fifteen (15) business days
to notify Williams' whether the On-Net Service is in material
non-compliance with the applicable Technical Specifications,
and, if so, the procedures in the preceding sentence shall
apply. These procedures shall continue to apply until SCBS
determines that the On-Net Service is not materially
non-compliant with the Technical Specifications. If SCBS fails
to give notice within such fifteen business day period that
the Service is materially non-compliant with the Technical
Specifications, SCBS shall be deemed to have accepted such
On-Net Service and Williams shall begin billing for the On-Net
Service as of the Actual Start Date.
5.5.2 Where SBCS notifies Williams in accordance
with Section 5.5.1 that the On-Net Service is in material
non-compliance with the Technical Specification, the Actual
Start Date shall be postponed until SBCS determines that the
On-Net Service is not materially non-complaint with the
Technical Specifications. Williams shall not charge for the
On-Net Service until the Actual Start Date as it may be
delayed as provided herein.
5.5.3 Where SBCS does not have its own facilities
(including Local Access ordered by SBCS) ready by the Actual
Start Date, Williams will provide SBCS with notice that
Williams is ready and able to commence its On-Net Service. If
SBCS is not ready to take such On-Net Service within
seventy-two (72) hours including for reasons such as untimely
installation or non-operation of its own facilities or those
of the Third Party provider (including any SBC LEC
Affiliate), Williams' may begin billing as of the end of such
seventy-two (72) hour period. Where Williams arranges Local
Access Services for SBCS, Williams will only begin billing
for the associated On-Net Transport Service at such time as
the Local Access Service is turned up by the Local Access
Service Provider.
5.6 Delays in Service.
5.6.1 On-Net Delays. SBCS may request a delay in the Actual Start Date
of a Service Order provided that (i) it provides Williams a written
delay request no later than five (5) business days for On-Net portions
prior to the Requested Start Date or the delayed Requested Start Date,
as the case may be, for On-Net portions (or no later than the
applicable LEC tariff or CAP notice period for delay requests for Local
Access portions), and (ii) the aggregate number of the days requested
by such delay request or requests do not **** from the
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Service Order's original Requested Start Date. At the expiration of the
first to occur of ****, SBCS may no longer delay the Actual Start Date
of such Service Order, and SBCS must cancel the order or Williams may
begin billing as of such date, unless otherwise mutually agreed upon.
5.6.2 Off-Net Delays. If SBCS requests a delay in the Actual Start
Date of a Service Order for Off-Net facilities or service, SBCS shall
have the rights to delay provided under the tariffs or service
agreements of the Third Party provider, including any SBC LEC
Affiliate, and shall reimburse Williams for the charges imposed by
that provider.
5.7 Unless the Service Order containing said specific term or
condition has been signed by an authorized headquarters representative
(director level or above) of Williams (a) the terms and conditions of
this Section 5 shall control over any terms or provision in a Service
Order or Acknowledgement and any conflicting, different or additional
terms and conditions contained in any Acknowledgement or Service Order
or elsewhere shall be null and void and shall not amend or alter the
terms of this Agreement and (b) no action by Williams (including,
without limitation, provision of Services to SBCS pursuant to such
Service Order) shall be construed as binding or estopping Williams
with respect to such term or condition.
5.8 If, notwithstanding Section 5.1, Williams' accepts an
order for a Service without a Service Order and provisions the Service
, the terms and conditions of this Agreement shall apply to such
Service as if a Service Order had been placed and accepted.
5.9 Remedies for Failure to Meet Service Intervals. In the
event that Williams fails to meet the Service Intervals set forth in
this Agreement for On-Net Transport Service or subsequently
established through mutual agreement for any On-Net Transport Service
under the Agreement, SBCS shall be due the following remedies:
5.9.1 Neither SBCS nor the affected SBCS End User
shall be required to pay recurring charges for such On-Net
Transport Service until the Actual Start Date.
5.9.2 SBCS shall receive a credit, if and to the
extent that the recurring charges for such On-Net Transport
Service were pre-paid, for failure to activate On-Net
Transport Service within a Service Interval established by
this Agreement, without prejudice to the remedy set forth
below.
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Provisioning Delay Remedies
All measurements are for On-Net Service only (assuming Availability). Events
that are excluded from these measurements are those defined in the Force
Majeure definition.
<TABLE>
<CAPTION>
Nature of Delay Remedy
--------------- ------
<S> <C>
Failure to meet **** in the aggregate ****
during any consecutive **** month period ****
Failure to meet **** in the aggregate ****
during any consecutive **** month period ****
Failure to meet **** in the aggregate ****
during any consecutive **** month period ****
</TABLE>
<TABLE>
<S> <C>
</TABLE>
In addition, within any **** period, **** of Williams' FOC dates must be
within the Service Interval defined in Section 5.3, or Williams will ****. The
foregoing remedies are consecutive and mutually exclusive, such that the next
level remedy, which once triggered, applies in lieu of the immediately
preceding remedy (but the immediately preceding remedy would still be due). For
example, if the first level remedy has been triggered, Williams would be
obligated to ****. If Williams performance then triggered the second level
remedy **** Williams would only be obligated to **** and not ****. By way of
further example, if Williams performance triggered all three remedy levels, the
maximum amount of the monetary portion of that remedy for such five month
period would be ****.
5.9.3 The foregoing remedy, together with other express remedies set
forth herein, are the sole and exclusive remedy for Williams' delay in
meeting the Service Intervals, unless the Parties otherwise mutually
agree. The Parties agree that the actual damages in the event of such
failure to activate service would be difficult or impossible to
ascertain, and that the charges in this Section 5.9.3 are intended,
therefore, to establish liquidated damages and are not intended as a
penalty.
5.9.4 Notwithstanding the above, Williams shall not
be held responsible for failure to meet Service Intervals
beyond the Start Date set forth in the FOC resulting from:
5.9.4.1 SBCS' personnel, applications, equipment, or
facilities;
5.9.4.2 The occurrence of a Force Majeure Event; or
5.9.4.3 The occurrence of a Legal or Regulatory
Event; or
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 23
5.9.4.4 Delay resulting from the acts or omissions
of SBCS, its Affiliates, a Local Access Provider, or
a Third Party selected by SBCS.
6. Local Access Services
6.1 The provision of Local Access Service for Switched
Services will be governed by Section 3 of this Agreement. Williams
will arrange or provide Local Access Service for private line,
dedicated access, ATM, Frame Relay, and other data Services pursuant
to Sections 6.2 through 6.4 of this Agreement.
6.2 Unless the parties otherwise agree, Williams shall obtain
Local Access Service for SBCS in accordance with the provisions of
Section 3.8 of the Master Alliance Agreement. If SBCS orders its own
Local Access Service, SBCS shall be responsible for ensuring that such
services are turned up no later than the time the Services being
provided by Williams are ready for service. In the event the SBCS
ordered Local Access Services are not ready at such time as the
Services being provided by Williams, Williams shall have the right to
begin billing for such Services in accordance with Section 5.5.3 of
this Agreement and SBCS shall be liable for payment for such Services
as of such date.
6.3 Where Williams obtains Local Access Services for SBCS,
SBCS shall notify Williams of this fact as a part of its original
Service Order, specifying locations where Williams shall act as SBCS'
agent. In this situation, SBCS shall execute a Letter of Agency, on
such form as provided by Williams, authorizing Williams to interact
directly with the Local Access Provider(s) selected by SBCS to obtain
the Local Access Services, as applicable. SBCS shall request all Local
Access in writing to Williams. SBCS shall be responsible for all
charges, including without limitation, monthly charges, usage charges,
installation charges, non-recurring charges, or applicable
termination/cancellation liabilities, of the Local Access Provider(s)
****. In obtaining Local Access Services, Williams shall be responsible
for provisioning and the initial testing of an interconnection between
the InterLATA Service set forth in a Service Order and the Local
Access, in accordance with Section 3.8 of the Master Alliance
Agreement. Williams will coordinate the installation of the Local
Access Services with the InterLATA Service being provided by Williams.
Except as provided in Section 3.7, charges to SBCS for Local Access
Service administered by Williams on behalf of SBCS shall be ****.
6.4 Williams will notify SBCS within fifteen (15) days of its
receipt of any notice of an adjustment in the Local Access charges or
any invoice from the Local Access Provider, whichever is earlier, for
those Local Access Services provided by Williams to SBCS pursuant to
this Agreement. RECURRING CHARGES FOR LOCAL ACCESS SERVICES
ADMINISTERED BY WILLIAMS AND CHARGED TO SBCS SHALL BE SUBJECT TO
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 24
ADJUSTMENT ONLY AT SUCH TIMES AS SUCH CHARGES ARE ADJUSTED BY THE
ENTITIES PROVIDING OF SUCH LOCAL ACCESS SERVICES. ANY ADJUSTMENTS
SHALL BE PASSED THROUGH TO SBCS CONTEMPORANEOUSLY WITH THE ADJUSTMENT.
****
7. (intentionally blank)
8. Changes in Service Parameters
8.1 Disconnection of Services. SBCS may disconnect any 1+
Voice Service **** to Williams other than any termination liability
imposed by a Local Access Provider, including an SBC LEC Affiliate or
any other Third Party provider including an Off-Net InterLATA Service
provider, which shall be charged ****. SBCS may disconnect any
non-voice On-Net Service provided hereunder by providing written
notification to Williams **** in advance of the effective date of
disconnect. In the event of such disconnection, SBCS shall pay to
Williams a disconnection charge in an amount equal to ****. The Parties
agrees [sic] that the actual damages in the event of such disconnection
would be difficult or impossible to ascertain, and that the
disconnection charge in this Section 8.1 is intended, therefore, to
establish liquidated damages and is not intended as a penalty.
8.1.1 SBCS may disconnect any Service after the
expiration of the Minimum Term on one day's notice. In the
event that SBCS disconnects pursuant to the previous
sentence, SBCS's liability to Williams shall be limited to
any amounts charged by Third Parties and SBCS LEC Affiliates,
which amounts shall be charged ****.
8.2 Minimum Terms. The Minimum Term associated with each
Private Line, Frame Relay, ATM Interexchange Service, and dedicated
access lines, is ****.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 25
9. Payment Terms:
9.1 Due Date and Invoice. Subject to the provisions of
Section 9.5, all amounts stated on each monthly invoice are due and
payable thirty (30) days from the date SBCS receives the invoice ("Due
Date"); provided, however, that SBCS may deduct from any amount due,
any credit or remedy amount authorized under Sections 5 or 27 for
Williams' failure to meet the identified performance specifications.
SBCS shall itemize the credit or remedies which are deducted from the
payment. SBCS shall remit payment to Williams at the remittance
address. In the event SBCS fails to make full payment the undisputed
amounts to the proper address by the Due Date, SBCS shall also pay a
late fee in the amount of the lesser of one and one-half percent (1
1/2%) of the unpaid balance per month or the maximum lawful rate under
applicable state law which shall accrue from the Due Date. SBCS
acknowledges and understands that all charges are computed exclusive
of any applicable federal, state or local use, excise, valued added,
gross receipts, sales and privilege taxes, tax or charge levied to
support the Universal Fund contemplated by the Communications Act,
taxes on Payphone Charges, duties, fees or similar liabilities (other
than general income or property taxes imposed on Williams), whether
charged to or against Williams, or SBCS associated with the Service or
Other Service provided to SBCS ("Additional Charges"). Such Additional
Charges are not classified as Service charges and shall be paid by
SBCS in addition to all other charges provided for herein.
9.2 Billing Periods. Williams will bill SBCS monthly for
Services provided hereunder. Charges for usage and all prorated
monthly recurring charges (charges for monthly Service provided for
less than a calendar month), installation and other non-recurring
charges shall be billed following the receipt of any such Services.
Charges for all monthly recurring charges for full months during which
Service are to be provided shall be billed in advance.
9.3 Timeliness. Williams will render invoices for Services not
later than **** in which any usage is recorded. Williams shall account,
and bill SBCS for, not less than (1)**** of all On-Net Service usage no
later than **** after the usage is recorded, (2) **** of all On-Net
Service usage no later than **** after the usage is recorded and (3)
**** of all On-Net Service usage no later than **** after the usage is
recorded. ****
9.4 Accuracy. Unless the Parties agree otherwise in writing,
with respect to any monthly billing cycle, the accuracy of the raw
billing information
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
25
<PAGE> 26
that Williams supplies to SBCS with respect to On-Net Service shall
not be less than ****.
9.5 Disputes. If SBCS in good faith disputes any portion of
an invoice it must pay the undisputed amount of the invoice on or
before its Due Date and provide written notice to Williams of the
billing dispute within sixty (60) days thereafter. Such notice must
include documentation substantiating the dispute. SBCS's failure to
notify Williams of a dispute shall be deemed to be SBCS's acceptance
of such charges. The parties will make a good faith effort to resolve
billing disputes expeditiously. If SBCS has already made payment of a
disputed charge and a dispute is resolved in favor of SBCS, SBCS shall
receive a credit on its next invoice for the amount determined to be
due, including interest in the amount of the lesser of one percent
(1%) per month or the maximum rate allowed by law from the date SBCS
paid the disputed amount.
9.6 Suspension of Service. In the event payment in full is
not received from SBCS on or before ninety (90) days following the Due
Date (less any amounts disputed pursuant to Section 9.5), Williams
shall have the right, after giving SBCS ten (10) days written notice,
to suspend all or any portion of the Services to SBCS. If only a
portion of the Services are suspended and SBCS does not cure within
ten days of such partial suspension of Service, Williams may suspend
all or any additional portion of the Services to SBCS. Williams may
continue suspension until such time as SBCS has paid in full all
charges (less any amounts disputed pursuant to Section 9.5), then due,
including any late fees as specified herein.
9.7 Adjustments. With respect to tariffed Third Party or SBC
LEC Affiliate services, or Off-Net InterLATA Service, Williams may
make billing adjustments for a period of two (2) years after the Due
Date of an invoice or two years after the date a service is rendered,
whichever is later.
10. Events of Default.
A party may terminate this Agreement immediately if the other party (i) ceases
to do business as a going concern; (ii) makes a general assignment for the
benefit of creditors in lieu thereof; (iii) is unable or admits in writing its
inability to pay its debts as they become due; (iv) is insolvent, bankrupt or
the subject of a receivership; (v) authorizes, applies for or consents to the
appointment of a trustee or liquidator of all, or a substantial part, of its
assets, or has proceedings seeking such appointment commenced against it which
are not terminated within ninety days of such commencement; (vi) files a
voluntary petition under any bankruptcy or insolvency law or files a voluntary
petition under the reorganization or arrangement provisions of the laws of the
United States pertaining to bankruptcy or any similar law of any jurisdiction
or has proceedings under any such law instituted against it which are not
terminated within 60 days of such commencement or (vii) has any substantial
part of its property subjected to any levy,
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 27
seizure, assignment or sale for or by any creditor or governmental agency
without such levy, seizure, assignment or sale being released, lifted,
reversed, or satisfied within ten days.
11. Use of Services. Williams' obligation to provide Services to SBCS is
subject to the conditions that neither SBCS nor its Affiliates shall use the
Services for any unlawful purpose and that SBCS shall include in any tariffs or
contracts with its customers for the provision of service a condition that the
customers, their officers, directors, employees and agents shall not use the
service for any unlawful purpose.
12. Compliance with Section 211 of the Communications Act. The Parties hereby
agree that this Agreement and related documents, to the extent it is subject to
FCC regulation, are inter-carrier agreements not subject to the filing
requirements of Section 211(a) of the Communications Act of 1934, as amended.
13. Application of Tariffs: Interstate Adjustment.
Intrastate Service will be provided pursuant to tariff where required.
In such event, an interstate adjustment may be applied based on intrastate
usage, which shall be subject to further definition in accordance with
Section 23. The interstate adjustment for a given month shall not exceed
interstate billing for such month.
14. Warranty and Disclaimer of Warranty.
Williams warrants that On-Net Services shall be provided to SBCS in
accordance with the applicable Technical Specifications set forth in
Schedule B. Williams shall use all commercially reasonable efforts under
the circumstances to remedy any delays, interruptions, omissions, mistakes,
accidents or errors in the Services and restore such Services to comply
with the terms hereof. THE FOREGOING WARRANTY, THE CREDITS, DELAY REMEDIES
AND OTHER PROVISIONS OF THIS AGREEMENT FOR THE FAILURE TO COMPLY WITH THIS
WARRANTY ARE THE EXCLUSIVE WARRANTY AND REMEDY PROVIDED TO SBCS FOR BREACH
OF THIS WARRANTY AND ARE IN LIEU OF ALL OTHER WARRANTIES OR REMEDIES,
WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT LIMITATION,
IMPLIED WARRANTIES OF MERCHANTABLITY AND FITNESS FOR A PARTICULAR PURPOSE.
15. Y2K Compliance and Test Requirements.
15.1. Williams represents and warrants that the On-Net Services to be
provided pursuant to this Agreement (including any software, firmware or
other products provided by Williams in connection therewith), will (a) have
any date handling
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<PAGE> 28
characteristics provided in any agreed-upon description or specifications
therefor, (b) include the proper transmission of date data, like other
data, in accordance with any agreed-upon description or specifications
therefor, and (c) not experience or cause material computational, display,
storage or other errors, or fail to be available, due to the inability to
accurately or correctly handle dates, including dates in the year 2000 and
February 29, 2000. Williams does not represent or warrant that the On-Net
Services will be interoperable with software not provided by Williams that
may be used by SBCS to deliver data to Williams' Services, receive data
from Williams' On-Net Services or otherwise interact with Williams' On-Net
Services, or any other Service provided under this Agreement.
15.2. In the event of a breach of the foregoing representation and
warranty, SBCS' sole remedy will be for Williams to use reasonable efforts
promptly to remedy such breach. In such event, Williams shall make the
necessary modifications in the provision of the On-Net Services pursuant to
a schedule to be agreed to by the Parties. Williams agrees that there shall
be no additional charges to SBCS for such modifications.
15.3 SBCS acknowledges receipt of copies of Williams' Year 2000 Readiness
Disclosure which will be updated monthly and posted on the Williams
Internet Web Site at http://www.twc.com beginning no later than January 31,
1999 and Williams' Year 2000 Program Office Compliance Manual. SBCS agrees
that such documents serve as evidence of year 2000 compliance and/or the
compliance techniques and test procedures it has followed or intends to
follow to comply with all of the obligations contained herein. Williams
represents that the implementation of its Year 2000 Program Plan is
currently on schedule to meet the planned compliance date of June 30, 1999.
16. Indemnification
16.1 Each Party including any of its Affiliates shall defend, indemnify and
hold harmless the other Party, including any of its Affiliates, officers,
directors, shareholders, employees and agents, from and against any and all
claims, damages, losses, liabilities whatsoever, including reasonable legal
fees and any damages, arising out of, caused by, related to or based upon a
claim (a) by a third party for physical property damage, personal injury,
or wrongful death, whether sounding in tort or contract, claim of
defamation, invasion of privacy or similar claim based on any act or
omission of a the other Party, its employees, agents or Third Party
contractors in connection with this Agreement, (b) that the Indemnifying
Party's products or services (excluding Local Access Service, Off-Net
InterLATA Service, or any other Third Party Service) infringe or violate
any copyright, trade secret, trademark or service mark, United States
patent or other proprietary right of a Third Party, or (c) that the
claimant was "slammed" or "crammed," as those terms are understood in the
industry.
With respect to Third Parties, including any SBC LEC Affiliate,who use
Services through SBCS, SBCS shall defend, indemnify and hold Williams,
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<PAGE> 29
including any of its Affiliates, officers, directors, shareholders,
employees and agents, and any Provider, harmless from and against any and
all claims, damages, losses, liabilities whatsoever, including reasonable
legal, fees and any damages, arising out of, caused by, related to or based
upon a claim that the Service was defective or on account of any failure to
provide Services, except to the extent of Williams' gross negligence or
willful misconduct.
With respect to the content of any transmission by SBCS, its
Affiliates (including any SBCS LEC Affiliate) or its End Users using the
Services, SBCS shall defend, indemnify and hold Williams, including any of
its Affiliates, officers, directors, shareholders, employees and agents,
and any Provider harmless from and against any and all claims, damages,
losses, liabilities whatsoever, including reasonable legal, fees and any
damages, arising out of, caused by, related to or based upon a claim that
such content was unlawful or violated any statutory or common law rights,
e.g. copyright.
16.2 The indemnified Party shall promptly notify the indemnifying Party in
writing of any claim which the indemnified Party reasonably considers
subject to the indemnity, giving a description in reasonable detail of the
relevant facts on which the claim is based. The indemnified Party shall to
provide the indemnifying Party with all reasonable assistance in
investigating, defending, and pursuing such claim at the indemnifying
Party's expense. The indemnifying Party shall not be required to indemnify
the indemnified Party for any settlement entered into without its consent
except to the extent set forth in Section 16.4.
16.3 The indemnifying Party shall assume the defense of any such claim or
any litigation resulting from such claim and shall have absolute control
over the litigation, including, but not limited to, the selection of
counsel, the legal strategy with respect to the claim, and the settlement
of such claim, either before or after litigation has commenced.
Notwithstanding the preceding sentence, (a) if there is a reasonable
probability that a claim may materially and adversely affect the
indemnified Party other than as a result of money damages or other money
payments, the indemnified Party shall have the right, at its own expense,
to defend or co-defend such claim, except that the indemnifying Party shall
continue to control the defense, and (b) to the extent any defense
applicable to the indemnified Party shall involve a conflict of interest
with the indemnifying Party, the indemnified Party shall have the right to
control such defense at the expense of the indemnifying Party.
16.4 If, within a reasonable period of time after notice of any claim, the
indemnifying party fails to defend such claim, the indemnified Party shall
have the right to undertake the defense, or settlement of such claim on
behalf of and for the account and at the risk of the indemnifying Party,
subject to the right of the indemnifying Party to assume the defense of
such claim at any time prior to settlement, compromise or final
determination of the claim, except to the extent set forth in the last
sentence of Section 16.3.
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16.5 In the case of a claim of infringement covered by Section 16.1
where a court of competent jurisdiction finds such infringement, the
indemnifying Party shall, at its option and expense, use all
reasonable efforts either (a) to procure for the indemnified Party the
right to continue to use the product, service or other item as
provided for herein, (b) to modify the infringing product, service or
other item so that it is noninfringing, without materially altering
its performance or function, or (c) to replace the infringing product,
service or other item with a substantially equivalent noninfringing
item.
16.6 Notwithstanding the foregoing, if a claim of infringement covered
by Section 16.1 also is covered by Section 9.1 of the Network
Development and Operation Agreement, and the indemnifying Party under
this Agreement is the indemnified Party under the Network Development
and Operation Agreement, then Section 9 of the Network Development and
Operation Agreement, and not this Section 16, shall apply.
17. Tariffs.
17.1 SBCS shall pay all applicable tariff charges including, but not
limited to, fixed charges, feature charges, , access facility charges,
and installation and other non-recurring charges. Additionally, SBCS
will pay, in accordance with applicable tariffs, any taxes, levies,
surcharges, or other costs that Williams is obligated to pay to any
governmental entity or other third party, provided that (i) such
obligation is imposed by legislation or regulation, and (ii) such
obligation arises out of the use of Services provided under this
Agreement.
17.2. Subject to the terms and conditions of the NDOA, Williams may
modify or withdraw tariffs from time to time which may result in the
discontinuation of any Service without Williams' liability.
17.3. In the event Williams withdraws its filed Tariffs the Tariff
terms and conditions in effect on the date of such withdrawal will
continue to apply to this Agreement. After withdrawal of the
applicable Tariffs, the terms of this Agreement will control over any
inconsistent provision in the former Tariffs, subject to standard
contract interpretation rules. Tariffs not withdrawn shall continue to
have the same force and effect.
18. SBCS Responsibilities.
18.1 SBCS will not be relieved of any duty, obligation or
responsibility hereunder due to the fact that Service is ultimately
provided to End-Users.
18.2 SBCS represents and warrants that it will comply with
all applicable laws and applicable rules and regulations promulgated
by federal and
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<PAGE> 31
state regulatory agencies, including, but not limited to, those
concerning interexchange carrier selection. SBCS represents and
warrants that it will not submit to Williams an End User ANI for
activation without obtaining and maintaining a proper PIC Authorization
that complies with all applicable federal and state laws, rules and
regulations. SBCS shall produce for Williams's inspection, at SBCS's
expense, any PIC Authorization **** after Williams's oral or written
request, or within any shorter period required by a Local Access
Provider or regulatory agency. When a request for the PIC Authorization
is made by a Local Access Provider or regulatory agency, Williams will
cooperate with SBCS to obtain any reasonable extension of time SBCS may
require and to assist SBCS in the defense of any slamming or other
similar charge of unlawful actions by SBCS.
18.3 SBCS' failure to comply with Section 18.2 above will not
constitute a material breach of this Agreement. In such event Williams
may refuse to activate additional ANIs under SBCS's account if SBCS is
unable to cure such non-compliance **** of notice from Williams of such
non-compliance. Williams will resume accepting ANIs only after SBCS
produces evidence reasonably satisfactory to Williams that it is in
compliance with Section 18.2.
18.4 SBCS will reimburse Williams for any charge assessed by
a LEC for processing a PIC change due to a SBCS initiated dispute.
18.5 SBCS will be solely responsible for End User
solicitation, service requests, creditworthiness, SBCS service,
billing and collection, unless otherwise specifically set forth in
another Alliance Agreement. SBCS remains responsible for compliance
with all terms and conditions of this Agreement, including, but not
limited to, payment responsibilities, without regard to SBCS' ability
to charge for Services used by End Users or to collect payment from
End Users..
18.6 SBCS will be financially responsible for usage generated
by each End User ANI activated by Williams pursuant to a request by
SBCS until such ANI is presubscribed to another interexchange carrier
or SBCS requests that service be terminated. SBCS may request Williams
to block an ANI upon the End User's failure to pay SBCS, subject to
SBCS' prior certification to Williams that it has given the End User
any notice required by any applicable statute, rule or regulation.
SBCS will reimburse Williams for reasonable expenses incurred to block
an ANI. ****
18.7 SBCS has sole responsibility for installation, testing
and operation of facilities, services and equipment ("SBCS
Facilities") other than those specifically provided by Williams as
part of the Service as described in a Service Order. In no
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 32
event will the untimely installation or non-operation of SBCS
Facilities relieve SBCS of its obligation to pay charges for the
Service after the Actual Start Date.
19. Intellectual Property Rights. Unless otherwise specifically agreed in
writing by the Parties, each Party shall retain all right, title and interest
in any intellectual property associated with the provision of Services under
this Agreement. If it should be necessary for a Party to practice any patent,
copyright, trade secret or other non-trademark intellectual property of the
other Party to avail itself of the Services to be provided hereunder, the
Parties shall negotiate in good faith a license with respect to such
intellectual property. Each Party acknowledges that the other Party's name is
proprietary to the other Party. This Agreement does not transfer, and confers
no right to use, the name, trademarks (including service marks), patents,
copyrights, trade secrets, other intellectual property or CIC of either Party,
except as expressly provided herein. Neither Party shall take any action
inconsistent with the intellectual property rights of the other Party.
20. Title to Equipment. Subject to SBCS' rights under Section 12 of the Master
Alliance Agreement, this Agreement shall not, and shall not be deemed to,
convey to SBCS title of any kind to any of the transmission facilities, digital
encoder/decoders, telephone lines, microwave facilities or other facilities
utilized in connection with the Services. Any equipment provided by SBCS must
be itemized on a schedule listing all such SBCS-provided equipment and appended
to the Service Order to which use of that equipment relates ("SBCS Equipment
Inventory"). Williams shall not be obligated to provide any Services for SBCS
if SBCS will be providing any of its own equipment unless and until such
equipment is itemized on the applicable SBCS Equipment Inventory.
21. SBCS Equipment. To the extent permitted by the Act, SBCS may, at its
option, choose to deploy its own switches and related management systems.
Williams will permit interconnection of these switches with SBCS' own network
or the Williams Network as required. These switches may, in accordance with
Schedule C, be collocated with Williams' switches in a Williams POP.
22. Merger/Integration. This Agreement, together with the other agreements
referred to herein and the schedules attached hereto, constitutes the entire
agreement, and supersedes all other prior agreements and undertakings, both
written and oral, among the Parties with respect to the subject matter hereof.
23. Processes to be Developed. By May 1, 1999 the Parties shall develop jointly
and maintain a procedures manual that shall address the following processes to
be used by the Parties: (a) Service Orders, (b) Addition of or Changes to
Service Metrics (subject to the mutual agreement of the parties), (c)
procedures to be followed to request or make inquiries concerning restoration
of Service Outages, (d) the form and medium by which Williams will report the
availability of dedicated service elements for acceptance testing by the SBCS,
(e) training, (f) billing, including billing detail, (g) optimization, (h)
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network management, (i) dispute resolution and escalation, (j) pre-bill
certification; (k) traffic, demand and capacity forecasts for voice and for
data (l) description of future services and mechanism for inclusion into
Agreement, (m) reports, including those set forth in Section 3.6 of the NDOA,
and (n) all similar administrative and logistical matters related to the
provision of and payment for Services. The manual will be specific to SBCS's
needs and usage patterns; and, the parties shall update it as necessary.
24. Conflict of Law. Nothing in this Agreement shall obligate any Party to
take any action that violates any applicable governmental law, regulation or
order, including, but not limited to, the Act. In the event that either Party
believes that a project/Service would violate the Act or any other applicable
law, regulation or order, the Parties shall arrange for the appropriate
individuals within their respective organizations to consult with the other
Party to ascertain whether the project/Service will violate any such law,
regulation or order and, if so, how to bring the project/Service into
compliance with such law, regulation or order.
25. End-to-End Service. SBCS desires Williams to manage all relationships
with any LEC or alternate interexchange service provider to the extent
necessary to provide end-to-end service. SBCS acknowledges that Williams is
unable to guarantee the level of service provided by any such Local Access
Provider or Third Party provider, although Williams agrees that it will use its
reasonable best efforts to manage these relationships in such a manner so as to
ensure that the services meet the performance guarantees, if any, provided by
such Local Access Provider or alternate interexchange service provider.
26. Switched Services Forecasting.
26.1 SBCS will notify Williams at least **** ahead of the date
SBCS will commence service in a particular state, unless the parties
agree that a shorter period of notice is sufficient. SBCS' written
notice will include the amount of **** capacity reasonably needed, the
date required and the end offices to be trunked. Unless otherwise
mutually agreed, and subject to Section 2.9.2, Williams will have until
the first of the month occurring after the passage of **** from the
time such notice is given or, if later, the time established in the
SBCS notice to ****. Williams will have no liability to SBCS if the
**** capacity is not Available due to (i) **** (ii) **** or (iii) as
otherwise provided in this Agreement.
26.2 After Williams **** if SBCS does not deliver the traffic
which utilizes the **** capacity required in its forecast within period
of **** from the date required in the SBCS notice, SBCS will reimburse
Williams (a) **** and (b) **** SBCS shall reimburse Williams for ****.
No reimbursement obligation will be triggered until the first day
of the month occurring **** from the date the **** capacity was
required. The details of the reimbursement mechanism will be subject
to the "process" set forth in Section 23, with the objective of ****.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 34
27. Performance Remedies SLAs..
27.1 General Service Level Policy. It is the objective of the Parties
to provide services pursuant to this Agreement and ultimately for SBCS
to provide services in turn to End Users that establishes industry
leadership with respect to competing products. Given the dynamic
nature of the telecommunications industry, the performance standards
necessary to meet that objective may improve over time. Thus, the
Parties agree to evaluate the performance standards in Schedule B, as
well as the remedies in this section, on an ongoing basis pursuant to
the NDOA to verify that this objective is being met and to change
accordingly the performance standards for the On-Net Services and,
where appropriate, the remedies for failing to meet such standards, to
assure, to the extent practicable, that the Parties are industry
leaders.
27.2 Failure to Meet Certain Due Dates.
27.2.1 The Parties agree that the following list of "ready dates" are
critical to the success of the relationship:
China Cable POP Dates:
San Francisco POP - Ready for Testing - **** (200 Paul Street)
San Luis Obispo POP - Ready for Testing - ****
Seattle POP - Ready for Testing - ****
Los Angeles POP - Ready for Testing - ****
Boston POP - Ready for Testing - ****
Miami POP - Ready for Testing - ****
New York City POP - Ready for Testing - ****
Washington DC POP - Ready for Testing - ****
Bandon, Oregon POP - Ready for Testing - ****
For the purposes of this section, "Ready for Testing" means that (1)
all related power and environmentals required under this Agreement are
functional, (2)
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
34
<PAGE> 35
entrance facilities are in place and functional, and (3) connectivity
to the Williams Network is established.
Switch Service Dates:
Kansas City Switch - Ready for Call-Through Testing - ****
Houston Switch - Ready for Call-Through Testing - ****
San Francisco Switch - Ready for Call-Through Testing - ****
Anaheim Switch - Ready for Call-Through Testing - ****
27.2.2 If Williams fails to meet the China POP Dates, and the
shortening of the testing interval causes On-Net Service to fall below
the performance Technical Specifications of this Agreement for that
On-Net Service when the China Cable is ready for service for its
customers (the "In-Service Date"), now scheduled for ****, or if
Williams does not meet the Switch Service Dates, Executive Management
will be provided a briefing on the situation. If, **** after these
dates, Williams still does not have the specified switches Ready for
Testing or POPs ready for Call-Through Testing, SBCS will, from that
day forward, be provided a remedy of **** per day per POP or switch.
**** Furthermore, in the event Williams does not meet SBCS's in-service
date of **** for switched voice service, Williams will provide Service
via another carrier at the rates for On-Net Transport Service stated in
this Agreement.
27.2.3 If the SBCS In-Service date of the China Cable is delayed,
Williams obligation to meet the China Cable POP Dates will also be
adjusted by adding the corresponding number of days to the due date of
the China Cable POP Dates. If Williams fails to meet the Switch Service
Dates, and SBCS does not receive 271 Approval by ****, SBCS will
reimburse the remedies it received for the delays in meeting the
Call-Through-Testing Dates.
27.3 Network-based Service Level Commitments for On-Net Service.
The table below sets forth the network-level SLAs that Williams will
provide for voice, data, and private line services. The performance
and reliability metrics for each service are set forth in Schedule B
of this Agreement. Network performance shall be computed by averaging
the service levels provided by all network elements (ports, switched,
circuits, etc.) used to provide service to SBCS or its customers.
Events that are excluded from these measurements are those defined in
the Force Majeure definition.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
35
<PAGE> 36
Number of Switched/Dedicated/Data
Metrics exceeding the Specified Value Remedy
**** Schedule B Service Metrics ****
exceeding the Maximum Value for
****
**** Schedule B Service Metrics ****
exceeding the Maximum Value for ****
**** ****
**** Schedule B Service Metrics ****
exceeding the Maximum Value for ****
****
**** Schedule B metrics ****
**** exceeding ****
the Service Metric within a **** ****
(beginning on the first month SBC traffic is ****
offered to the Williams network). ****
If an On-Net Service exceeds the same applicable Service Metric, the
remedies shall be cumulative and mutually exclusive. For example, if
Williams fails to meet the same applicable Service metric exceeding the
maximum value for **** SBCS shall be entitled to receive **** for the
failure to perform for **** and additional **** for the failure
to perform ****.
27.3 Strategic Customer Service Level Commitments
Williams will also provide Service Level Agreements for individual
customers designated by SBCS as strategic, the standards for which
shall be mutually agreed upon pursuant to Section 23. SBCS is deemed
to be a strategic customer to the extent of its official corporate
services and where SBCS is itself the End User. The following table
specifies the metrics for individual private line, ATM, and Frame
Relay subscriber elements (e.g., private lines, data ports or PVCs,
etc.) for On-Net Service as well as the remedies for Williams' failure
to meet those metrics. The definition of the metrics for each On-Net
Service is set forth in Schedule B of the TSA. These performance
metrics are computed independently and separately each month for each
strategic SBCS customer. Remedies are applied on a per-customer basis.
Events that are excluded from these measurements are those defined in
the Force Majeure definition except that cable cuts and power outages
shall not be excluded. In the event that SBCS pays a customer
designated as strategic under this Section 27.3 an outage credit based
upon interruption of On-Net Service caused by a cable cut or power
outage (as
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
36
<PAGE> 37
defined in the definition of Force Majeure Event herein), and such
credit is commercially reasonable and is consistent with SBCS's
existing practice, Williams shall reimburse SBCS the amount of the
credit. The preceding sentence shall not apply where such cable cut or
power outage affects access facilities provided by a Third Party
including an SBC LEC Affiliate.
****
27.5 Individual Case Basis Service Levels
Williams and SBCS agree that, on a case-by-case basis, the service
level and/or the remedies for strategic or high value customers may be
have to be increased in order to win or retain a customer's business.
The Parties agree that, by mutual agreement, a higher level of
performance or stricter remedies than those set forth in this
Agreement may be offered to some SBCS customers.
27.6 Service Outage Credits.
SBC and Williams agree to take reasonable efforts to proactively
monitor the performance of its customers' circuits in order to take
corrective action before the customer's perceived service quality is
damaged. The Parties also recognize that on occasion individual,
non-strategic customers may suffer from chronically poor service
before the problem is identified or remedied. In these instances, SBC
may request a service outage credit from Williams to be passed through
to the customer in order to salvage a customer-perceived quality
problem. If the service problem is due to a fault in the Williams
Network, and the service relationship with the customer is in
jeopardy, Williams will provide a **** on the monthly
charge to SBC for that circuit. Chronically poor service is defined as
****
27.7 General Provisions regarding Outage Credits.
SBCS shall not receive an Outage Credit if the interruptions are (a)
of a duration of less than the threshold associated with a particular
On-Net Service, (b) caused by the negligence or willful misconduct of
SBCS, its Affiliates, or others authorized by SBCS to use the services
under this Agreement, (d) caused by the failure of access to the
Williams Network, (e) resultant from scheduled maintenance where SBCS
has been notified of scheduled maintenance in advance, or (f) the
result of a Force Majeure Event or a Legal or Regulatory Event. All
Outage Credits shall be credited on the next monthly invoice for the
affected Service. The remedies and credits set forth in this Section
27 shall be the sole
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
37
<PAGE> 38
and exclusive remedy of SBCS for any failure of Williams resulting in
such remedy or credit.
28. Interference. SBCS shall not use nor permit others to use the Service
in a manner that could interfere with Services provided to others or that could
harm the facilities of Williams or others.
29. Interconnections. Service furnished by Williams may be connected with
the services or facilities of other carriers. Except as otherwise provided in
this Agreement, SBCS shall be responsible, ****, for all charges billed by other
carriers in connection with the use of Service. Any special equipment or
facilities necessary to achieve compatibility between carriers are the sole
responsibility of SBCS, except as may otherwise be specifically provided in this
Agreement or subject of the Master Alliance Agreement.
30. Legal Compliance; Remedies for Non-Compliance.
30.1 SBCS represents and warrants that (a) it shall have
appropriate certificates of public convenience and necessity, licenses
and all required regulatory approvals and that it will be legally
authorized to provide service as contemplated under the terms and
conditions of this Agreement before such service is requested by SBCS
and (b) it will immediately notify Williams in the event such
certificates of public convenience and necessity, licenses or other
required regulatory approvals should be revoked, suspended or, for
whatever reason, cease to be effective.
30.2 SBCS's failure to comply with paragraph 30.1 above will
not constitute a material breach of this Agreement, however Williams
may reject End User ANIs submitted by SBCS for placement under its
account if SBCS is unable to cure such non-compliance **** of notice
from Williams of such non-compliance. Williams will resume accepting
ANIs only after SBCS produces evidence satisfactory to Williams that it
is in compliance with paragraph 30.1.
31 Training. Williams will train or arrange for the training of SBCS-
designated personnel so that SBCS can fully employ the various features and
functions of the Williams Network and can interface with Williams' personnel in
maintaining and monitoring the Williams Network. Williams will provide the
training to the SBCS personnel sufficiently in advance of **** so that they are
in the position to monitor the Williams Network and interface with Williams'
personnel once the Williams Network is ready for customer service. Williams
further agrees to maintain the training facility and to providing training to
SBCS personnel throughout the Term of this Agreement, unless otherwise advised
by SBCS. Williams may charge SBCS a fee for providing such training in
accordance with the Alliance Pricing formulas, but the expenses of trainees,
including travel, per diems, salary, etc. shall be borne by SBCS.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
38
<PAGE> 39
The Parties shall mutually agree on the number of SBCS personnel to be trained
at any one time and the appropriate training period and curriculum.
32. SS7 Signaling and Local Number Portability. Prior to selecting a
solution for either SS7 signaling or local number portability for its switched
network, Williams shall evaluate the functionality, cost and overall
availability of the SS7 and the local number portability solutions employed by
Southern New England Telephone Company. If Williams selects the Southern New
England Telephone Company solution, the terms and conditions under which
Williams will obtain the SS7 service or the local number portability solution
will be negotiated between Williams and Southern New England Telephone Company.
However, the rates for those services shall be no more than the rates Williams
would pay if the rates were set pursuant to the pricing provisions of the
Master Alliance Agreement.
33. General Applicability of Provisions. Unless expressly excluded, all
terms of this Agreement are applicable to all sections of this Agreement,
notwithstanding the specific reference to such a term in any other particular
section.
34. Master Alliance Agreement. The following provisions of the Master
Alliance Agreement are incorporated herein, with the provisions applicable to
the Parties thereto applicable to the Parties hereto.
34.1 Acknowledgment of Regulatory Considerations. Section 2 of the
Master Alliance Agreement.
34.2 Amendment. Section 15.7 of the Master Alliance Agreement.
34.3 Assignment. Section 15.2 of the Master Alliance Agreement.
34.4 Confidential Information. Section 10 of the Master Alliance
Agreement.
34.5 Costs and Expenses. Section 15.6 of the Master Alliance
Agreement.
34.6 Dispute Resolution. Section 9 of the Master Alliance Agreement.
34.7 Execution. Section 15.10 of the Master Alliance Agreement.
34.8 Force Majeure. Section 15.4 of the Master Alliance Agreement.
34.9 Governing Law. Section 15.16 of the Master Alliance Agreement.
34.10 Headings. Section 15.8 of the Master Alliance Agreement.
34.11 Insurance. Section 11.1 of the Master Alliance Agreement.
34.12 No Solicitation. Section 11.2 of the Master Alliance Agreement.
34.13 Publicity. Section 15.9 of the Master Alliance Agreement.
34.14 Relationship of Parties. Section 15.13 of the Master Alliance
Agreement.
34.15 Rules of Construction. Section 15.17 of the Master Alliance
Agreement.
34.16 Severability. Section 15.15 of the Master Alliance Agreement.
34.17 Third Party Warranties. Section 15.5 of the Master Alliance
Agreement.
34.18 Limitation of Liability. Section 15.12 of the Master Alliance
Agreement.
Without limiting the foregoing, Section 15.18 of the Master Alliance Agreement
incorporates Sections 2, 8, 9, 10, 13, 14, and 15 (except 15.11 and 15.14) into
this TSA.
35. Notice
39
<PAGE> 40
Any notice, request, instruction or other document to be given hereunder by any
Party to any other Party under any section of this Agreement shall be in
writing and shall be deemed given (a) upon receipt, if delivered personally or
by telex or facsimile, (b) the next day, if by express mail, or (c) three days
after being sent, if by registered or certified mail, return receipt requested,
postage prepaid, to the following addresses (or such other address for a Party
as shall be specified by like notice, provided that such notice shall be
effective only after receipt thereof):
If to SBCS: Southwestern Bell Communications Services, Inc.
5850 West Las Positas Boulevard
Pleasanton, CA 94588
Attn: Ms. Virginia Vann, President
Telephone Number: 925 468-5000
Facsimile Number: 925 468-4700
and SBC Operations, Inc.
530 McCullough
San Antonio, TX 78215
Attn: J. Michael Turner, President
Fax: 210 886-3015
Telephone: 210 886-3000
with a copy SBC Communications Inc.
(which shall 175 East Houston Street, 11th Floor
not constitute San Antonio, TX 78205
notice) to: Attn: General Attorney - Mergers & Acquisitions
Telephone Number: (210) 351-2165
Facsimile Number: (210) 351-3488
If to Williams: Williams Communications, Inc.
One Williams Center, Suite 26-B
Tulsa, OK 74172
Attn: Contract Administrator
Telephone Number: (918) 573-6277
Facsimile Number: (918) 573-6578
with a copy Williams Communications, Inc.
(which shall One Williams Center, Suite 4100
not constitute Tulsa, OK 74172
notice) to: Attn: General Counsel
Telephone Number: (918) 573-4205
Facsimile Number: (918) 573-3005
40
<PAGE> 41
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their respective authorized representatives as of the date first
written above.
SBC OPERATIONS INC. WILLIAMS COMMUNICATIONS, INC.
/s/ J. MICHAEL TURNER /s/ GORDON MARTIN
- -------------------------------------- --------------------------------------
Signature of Authorized Representative Signature of Authorized Representative
J. MICHAEL TURNER Gordon Martin
- -------------------------------------- --------------------------------------
Printed Name Printed Name
EVP-CORP. PLANNING AND CAPITAL
MANAGEMENT Senior Vice President
- -------------------------------------- --------------------------------------
Title Title
SOUTHWESTERN BELL
COMMUNICATIONS SERVICES, INC.
/s/ VIRGINIA L. VANN
- --------------------------------------
Signature of Authorized Representative
VIRGINIA L. VANN
- --------------------------------------
Printed Name
PRESIDENT
- --------------------------------------
Title
41
<PAGE> 42
Schedule A-1
Williams Network Pricing Schedule
PRIVATE LINE PRICE CAPS
(in dollars per month per VGE/V&H Mile)
<TABLE>
<CAPTION>
DS-1 DS-3 OC-3 OC-12 OC-48
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
**** Billion Minutes/
Or up to **** VGE miles **** **** **** **** ****
- --------------------------------------------------------------------
****
Or **** VGE miles **** **** **** **** ****
- --------------------------------------------------------------------
****
Or **** VGE miles **** **** **** **** ****
- --------------------------------------------------------------------
**** +/
Or **** VGE miles + **** **** **** **** ****
- --------------------------------------------------------------------
</TABLE>
****
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
1
<PAGE> 43
<TABLE>
<CAPTION>
Non-Recurring Charges Cap DS-1 DS-3 OC-3 OC-12 OC-48
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
New Order Installation **** **** **** **** ****
Order Change (1st change free) **** **** **** **** ****
Order Cancellation
Pre-Engineering **** **** **** **** ****
Post-Engineering **** **** **** **** ****
ASR (new or disconnect) Special Access **** **** **** **** ****
ASR Supplement **** **** **** **** ****
Order Expedite **** **** **** **** ****
Reconfiguration **** **** **** **** ****
Additional Installation/Maintenance/Engineering **** **** **** **** ****
Additional Installation/Maintenance/Engineering (After Hours) **** **** **** **** ****
</TABLE>
Other Charges Cap
Cross-Connect Charges
<TABLE>
<CAPTION>
Monthly Recurring Non-Recurring
<S> <C> <C>
DS-1 **** ****
DS-3 **** ****
OC-3 **** ****
OC-12 **** ****
OC-48 **** ****
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
2
<PAGE> 44
The parties shall reexamine these Non-Recurring Charges and Other Charges by
May 1, 1999 and make such adjustments as are necessary to conform them to
market rates in accordance with the provisions of the Master Alliance Agreement
for Alliance Pricing.
Cross connect charges apply when SBCS is connecting its collocated equipment
through the Williams' cross connect panel to a carrier other than Williams.
Cross connect charges specifically do not apply when the cross connect is part
of Service provided by Williams. A cross-connect also occurs between two
collocated customers who are tied together via a cross-connect at the Williams
common demarcation point. Two or more collocated customers are not allowed to
directly terminate cross-connects on each others equipment without connecting
at the Williams demarcation point. Cross connect charges do not apply to IXP or
Telehousing Services.
The cost associated with the cross-connect is per circuit.
Installation charges shall apply to the normal installation of equipment
necessary to provide the requested service to the point of demarcation at the
Customer's premises. Additional installation charges shall apply when Seller is
required to install equipment other than that normally required to provide the
service or when Customer requests special equipment.
Order Cancellation (post engineering) charges apply when a customer cancels a
circuit order after design but prior to installation.
Order Expedite charges apply when a customer requests a circuit due date that
is earlier then Williams' standard interval.
Reconfiguration charges apply when a customer requests modifications to a
circuit (change in end points for example) after the circuit has been
engineered.
Business Day as defined in the TSA definitions. Normal business hours are 8am -
5pm.
3
<PAGE> 45
SBC FRAME RELAY
NNI (SWITCH-TO-SWITCH) PRICE CAPS
I. Port Charges - MRC
SBC FRAME RELAY PRICE CAPS
<TABLE>
<S> <C> <C> <C>
VGE VGH Miles (Millions/Mo) **** **** ****
Voice Minutes (Billions/Mo) **** **** ****
% Discount kbps **** **** ****
64 **** **** ****
128 **** **** ****
192 **** **** ****
256 **** **** ****
320 **** **** ****
384 **** **** ****
448 **** **** ****
512 **** **** ****
576 **** **** ****
690 **** **** ****
704 **** **** ****
768 **** **** ****
1024 **** **** ****
1536 **** **** ****
D53 **** **** ****
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
4
<PAGE> 46
PVC Charges (Simplex)-MRC
SBC Frame Relay Price Caps
<TABLE>
<S> <C> <C> <C>
VGE VGH Miles (Millions/Mo) **** **** ****
Voice Minutes (Billions/Mo) **** **** ****
% Discount **** **** ****
CIR for Simplex PVC in kbps Price per simplex PVC
4 **** **** ****
8 **** **** ****
16 **** **** ****
32 **** **** ****
48 **** **** ****
64 **** **** ****
128 **** **** ****
192 **** **** ****
256 **** **** ****
320 **** **** ****
384 **** **** ****
448 **** **** ****
512 **** **** ****
576 **** **** ****
640 **** **** ****
704 **** **** ****
768 **** **** ****
832 **** **** ****
896 **** **** ****
960 **** **** ****
1024 **** **** ****
2 Mbps & (price per meg) **** **** ****
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
5
<PAGE> 47
SBC FRAME RELAY
UNI (RESELLER) PRICE CAPS
II. Port Charges - MRC
SEC FRAME RELAY PRICE CAPS
<TABLE>
<S> <C> <C> <C> <C>
VGE VGH Miles (Millions/Mo) **** **** **** ****
Voice Minutes (Billions/Mo) **** **** **** ****
% Discount **** **** **** ****
64 **** **** **** ****
128 **** **** **** ****
192 **** **** **** ****
256 **** **** **** ****
320 **** **** **** ****
384 **** **** **** ****
448 **** **** **** ****
512 **** **** **** ****
576 **** **** **** ****
690 **** **** **** ****
704 **** **** **** ****
768 **** **** **** ****
1024 **** **** **** ****
1536 **** **** **** ****
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
6
<PAGE> 48
PVC Charges (Simplex) - MRC
SBC Frame Relay Price Caps
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
VGE VGW Miles (Millions/Mo) **** **** **** ****
- --------------------------------------------------------------------------------
Voice Minutes (Billions/Mo) **** **** **** ****
- --------------------------------------------------------------------------------
% Discount **** **** **** ****
- --------------------------------------------------------------------------------
CIR for Simplex PVC in kbps Price per simplex PVC
- --------------------------------------------------------------------------------
4 **** **** **** ****
- --------------------------------------------------------------------------------
8 **** **** **** ****
- --------------------------------------------------------------------------------
16 **** **** **** ****
- --------------------------------------------------------------------------------
32 **** **** **** ****
- --------------------------------------------------------------------------------
64 **** **** **** ****
- --------------------------------------------------------------------------------
128 **** **** **** ****
- --------------------------------------------------------------------------------
192 **** **** **** ****
- --------------------------------------------------------------------------------
256 **** **** **** ****
- --------------------------------------------------------------------------------
320 **** **** **** ****
- --------------------------------------------------------------------------------
384 **** **** **** ****
- --------------------------------------------------------------------------------
448 **** **** **** ****
- --------------------------------------------------------------------------------
512 **** **** **** ****
- --------------------------------------------------------------------------------
576 **** **** **** ****
- --------------------------------------------------------------------------------
640 **** **** **** ****
- --------------------------------------------------------------------------------
704 **** **** **** ****
- --------------------------------------------------------------------------------
768 **** **** **** ****
- --------------------------------------------------------------------------------
832 **** **** **** ****
- --------------------------------------------------------------------------------
896 **** **** **** ****
- --------------------------------------------------------------------------------
960 **** **** **** ****
- --------------------------------------------------------------------------------
1024 **** **** **** ****
- --------------------------------------------------------------------------------
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
7
<PAGE> 49
TSA Schedules 02-04-99 A, B, C, D, E, G, H, I, J, L, M
<TABLE>
<CAPTION>
---------------------------------------------------
FRAME RELAY NRC AND ANCILLARY CHARGES CAP
---------------------------------------------------
<S> <C>
Configuration Changes ****
---------------------------------------------------
Cancellation ****
---------------------------------------------------
Per PVC Order Change ****
---------------------------------------------------
Per Port Order Change ****
---------------------------------------------------
Per Port Install ****
---------------------------------------------------
Per PVC Install ****
---------------------------------------------------
Per Order Expedite ****
---------------------------------------------------
</TABLE>
The parties shall reexamine these Frame Relay Ancillary Charges by May 1, 1999
and make such adjustments as are necessary to conform them to market rates in
accordance with the provisions of the Master Alliance Agreement for Alliance
Pricing.
<TABLE>
<CAPTION>
---------------------------------------------------
TIME-OF-DAY/DAY-OF-WEEK FLEX-CIR
PVC CHARGES
---------------------------------------------------
DESCRIPTION NRC (per PVC) MRC (per PVC)
<S> <C> <C>
---------------------------------------------------
Basic PVC Charge
(Based on weighted
average of CIRs) **** ****
---------------------------------------------------
TOD Configuration
Charge (2 CIR
adjustments per day) **** ****
---------------------------------------------------
DOW Configuration
Charge (2 CIR
adjustments per wk.) **** ****
---------------------------------------------------
Each additional CIR
adjustment per period
(Per day or per week) **** ****
---------------------------------------------------
</TABLE>
Configuration charges are applied when the CIR of PVCs for basic Frame Relay
Service are changed or when SBCS desires a change to the CIR of PVCs in an
already
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
8
<PAGE> 50
established Flex CIR Schedule (i.e. SBCS will not be charged the **** fee for
changes to the CIR when establishing its initial Flex-CIR schedule).
Order Cancellation Charges apply when SBCS cancels an order after design but
prior to installation.
PVC Order Change Charges apply after design but prior to installation on a per
PVC basis when SBCS makes a change to the PVC size ordered. If the PVC has been
installed and accepted, SBCS will be charged for a new PVC installation.
Port Order Change Charges apply after design but prior to installation on a per
port basis when SBCS requests to change the port size ordered. If the Port has
been installed and accepted, SBCS will be charged for a new port installation.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
9
<PAGE> 51
TSA Schedules 02-04-99 A, B, C, D, E, G, H, I, J, L, M
ATM PRICE CAPS
****
ATM PRICING SCHEDULES (FLAT RATE)
ATM Transport includes both recurring and non-recurring charges.
Recurring Charges
ATM pricing is based on flat monthly fee assessed per node, which includes a
flat port charge based on the port connection speed and a charge for each PVC's
CIR going out from the port. ATM Transport Service is priced simplex, meaning
that the price for a PVC's CIR includes the egress CIR. The CIR for the CBR
class of service (CoS) is the peak cell rate (PCR). The CIR for the VBRnrt
class of service is the sustained cell rate (SCR). The pricing below reflects
both VCCs and VPCs.
CIRs increments are available in 1 Meg increments up to 40Mbps for DS3 ports, 5
Meg increments up to 150 Mpbs for OC3 ports and 25 Meg increments up to 600
Mbps for OC12 ports.
<TABLE>
<CAPTION>
- -------------------------------------------------------
MONTHLY RECURRING CHARGES
- -------------------------------------------------------
UNI PORT CIR CoS PRICE PER
(Mbps) MEG PER
PVC
- -------------------------------------------------------
<S> <C> <C> <C>
DS-3 1-9 VBRnrt ****
- -------------------------------------------------------
DS-3 10-19 VBRnrt ****
- -------------------------------------------------------
DS-3 20-29 VBRnrt ****
- -------------------------------------------------------
DS-3 30-40 VBRnrt ****
- -------------------------------------------------------
- -------------------------------------------------------
OC3 5-20 VBRnrt ****
- -------------------------------------------------------
OC3 25-35 VBRnrt ****
- -------------------------------------------------------
OC3 40-55 VBRnrt ****
- -------------------------------------------------------
OC3 60-75 VBRnrt ****
- -------------------------------------------------------
OC3 80-95 VBRnrt ****
- -------------------------------------------------------
OC3 100-120 VBRnrt ****
- -------------------------------------------------------
OC3 125-150 VBRnrt ****
- -------------------------------------------------------
- -------------------------------------------------------
OC12 25-75 VBRnrt ****
- -------------------------------------------------------
OC12 100-175 VBRnrt ****
- -------------------------------------------------------
OC12 200-275 VBRnrt ****
- -------------------------------------------------------
OC12 300-350 VBRnrt ****
- -------------------------------------------------------
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
10
<PAGE> 52
TSA Schedules 02-04-99 A, B, C, D, E, G, H, I, J, L, M
<TABLE>
- -----------------------------------------------------------------
<S> <C> <C> <C>
OC12 375-475 VBRnrt ****
- -----------------------------------------------------------------
OC12 500-600 VBRnrt ****
- -----------------------------------------------------------------
- -----------------------------------------------------------------
DS-3 1-9 CBR ****
- -----------------------------------------------------------------
DS-3 10-19 CBR ****
- -----------------------------------------------------------------
DS-3 20-29 CBR ****
- -----------------------------------------------------------------
DS-3 30-40 CBR ****
- -----------------------------------------------------------------
OC3 5-20 CBR ****
- -----------------------------------------------------------------
OC3 25-35 CBR ****
- -----------------------------------------------------------------
OC3 40-55 CBR ****
- -----------------------------------------------------------------
OC3 60-75 CBR ****
- -----------------------------------------------------------------
OC3 80-95 CBR ****
- -----------------------------------------------------------------
OC3 100-120 CBR ****
- -----------------------------------------------------------------
OC3 125-150 CBR ****
- -----------------------------------------------------------------
- -----------------------------------------------------------------
OC12 25-75 CBR ****
- -----------------------------------------------------------------
OC12 100-175 CBR ****
- -----------------------------------------------------------------
OC12 200-275 CBR ****
- -----------------------------------------------------------------
OC12 300-350 CBR ****
- -----------------------------------------------------------------
OC12 375-475 CBR ****
- -----------------------------------------------------------------
OC12 500-600 CBR ****
- -----------------------------------------------------------------
- -----------------------------------------------------------------
UNI/NNI PORT UNI/NNI
PORT
PRICE
- -----------------------------------------------------------------
DS3 ****
- -----------------------------------------------------------------
OC3 ****
- -----------------------------------------------------------------
OC12 ****
- -----------------------------------------------------------------
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
11
<PAGE> 53
TSA Schedules 02-04-99 A, B, C, D, E, G, H, I, J, L, M
ATM PRICE CAPS
****
ATM PRICING SCHEDULES (FLAT RATE)
ATM Transport includes both recurring and non-recurring charges.
Recurring Charges
ATM pricing is based on flat monthly fee assessed per node, which includes a
flat port charge based on the port connection speed and a charge for each PVC's
CIR going out from the port. ATM Transport Service is priced simplex, meaning
that the price of a PVC's CIR includes the egress CIR. The CIR for the CBR
class of service (CoS) is the peak cell rate (PCR). The CIR for the VBRnrt
class of service is the sustained cell rate (SCR). The pricing below reflects
both VCCs and VPCs.
CIRs increments are available in 1Meg increments up to 40Mbps for DS3 ports, 5
Meg increments up to 150 Mpbs for OC3 ports and 25 Meg increments up to 600
Mbps for OC12 ports.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
MONTHLY RECURRING CHARGES
- ------------------------------------------------------------------------------
PRICE PER
CIR MEG PER
UNI PORT (MBPS) CoS PVC
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
DS-3 1-9 VBRnrt $ ****
- ------------------------------------------------------------------------------
DS-3 10-19 VBRnrt $ ****
- ------------------------------------------------------------------------------
DS-3 20-29 VBRnrt $ ****
- ------------------------------------------------------------------------------
DS-3 30-40 VBRnrt $ ****
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
OC3 5-20 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC3 25-35 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC3 40-55 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC3 60-75 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC3 80-95 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC3 100-120 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC3 125-150 VBRnrt $ ****
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
OC12 20-75 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC12 100-175 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC12 200-275 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC12 300-350 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC12 375-475 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC12 500-600 VBRnrt $ ****
- ------------------------------------------------------------------------------
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
12
<PAGE> 54
TSA Schedules 02-04-99 A, B, C, D, E, G, H, I, J, L, M
<TABLE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
DS-3 1-9 CBR $ ****
- ------------------------------------------------------------------------------
DS-3 10-19 CBR $ ****
- ------------------------------------------------------------------------------
DS-3 20-29 CBR $ ****
- ------------------------------------------------------------------------------
DS-3 30-40 CBR $ ****
- ------------------------------------------------------------------------------
OC3 5-20 CBR $ ****
- ------------------------------------------------------------------------------
OC3 25-35 CBR $ ****
- ------------------------------------------------------------------------------
OC3 40-55 CBR $ ****
- ------------------------------------------------------------------------------
OC3 60-75 CBR $ ****
- ------------------------------------------------------------------------------
OC3 80-95 CBR $ ****
- ------------------------------------------------------------------------------
OC3 100-120 CBR $ ****
- ------------------------------------------------------------------------------
OC3 125-150 CBR $ ****
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
OC12 25-75 CBR $ ****
- ------------------------------------------------------------------------------
OC12 100-175 CBR $ ****
- ------------------------------------------------------------------------------
OC12 200-275 CBR $ ****
- ------------------------------------------------------------------------------
OC12 300-350 CBR $ ****
- ------------------------------------------------------------------------------
OC12 375-475 CBR $ ****
- ------------------------------------------------------------------------------
OC12 500-600 CBR $ ****
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
UNI/NNI UNI/NNI
PORT PORT PRICE
- ------------------------------------------------------------------------------
DS3 $ ****
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
OC3 $ ****
- ------------------------------------------------------------------------------
OC12 $ ****
- ------------------------------------------------------------------------------
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
13
<PAGE> 55
TSA Schedules 02-04-99 A, B, C, D, E, G, H, I, J, L, M
ATM PRICE CAPS
****
ATM PRICING SCHEDULES (FLAT RATE)
ATM pricing is based on flat monthly fee assessed per node, which includes a
flat port charge based on the port connection speed and a charge for each PVC's
CIR going out from the port. ATM Transport Service is priced simplex, meaning
that the price for a PVC's CIR includes the egress CIR. The CIR for the CBR
class of service (CoS) is the peak cell rate (PCR). The CIR for the VBRnrt
class of service is the sustained cell rate (SCR). The pricing below reflects
both VCCs and VPCs.
CIRs increments are available in 1 Meg increments up to 40Mbps for DS3 ports, 5
Meg increments up to 150 Mpbs for OC3 ports and 25 Meg increments up to 600
Mbps for OC12 ports
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
MONTHLY RECURRING CHARGES
- ------------------------------------------------------------------------------
PRICE PER
MEG PER
UNI PORT CIR (MBPS) CoS PVC
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
DS-3 1-9 VBRnrt $ ****
- ------------------------------------------------------------------------------
DS-3 10-19 VBRnrt $ ****
- ------------------------------------------------------------------------------
DS-3 20-29 VBRnrt $ ****
- ------------------------------------------------------------------------------
DS-3 30-40 VBRnrt $ ****
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
OC3 5-20 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC3 25-35 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC3 40-55 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC3 60-75 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC3 80-95 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC3 100-120 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC3 125-150 VBRnrt $ ****
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
OC12 20-75 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC12 100-175 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC12 200-275 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC12 300-350 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC12 375-475 VBRnrt $ ****
- ------------------------------------------------------------------------------
OC12 500-600 VBRnrt $ ****
- ------------------------------------------------------------------------------
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
14
<PAGE> 56
<TABLE>
<S> <C> <C> <C>
----------------------------------------------
DS-3 1-9 CBR ****
----------------------------------------------
DS-3 10-19 CBR ****
----------------------------------------------
DS-3 20-29 CBR ****
----------------------------------------------
DS-3 30-40 CBR ****
----------------------------------------------
OC3 5-20 CBR ****
----------------------------------------------
OC3 25-35 CBR ****
----------------------------------------------
OC3 40-55 CBR ****
----------------------------------------------
OC3 60-75 CBR ****
----------------------------------------------
OC3 80-95 CBR ****
----------------------------------------------
OC3 100-120 CBR ****
----------------------------------------------
OC3 125-150 CBR ****
----------------------------------------------
----------------------------------------------
OC12 25-75 CBR ****
----------------------------------------------
OC12 100-175 CBR ****
----------------------------------------------
OC12 200-275 CBR ****
----------------------------------------------
OC12 300-350 CBR ****
----------------------------------------------
OC12 375-475 CBR ****
----------------------------------------------
OC12 500-600 CBR ****
----------------------------------------------
----------------------------------------------
UNI/NNI Port UNI/NNI Port
Price
----------------------------------------------
DS3 ****
----------------------------------------------
OC3 ****
----------------------------------------------
OC12 ****
----------------------------------------------
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
15
<PAGE> 57
TSA Schedules 02-04-99 A, B, C, D, E, G, H, I, J, L, M
ATM PRICE CAPS
****
ATM PRICING SCHEDULES (FLAT RATE)
ATM pricing is based on flat monthly fee assessed per node, which includes a
flat port charge based on the port connection speed and a charge for each PVC's
CIR going out from the port. ATM Transport Service is priced simplex, meaning
that the price for a PVC's CIR includes the egress CIR. The CIR for the CBR
class of service (CoS) is the peak cell rate (PCR). The CIR for the VBRnrt
class of service is the sustained cell rate (SCR). The pricing below reflects
both VCCs and VPCs.
CIRs increments are available in 1 Meg increments up to 40Mbps for DS3 ports, 5
Meg increments up to 150 Mpbs for OC3 ports and 25 Meg increments up to 600
Mbps for OC12 ports.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
MONTHLY RECURRING CHARGES
- ------------------------------------------------------------------------------
UNI PORT CIR (MBPS) CoS PRICE PER MEG
PER PVC
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
DS-3 1-9 VBRnrt ****
- ------------------------------------------------------------------------------
DS-3 10-19 VBRnrt ****
- ------------------------------------------------------------------------------
DS-3 20-29 VBRnrt ****
- ------------------------------------------------------------------------------
DS-3 30-40 VBRnrt ****
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
OC3 5-20 VBRnrt ****
- ------------------------------------------------------------------------------
OC3 25-35 VBRnrt ****
- ------------------------------------------------------------------------------
OC3 40-55 VBRnrt ****
- ------------------------------------------------------------------------------
OC3 60-75 VBRnrt ****
- ------------------------------------------------------------------------------
OC3 80-95 VBRnrt ****
- ------------------------------------------------------------------------------
OC3 100-120 VBRnrt ****
- ------------------------------------------------------------------------------
OC3 125-150 VBRnrt ****
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
OC12 20-75 VBRnrt ****
- ------------------------------------------------------------------------------
OC12 100-175 VBRnrt ****
- ------------------------------------------------------------------------------
OC12 200-275 VBRnrt ****
- ------------------------------------------------------------------------------
OC12 300-350 VBRnrt ****
- ------------------------------------------------------------------------------
OC12 375-475 VBRnrt ****
- ------------------------------------------------------------------------------
OC12 500-600 VBRnrt ****
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
DS-3 1-9 CBR ****
- ------------------------------------------------------------------------------
DS-3 10-19 CBR ****
- ------------------------------------------------------------------------------
DS-3 20-29 CBR ****
- ------------------------------------------------------------------------------
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
16
<PAGE> 58
TSA Schedules 02-04-99 A, B, C, D, E, G, H, I, J, L, M
<TABLE>
- --------------------------------------------------------------
<S> <C> <C> <C>
DS-3 30-40 CBR ****
- --------------------------------------------------------------
OC3 5-20 CBR ****
- --------------------------------------------------------------
OC3 25-35 CBR ****
- --------------------------------------------------------------
OC3 40-55 CBR ****
- --------------------------------------------------------------
OC3 60-75 CBR ****
- --------------------------------------------------------------
OC3 80-95 CBR ****
- --------------------------------------------------------------
OC3 100-120 CBR ****
- --------------------------------------------------------------
OC3 125-150 CBR ****
- --------------------------------------------------------------
- --------------------------------------------------------------
OC12 25-75 CBR ****
- --------------------------------------------------------------
OC12 100-175 CBR ****
- --------------------------------------------------------------
OC12 200-275 CBR ****
- --------------------------------------------------------------
OC12 300-350 CBR ****
- --------------------------------------------------------------
OC12 375-475 CBR ****
- --------------------------------------------------------------
OC12 500-600 CBR ****
- --------------------------------------------------------------
- --------------------------------------------------------------
UNI/NNI PORT UNI/NNI
PORT PRICE
- --------------------------------------------------------------
DS3 ****
- --------------------------------------------------------------
OC3 ****
- --------------------------------------------------------------
OC12 ****
- --------------------------------------------------------------
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
17
<PAGE> 59
TSA Schedules 02-04-99 A, B, C, D, E, F, G, H, I, J, L, M
ATM Non Recurring On-Net Ancillary Charges
Non-recurring charges include installation, configuration changes,
cancellation, and order changes that may be incurred for the Port or PVC.
<TABLE>
<CAPTION>
- ------------------------------------------------------
NON RECURRING ON-NET ANCILLARY PRICE
- -------------------------------------------------------
DESCRIPTION OF CHARGE CHARGES
- -------------------------------------------------------
<S> <C>
Installation
- -------------------------------------------------------
45Mb Port ****
- -------------------------------------------------------
155Mb Port ****
- -------------------------------------------------------
622Mb Port ****
- -------------------------------------------------------
per VCC and VPC ****
- -------------------------------------------------------
- -------------------------------------------------------
ANCILLARY
- -------------------------------------------------------
Configuration Changes ****
- -------------------------------------------------------
Cancellation ****
- -------------------------------------------------------
PVC Order Change ****
- -------------------------------------------------------
Port Order Change ****
- -------------------------------------------------------
- -------------------------------------------------------
Per order expedite ****
- -------------------------------------------------------
</TABLE>
The parties shall reexamine these non-recurring charges by May 1, 1999 and make
such adjustments as are necessary to conform them to market rates in accordance
with the provisions of the Master Alliance Agreement for Alliance Pricing.
Configuration change charges are applied when the parameters of a PVC or VP are
changed.
Order Cancellation Charges apply when a PVC, VP or Port has been ordered and
needs to be canceled prior to the Service having been installed and accepted.
Port Order Change Charges apply after design but prior to installation on a per
port basis when Customer requests to change the port size ordered. If the Port
has been installed and accepted, Customer will be charged for a new port
installation.
PVC Order Change Charges apply after design but prior to installation on a per
PVC basis when Customer makes a change to the PVC size ordered. If the PVC has
been installed and accepted, Customer will be charged for a new PVC
installation.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
18
<PAGE> 60
TSA Schedules 02-04-99 A, B, C, D, E, G, H, I, J, L, M
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
COLLOCATION PRICING SCHEDULE
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Service Fee
(MRC)
- -----------------------------------------------------------------------------------------------
PRICE
CALCULATION
- -----------------------------------------------------------------------------------------------
<S> <C>
Rack ****
- -----------------------------------------------------------------------------------------------
Real Estate Lease per sq ft ****
- -----------------------------------------------------------------------------------------------
Maintenance per sq ft ****
- -----------------------------------------------------------------------------------------------
Price per DC Amp ****
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Assumes typical rack requires 15 sq ft and 60 amps plus maintenance
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Installation Fee
(NRC)
- -----------------------------------------------------------------------------------------------
PRICE
- -----------------------------------------------------------------------------------------------
Substructure per sq ft ****
- -----------------------------------------------------------------------------------------------
Infrastructure per sq ft ****
- -----------------------------------------------------------------------------------------------
DC Power per Amp ****
- -----------------------------------------------------------------------------------------------
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
19
<PAGE> 61
TSA SCHEDULES 02-04-99 A, B, C, D, E, G, H, I, J, L, M
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
CURRENT
COLLOCATION PRICE ESTIMATES BY LOCATION FOR SPACE
- ------------------------------------------------------------------------------
Location Square Feet In Service date Rental $/sq.ft
<S> <C> <C> <C>
Albany, NY 3000 ****
Atlanta 10000 ****
Baltimore 10000 3/1/99 ****
Birmingham 3408 ****
Boston 2469 4/1/99 ****
Buffalo 5000 1/30/99 ****
Chicago 5000 ****
Cincinnati 10000 7/1/99 ****
Cleveland 2862 ****
Dallas 5153 ****
Denver 4805 ****
Detroit 20000 5/1/99 ****
Greensboro 5394 ****
Hartford ? ****
Houston 5000 ****
Kansas City 7693 ****
Las Vegas 2525 ****
Lexington ? ****
Los Angeles 5000 ****
Memphis ? ****
Miami 10000 3/15/99 ****
Minneapolis 10000 1/31/99 ****
Nashville ? ****
New Orleans 5000 ****
New York 5823 ****
Norfork ? ****
Orlando 10000 3/15/99 ****
Philadelphia 3800 ****
Phoenix 10000 3/15/99 ****
Pittsburg ? ****
Portland 5000 ****
Providence ? ****
Rochester 5000 2/2/99 ****
Salt Lake City 10000 5/15/99 ****
San Diego 3861 1/15/99 ****
San Francisco 10000 9/1/99 ****
- ------------------------------------------------------------------------------
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
20
<PAGE> 62
TSA Schedules 02-04-99 A, B, C, D, E, G, H, I, J, L, M
<TABLE>
- -----------------------------------------------------------------
<S> <C> <C> <C>
Seattle 10000 4/1/99 ****
Tampa 10000 4/20/99 ****
Washington, DC 5279
- -----------------------------------------------------------------
</TABLE>
The prices stated on this page are only estimates, and are subject to change.
The parties will develop, as a part of the real estate forecasting mechanism, a
process which will allow SBCS to receive a firm price some time before proposed
occupancy of Space, which price is then only subject to change to the extent of
any change of any Cost in the Cost Plus model.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
21
<PAGE> 63
Fixed Voice Transport Price Caps
<TABLE>
<CAPTION>
MONTHLY MINUTES (BILLION) RATE PER MINUTE
- ------------------------- ---------------
<S> <C>
Start
**** ****
</TABLE>
Billings in minimum one second increments.
SBCS shall pay **** any PIC processing fees charged by Local Exchange carriers.
****
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
22
<PAGE> 64
TSA Schedules 02-04-99 A, B, C, D, E, G, H, I, J, L, M
SCHEDULE A-2
WILLIAMS NETWORK VOICE SERVICES FEATURES
1+ Voice Services Additional Features
1.1. CIP will be used for the following functions:
1.1.1. Assignment of usage to SBCS
1.1.2. ****
1.1.3. Routing of call for least cost termination
1.1.4. Blocking of SBCS Casual Calls (non-SBCS PIC'd customers) and other
selected calls based on CIC and dialed number
1.2. For usage processing, Williams will collect all necessary Call Detail
Records (CDRs) from its DMS250s via a billing server arrangement, and make
Operational Measure (OM) available near real-time, and that Williams will
assign all appropriate CDRs to SBCS and send them at pre-negotiated
intervals. SBCS may require both billable as well as un-billable (e.g.,
call attempts) CDRs to be sent separately.
1.3. For assignment of usage, Williams will adhere to the following approach:
1.3.1. When CIP is passed to Williams on the call set-up, Williams will use
the CIC to assign the call to SBCS.
1.3.2. When CIP is not available, Williams will associate the originating
ANI on the call with an ANI that SBCS has previously sent to
Williams.
1.4. For branding purposes, Williams will adhere to the following approach:
1.4.1. Williams will send all available CIP information to the OS, Card, DA,
and Toll Free platforms to facilitate branding
1.4.2. ****
1.5. SBCS requires Williams to provide PIC Verification service branded with the
appropriate SBCS brand (e.g., Pacfici Bell, Southwestern Bell Telephone or
Nevada Bell). When two brands are supported by one CIC, branding to be
provided by combination of CIC and ANI.
****
1.7. Williams will be responsible for engineering, provisioning and maintaining
all access trunking facilities
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
23
<PAGE> 65
TSA Schedules 02-04-99 A, B, C, D, E, G, H, I, J, L, M
1.8. Split PIC - Williams will support PIC1 and PIC2 customers. Where the
customer is not PICd to the same company for PIC1 and PIC2 and both
companies resell through Williams, Williams will provide separate
usage based on the appropriate CIC and send the usage in standard
Bellcore EMI format to SBCS specified billing Interface. For End
Offices and Tandems that do not support CIP, special requirements the
Parties will adopt mutually agreed-upon in accordance with the
procedures of Section 23 of the Agreement to ensure that special
branding and feature functionality (e.g., account codes, pin digits,
blocking, etc.) so that proper billing can be supported.
1.9 In addition to the above switch features, Williams will provide the
following within the DMS-250 switch network:
1.9.1. Multiple IEC Dialing Plans
1.9.2. Reset/Reorgination
1.9.3. IEC Trunking (FG C, D, DAL, IMT) If SBCS uses FGC, it will
fully reimburse Williams for all LEC charges at the price
charges by the LEC. SBCS will provide Williams with the
exchanges in which Feature Group C is required and the volumes
required.
1.9.4. MF, DTMF, DP, ISDN Signaling
1.9.5. Call Screening/Validation
1.9.6. Routing by ANI, IntraLATA, Intrastate, and time of day
1.9.7. Authcode, Account code, and PIN
1.9.8. Class of Service (based upon ANI, Authcode or trunk group)
1.9.9. Alternate Routing
1.9.10. Call Detail Record Search off of billing records
1.9.11. X.25 and/or Ethernet file transfer
1.9.12. IDDD
1.9.13. ISDN Primary Rate Interface (PRI)
1.9.14. CCS7 Trunking (FGD, IMT)
1.9.15. Switched 56 Kbps
1.9.16. Full 10-digit routing
1.9.17. Release Link Trunking (CCS7)
1.9.18. Local Number Portability
1.9.19. Dialable Wideband Service
24
<PAGE> 66
SCHEDULE A-3
WIRELESS LOCAL ACCESS SERVICE DESCRIPTION
OVERVIEW
Through a recent agreement with WinStar, Williams provides local wireless
transmission services in the 38 GHz frequency band. With licenses in more than
160 major markets, including all of the top 50 cities, WinStar's network
footprint is planned to cover more than 60% of America's small to medium-sized
businesses. Exhibit A lists the cities designated as target markets.
1. Topology
WinStar's point-to-point local wireless service uses two dishes to transmit and
receive signals within a five-mile range. The service is designed to support
99.999% availability, with a 10-year mean-time-between-failure rate and a
10-13-bit error rate.
The network topology consists of a centralized switching platform that provides
all of the features, services and switching functionality for customers in a
particular network serving area. Each switch delivers services to and from
Williams customers through interconnect facilities to and from the LEC, IXCs
and Internet Peering Points to which WinStar has connections. Today, switches
may connect to Hubs in both a hub-and-spoke and ring topology. Hubs connect to
Lit Buildings in a hub-and-spoke topology.
2. Hubs and Lit Buildings communicate via multiple DS3/DS1 radio links in the
38-40 Ghz portion of the spectrum. The Hubs function as concentrators for
these milliwave links, providing DS3 or DS1 service for Lit Buildings
within the Hub service area. The traffic from the Lit Buildings is bundled
into multiple DS3 links over a fiber SONET ring backbone, or connected by
lower frequency radio shots (i.e., 18 and 23 Ghz currently and 6 and 11 Ghz
in the future).
3. The network architecture features Lit Buildings as customer access points
for traffic, with Hubs transmitting and receiving traffic from Lit
Buildings via milliwave links. Hubs concentrate, transmit and receive that
traffic over fiber links to central office switch sites, other Hubs and
points of collocation (each a point of presence).
PRICING
Williams new Wireless Services are priced to be competitive for the following
applications:
(1) End-to-End connectivity in which the mileage portion of the local loop
exceeds 10 miles. This service is not competitive for local loops in the
zero-mile range.
(2) Intra-City Connectivity in which there is no wide area network connectivity
required.
SBCS Proprietary Price Caps for Williams Local Wireless Services can be found
in Exhibit B.
25
<PAGE> 67
OTHER TERMS AND CONDITIONS
The other terms and conditions governing the use of Wireless Local Access
provided by WinStar shall be as set forth in WinStar's general terms and
conditions of service as may be modified by the mutual agreement of SBCS,
Williams, and WinStar.
26
<PAGE> 68
TSA Schedules 02-04-99 A,B,C,D,E,G,H,I,J,L,M
EXHIBIT A
TARGET MARKET CITIES
<TABLE>
<CAPTION>
<S> <C>
****
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
27
<PAGE> 69
WIRELESS LOCAL ACCESS
PRICING
T-1 CHARGES - MRC
<TABLE>
<CAPTION>
SBCS Wireless Local Access Price--Current Pass Through Rate
<S> <C> <C> <C> <C>
VGE V&H Miles (Millions/mo) **** **** **** ****
------ ------ ------ ------
Voice Minutes (Billions/mo) **** **** **** ****
------ ------ ------ ------
Speed T-1 $ **** $ **** $ **** $ ****
------ ------ ------ ------
</TABLE>
ANCILLARY - NRC
NON RECURRING CHARGES:
NRC applies to intracity circuits only.
Refer to ancillary charges associated with transport
products for intercity circuits.
Non-recurring charges include installation, configuration
changes, cancellation, and order changes that may be
incurred for the circuit.
<TABLE>
<S> <C>
Installation $ ****
Configuration Changes $ ****
Cancellation (pre eng.) $ ****
Cancellation (post eng.) $ ****
Order Change $ ****
ASR (new or dis.) $ ****
ASR Supplement $ ****
Order Expedite $ ****
</TABLE>
OTHER CHARGES
CROSS-CONNECT CHARGES
<TABLE>
<S> <C> <C>
DS-1 $ **** $ ****
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
28
<PAGE> 70
Schedule B: Williams Network Technical Specifications
1.1. Private Line
1.1.1. TRANSMISSION RATES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRIVATE Characteristics Specifications/References
LINE
SERVICE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DS-1 o 1.544 Mbps bit rate o T1.107, "Digital Hierarchy - Formats Specifications"
o Extended o T1.403, "Network-to-Customer Installation - DS1 Metallic
Superframe Format (ESF) Interface"
o Bipolar 8 Zero o T1.408, "ISDN Primary Rate - Customer Installation Metallic
Substitution (B8ZS) Interfaces, Layer 1 Specification"
line coding o TR-NWT-000499, "Transport Systems Generic Requirements
(TSGR): Common Requirements," Issue 4, Bellcore
- -----------------------------------------------------------------------------------------------------------------------
DS-3 o 44.736 Mbps bit o T1.107, "Digital Hierarchy - Formats Specifications"
rate o T1.404, "Network-to-Customer Installation - DS3 Metallic
o C-bit parity Interface Specification"
o TR-NWT-000499, "Transport Systems Generic Requirements
(TSGR): Common Requirements," Issue 4, Bellcore
- -----------------------------------------------------------------------------------------------------------------------
OC-3c o 155.520 Mbps bit o T1.105, "American National Standard for Telecommunications
rate Digital Hierarchy Optical Interface Rates and Format
o SONET STS-3c frame Specification"
structure o TR-NWT-000499, "Transport Systems Generic Requirements
(TSGR): Common Requirements," Issue 4, Bellcore
o GR-253-CORE, "Synchronous Optical Network (SONET) Transport
Systems: Common Generic Criteria," Issue 1, Bellcore
- -----------------------------------------------------------------------------------------------------------------------
OC-12c o 622.080 Mbps bit o T1.105, "American National Standard for Telecommunications
rate Digital Hierarchy Optical Interface Rates and Format
o SONET STS-12c Specification"
frame structure o TR-NWT-000499, "Transport Systems Generic Requirements
(TSGR): Common Requirements," Issue 4, Bellcore
o GR-253-CORE, "Synchronous Optical Network (SONET) Transport
Systems: Common Generic Criteria," Issue 1, Bellcore
- -----------------------------------------------------------------------------------------------------------------------
OC-48 o 2,488.32 Mbps bit o T1.105, "American National Standard for Telecommunications
rate Digital Hierarchy Optical Interface Rates and Format
o SONET STS-48c Specification"
frame structure o TR-NWT-000499, "Transport Systems Generic Requirements
(TSGR): Common Requirements," Issue 4, Bellcore
- -----------------------------------------------------------------------------------------------------------------------
o GR-253-CORE, "Synchronous Optical Network (SONET) Transport
Systems: Common Generic Criteria," Issue 1, Bellcore
- -----------------------------------------------------------------------------------------------------------------------
Table 1
</TABLE>
29
<PAGE> 71
EXCEPTIONS TO THE ABOVE CHARACTERISTICS ARE:
OC-48c is unavailable at this time. Williams is able to provide OC-48 service
based on Availability and capacity. No time frame has been established for
providing OC48c service.
WILLIAMS AGREES TO THE SPECIFICATIONS AND REFERENCES LISTED WITH THE FOLLOWING
EXCEPTIONS:
DS-1 Service
T1.408 is addressed in the voice services and is not considered a specification
for private line service.
T1.105 is conformed to with minor exceptions as follows:
Synchronous Hierarchical Rates
Nortel Transportnode does not support OC-1 rate interfaces as well as OC-24
rate interfaces.
Tandem Connection Sublayer
Nortel's Transportnode products do not support tandem connections at this time.
Nortel will be pleased to discuss this requirement at a convenient time.
Line Overhead
Nortel does not currently support line DCC (D4-9) or line REI (M0) on the S/DMS
TransportNode product line.
STS Path Overhead
Nortel's Transportnode products do not support tandem connections. Nortel will
be pleased to discuss this requirement at a convenient time.
STS PTE Unequipped Indicator
Nortel TransportNode equipment transmits an all-ones pattern in unused overhead
bytes. Since there is a requirement to ignore values in undefined bytes, there
should be no operational issues if either a "ones" or "zeroes" pattern is
implemented.
Line Remote Defect Indication (RDI-L)
Nortel's Transportnode OC-48 does not support RDI-L indications. STS Path
Remote Defect Indication (RDI-P) Nortel's Transportnode OC-48 does not support
RDI-P indications.
30
<PAGE> 72
STS Path Payload Defect Indication (PDI-P)
Nortel's Transportnode products do not support PDI at this time. Nortel will be
pleased to discuss this requirement at a convenient time.
STS-1 Frame and OC-N Line Signal Composition
Nortel's Transportnode product line uses an all-1's pattern to indicate an STS
SPE unequipped condition instead of an all-0's pattern.
There are minor non-compliances to the portions of TR-NWT-000499 that are
relevant to S/DMS Transport node which include the following: Size of lettering
requirements for S/DMS Transportnode circuit packs and assemblies have been
adhered to wherever feasible but this is not always possible.
o Specifications for tributary rates on S/DMS Transportnode products are
complied with where applicable, or where that tributary rate is
offered on the particular line rate S/DMS Transportnode product.
31
<PAGE> 73
2. Reliability, Performance and Service Metrics
PRIVATE LINE SERVICE
All measurements for On-Net Service only and exclude events of Force Majeure as
defined in this Agreement.
<TABLE>
<CAPTION>
Metric Value
------- -----
<S> <C>
**** Errored Seconds ****
**** Percent Error From ****
Seconds
**** Severely errored ****
seconds
**** circuit availability **** (per calendar year; not to be less than **** in any
month)
**** ****
**** automatic error a. **** (for single component or single fiber
restoration performance target failures that impair or break connectivity on a point to point
(per event) network segment)
b. **** (for multiple electronic or fiber
failures that require rerouting of traffic onto an alternate
route)
**** Errored Seconds ****
**** Percent Error Free ****
Seconds
**** Severely errored seconds ****
**** circuit availability ****
****
(per calendar year, not to be less than **** in any month)
**** MTTR ****
**** automatic error a) **** (for single component or single fiber failures that impair or
restoration performance target break connectivity on a point to point network segment)
(per event)
b) ****
****
Service order activation Installation intervals are as set forth in Section 5.4 of this
interval (i.e. timeframe from Agreement.
time of FOC
Help desk response time Within the time frames set forth in Section 24 of this Agreement, Williams
will work together with SBCS to determine parameters for reasonable response
times.
</TABLE>
Note: MTTR (mean time to restore) applies to those failures not handled by
automatic error restoration techniques (e.g. 1+1 protection, SONET rings, ATM
rerouting, etc.).
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
32
<PAGE> 74
DS-n Services are provisioned over the Williams' ATM Network.
The parties agree to formulate an escalation procedure to discuss network
outages and to document such procedure by May 1, 1999.
33
<PAGE> 75
3. Frame Relay
3.1. Access rates, as defined in FRF1.1 for UNI or NNI
3.1.1. 56 or 64 kbps
3.1.2. n x DS0 for n=1 to 23
3.1.3. DS1 (1.544 Mbps)
3.1.4. DS-3 (45 Mbps), for NNI only.
3.2. Circuit types
3.2.1. Symmetric and asymmetric point to point PVCs
3.2.2. Multicast (available 1-1-2000)
3.3. Classes of Service
3.3.1. Initially, single QoS engineered to 200% over-subscription of
CIR per port
3.3.2. Frames in violation to be tagged as Discard Eligible
All measurements for On-Net Service only and exclude events of Force Majeure as
set forth in of the Master Alliance Agreement.
<TABLE>
<CAPTION>
Requirement Value
----------- -----
<S> <C>
**** availability **** (per calendar year not to be less than
**** in any month)
**** ****
**** error restoration (per **** (for single component or single
event) fiber failures that impair or break connectivity
on a point to point network segment):
**** (for multiple electronic or
fiber failures that require rerouting of traffic
onto an alternate route)
**** ****
**** (One-Way) ****
**** Activation Time Installation intervals are as set forth in Section 5.3 of
this Agreement.
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
34
<PAGE> 76
4. ATM
4.1. ACCESS RATES, AS DEFINED IN ATM FORUM UNI 4.0 SPECIFICATION
4.1.1. DS3 Current standard is UNI 3.1, UNI 4.0 planned for 2Q99
4.1.2. OC-3c Current standard is UNI 3.1, UNI 4.0 planned for 2Q99
4.1.3. OC-12c
ATM UNI and NNI Service
4.1.4. Current standard is UNI 3.1, UNI 4.0 planned for 2Q99.
4.2. Circuit Types
4.2.1. Symmetric and asymmetric point to point.
4.2.2. Virtual paths and virtual circuits are supported.
4.3. Classes of Service
4.3.1. CBR: Policing for CBR uses discard
4.3.2. VBRnrt: Allows cell tagging for non-compliant cells
4.3.3. UBR In Development, planned availability 2Q99
4.3.4. SBCS will expect Williams to allow overbooking of UNIs and NNIs
for VBRnrt And UBR service classes Williams allows 2:1
oversubscription on VBRnrt ports. An UBR oversubscription factor
has not yet been established.
All measurements for On-Net Service only and exclude events of Force Majeure
as set forth in this Agreement.
<TABLE>
<CAPTION>
Metric Value
- ------ -----
<S> <C>
**** availability **** (per calendar year, not to
be less than **** in any month)
**** ****
****
**** automatic error restoration performance target c. **** (for single
(per event) component or single fiber
failures that impair or break
connectivity on a point to point
network segment)
d.**** for
(multiple electronic or fiber
failures that require rerouting of
traffic onto an alternate route)
**** a. ****
b. ****
**** Not specified
**** ****
****
</TABLE>
****
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
35
<PAGE> 77
<TABLE>
<CAPTION>
<S> <C>
**** a. ****
****
b. Not specified, VBRAR
c. Not specified, UBR
**** activation time Installation intervals are as set forth
in Section 5.3 of this agreement.
</TABLE>
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
36
<PAGE> 78
5. SWITCHED SERVICE METRICS
Service Assurance - Switched
<TABLE>
<CAPTION>
Availability Reliability Responsiveness
------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Item Service Type Grade Switch Troubles Call Call **** ASA
of (by per Setup Setup (by (Avg.
Service Region) **** Time Time Company) Speed
(by (Domestic) **** of
Region) (Ans.)
1. Outbound **** **** **** **** **** **** N/A
(Dedicated
Origin)
2. SDS N/A **** N/A N/A N/A **** N/A
(Switched
Data
Services)
</TABLE>
NOTES:
1 - Availability
Circuit/trunk availability can be measured in terms of how many calls get
blocked (engineered) during the busy hour. The percentage (%) of blocked
calls over the total number of calls allowed equals the availability
factor(P). For example: **** of all the attempted calls will be blocked
during the busy hour. The other way in which availability can be measured is
based on ****.
For example: **** = The downtime is **** of the overall in-service time.
(per calendar year, not to exceed **** in any month).
2 - Reliability
Reliability can be measured by the number of calls that experienced trouble.
For example: **** . Call Set Up Time is measurement of the delay between the
entry of the last digit and hearing of the first ring.
3 - Responsiveness
Responsiveness is measured in terms of ****. For example: ****
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
37
<PAGE> 79
SCHEDULE C
WILLIAMS NETWORK COLLOCATION SERVICES
SERVICES & TERMS
This Collocation Service Schedule ("Schedule") is made as of this ______day of
___________, 199_, and is subject to that Transport Services Agreement dated
January __, 1999, ("TSA") by and between Williams Communications, Inc. d/b/a
Williams Network, a Delaware corporation ("Williams"), and Southwestern Bell
Communications, Inc., a Delaware corporation ("SBCS").
INTRODUCTION. In accordance with the Master Alliance Agreement, SBCS shall have
the right to license collocation space at charges developed on the basis of the
Cost Plus Model. The prices will vary by city and are broken down into a
non-recurring installation fee and a monthly recurring charge. The monthly
recurring charge will include the lease expense, power usage, and maintenance.
1. COLLOCATION SERVICE:
1.1 COLLOCATION SERVICE DESCRIPTION ("COLLOCATION SERVICE").
Williams grants SBCS and its Affiliates a license to occupy, access
and locate within a portion of premises owned, leased, or licensed by
Williams currently or in the future ("Premises") telecommunications
transmission equipment and cabling owned by SBCS ("Equipment") for the
purpose of interconnecting the Equipment with Williams' Network, SBCS'
network and other telecommunications network. The parties shall
mutually-agree upon a Collocation Service Order to be used by SBCS on
behalf of itself, its Affiliates and any permitted Third Parties to
request collocation space. The portion of collocation space ("Space")
allocated is accepted "as-is" by SBCS and its Affiliates and Williams
makes no representation as to the fitness of the space for the SBCS's
or its Affiliates' intended purpose, except as expressly set forth in
Exhibit A. SBCS shall abide by, and ensure that its Affiliates abide
by, the standard specifications as set forth in the Technical
Specifications as attached hereto; and, Williams shall perform the
obligations also listed therein. Any work on a new Premises requires
execution of the Collocation Service Order or Williams' other written
consent.
SBCS agrees that it, or an entity designated by it, shall be the
single point of contact with Williams with respect to any Affiliates'
use of Collocation Service. SBCS, or its designee, shall provide
Williams a list of which Affiliates and which employees or
representatives of those Affiliates are to be permitted access to the
Space, which shall be updated from time to time.
****
2. EFFECTIVE DATE: The Effective Date is defined as the date identified
on the relevant Collocation Service Order as the date of Collocation
Service delivery, or the date upon which Williams delivers Collocation
Service, whichever is later.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 80
3. TERM: The Collocation Service Term shall commence upon the Effective
Date and shall continue for the duration specified within the relevant
Collocation Service Order.
4. RATES & CHARGES: SBCS shall pay Williams for the Collocation Services
rendered pursuant to this Schedule at the rates developed pursuant to
the Cost Plus Model, sample of which are set forth in Schedule A of
the TSA.; provided, however, that such rates are not subject to a
Price Cap.
4.1 SERVICE FEE.
The Service Fee is the amount to be invoiced SBCS on a monthly basis
for Collocation Service rendered including, but not limited to, space
and power use.
4.2 INSTALLATION FEE.
The Installation Fee, if applicable, is the amount to be
invoiced SBCS as a one time charge for Collocation Service
consisting of charges associated with the initial installation
of the Collocation Service.
4.3 BUILD-OUT FEE.
Build-Out Fees are those one-time charges applicable to
Collocation Services rendered that are outside the standard
Collocation offering. Build-Out fees are individually quoted
based on the Service Order. Build-out fees are payable in full
within thirty (30) days after SBCS receives the invoice for the
build-out. Build-Out Fees are calculated to SBCS on a Cost Plus
Basis, but are not subject to a Price Cap.
5. COLLOCATION.
5.1 SERVICE DELIVERY: Upon mutual acceptance of a Collocation
Service Order, Williams shall confirm the Effective Date, or
inform SBCS of the estimated date for the delivery of such
Collocation Service. Williams shall use reasonable efforts to
install each Collocation Service on or before the Effective
Date, but the inability of Williams to deliver a facility by
such date shall not be a default under this Schedule.
In the event Williams fails to tender possession of the Space
to SBCS by the Effective Date, SBCS shall not be obligated to
pay the Service Fee or Installation Fee until such time as
Williams tenders possession of the Space to SBCS.
5.2 COLLOCATION REQUIREMENTS: The power, building and security
specifications for Collocate Space shall be as set forth in
Exhibit A.
6. CONTRACT EXPIRATION: Following the expiration of the term or failure
of the parties to enter into any renewal periods, SBCS's license shall
continue in effect on a month-to month basis upon the same terms and
conditions specified within this Schedule and relevant Collocation
Service Order, unless terminated by either SBCS or Williams upon
ninety (90) days' prior written notice.
SBCS's option to renew its license to occupy the Space shall be
contingent on the election by Williams to continue to own, lease, or
license the premises in which the Space is located for the duration of
the renewal period(s), such election to be exercised at the sole
discretion of Williams but subject to the terms of the Alliance
Agreements.
39
<PAGE> 81
7. EARLY TERMINATION: SBCS may terminate Collocation Service upon 30 days
written notice. Collocation Services will be terminated 30 days from
date of letter and SBCS will be liable for all charges due under the
remaining term of contract should SBCS terminate Collocation Service
prior to contract expiration, provided, however, that Williams shall
make reasonable efforts to mitigate SBCS' liability by actively
seeking to re-license the Space. Termination Liability will be
invoiced in lump sum in the billing period directly following
Collocation Service termination and shall be payable within 30 days of
the invoice date. Williams will rebate to SBCS any sums due SBCS as a
result of its re-licensing the Space.
8. INSURANCE: SBCS will maintain insurance as required in the Alliance
Agreement.
9. CHANGE OF COLLOCATION SERVICES:
9.1 CHANGE OF EFFECTIVE DATE (PRE-INSTALL). SBCS will be assessed
a Change of Effective Date Charge by Williams, which shall
not exceed comparable charges assessed by others in the
market for similar changes of effective dates, for any
changes of Effective Date requested within thirty (30) days
prior to original Effective Date. SBCS will also be charged
on a **** for any charges incurred by Williams from third
party providers as a result of a request by SBCS for a Change
of Effective Date, regardless of date of SBCS notification.
9.2 CHANGE OF COLLOCATION SERVICE ORDER (PRE-EFFECTIVE DATE). All
modifications to the information contained in an executed
Collocation Service Order will be reviewed on an individual
case basis and the Collocation Service Order shall be amended
accordingly upon Williams' acceptance of the Collocation
Service modifications, such acceptance will not be
unreasonably withheld, delayed or conditioned. Any
modifications may permit Williams to likewise amend the rates
and charges to alternate rates and charges based on the
Cost-Plus Model and Effective Date from the original rates
and Effective Date Collocation Service Order to the extent
they result in a change in Williams' costs. SBCS will also
be charged for any charges incurred by Williams from third
party providers as a result of a request by SBCS for a Change
of Collocation Service Order, regardless of date of SBCS
notification.
9.3 CHANGE OF COLLOCATION SERVICE (POST-EFFECTIVE DATE). If SBCS
requests a change to Collocation Services after such
Collocation Services have been installed, the request will be
reviewed by Williams on an individual case basis to determine
whether Williams has the ability to provide such enhanced
Collocation Service. All Change of Collocation Service
requests shall be authorized by Williams via a change
Collocation Service Order. SBCS may incur an additional
Collocation Service and/or Installation Fee(s) for the
amended Collocation Service based on the Cost-Plus Model.
SBCS will be assessed a one time fee for Collocation Service
changes. SBCS will also be charged for any charges incurred
by Williams from third party providers as a result of a
request by SBCS for a Change of Collocation Service,
regardless of date of SBCS notification.
9.4 REAL ESTATE PLANNING PROCESS. The Parties will establish a
real estate planning process pursuant to Section 24 of the
TSA for SBCS' real estate requirements other than those set
forth in the TSA. It is the intention of the Parties that
this process will assure that Williams is made whole for out
of pocket costs if SBCS does not use the facilities within a
reasonable amount of time.
10. IMPROVEMENTS TO SPACE: In the event SBCS desires to make improvements to
the Space which improvements are deemed material and substantial as reasonably
determined by Williams ("Material Improvements"), SBCS shall submit all plans
and specifications for such work to be performed in the Space
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
40
<PAGE> 82
to Williams for Williams' prior written approval, which approval shall not be
unreasonably withheld or delayed. No construction for Material Improvements may
commence until the foregoing consent is obtained. SBCS agrees that its use or
construction of the Space shall not interfere with Williams' use of its
Premises or other tenants' use of their premises in the building in which the
Premises are located.
SBCS shall not employ any contractor to perform material improvements
unless previously approved in writing by Williams which approval shall not be
unreasonably withheld, delayed or conditioned (and approved in writing by the
Landlord if required by Williams' lease or license). SBCS shall warrant or
shall obtain a warranty from each contractor and subcontractor participating in
performing material improvements that the work shall be free from all
mechanic's and/or materialman's liens and free from any and all defects in
workmanship and materials for the period of time which customarily applies in
good contracting practice, but in no event for less than one (1) year after the
acceptance of the work by SBCS and Williams. The aforesaid warrantees of each
such contractor and subcontractor and SBCS shall include the obligation to
repair or replace in a thoroughly first-class and workmanlike manner all
defects in workmanship and materials without any additional charge. All the
material improvements shall be contained in the contracts and subcontracts for
performance of SBCS's work and shall be written so that they shall inure to the
benefit of Williams and SBCS as their respective interests may appear. Such
warrantees shall be so written that they can be directly enforced by either
SBCS or Williams, and SBCS shall give to Williams any assignment or other
assurance to effectuate the same.
It shall be SBCS's responsibility to cause each of SBCS's contractors
and subcontractors to maintain continuous protection of the premises adjacent
to the Space in such manner as to prevent any damage to such adjacent property
by reason of the performance of SBCS's work.
All of SBCS's work shall be coordinated with all work being performed
or to be performed by Williams and other tenants of the building in which the
Premises are located. The contractor or subcontractor shall not at any time
damage, injure, interfere with or delay the completion of any other
construction within the building; and they and each of them shall comply with
all procedures and regulations prescribed by Williams and the Landlord of the
Premises for integration of SBCS's work with the work to be performed in
connection with the construction of the building, and all other construction
within the building which comprises or contains the Premises.
All fixtures, alterations, additions, repairs, improvements and/or
appurtenances attached to or built into, on or about the Space prior to or
during the Term of the license relevant thereto, whether by Williams at its
expense or at the expense of SBCS, or by SBCS at its expense or by previous
occupants of the Space, shall be and remain part of the Space and shall not be
removed by SBCS at the end of the Term of the license relevant to the Space.
Upon termination or expiration of the Term relevant to the Space, Williams
shall allow SBCS thirty (30) days after the date of such termination or
expiration, at SBCS's sole cost and expense, to remove all trade fixtures
(including, but not limited to, rectifiers/chargers, batteries, AC power
conditioning equipment, telecommunication switching equipment, channel banks,
etc.) installed by SBCS provided that the Space is restored by SBCS to its
condition before the installation of such items and that all such work
(including restoration) is performed in accordance with the other provisions of
this Schedule. If SBCS shall fail to complete such removal and restoration
within the aforesaid thirty (30) day time period, all such trade fixtures
remaining within the Space or at the Premises may, at Williams' option, become
the sole property of Williams, and Williams may dispose of such trade fixtures
as it deems appropriate. SBCS shall continue to pay the Service Fee specified
in the relevant Collocation Service Order until the earlier of: (i) SBCS's
removal of such trade fixtures and completion of such restoral or (ii)
Williams' taking possession of such trade fixtures as set forth above.
All work affecting the Space shall be in compliance with all laws,
ordinances, rules, regulations, orders and directives of governmental and
quasi-governmental bodies and authorities having jurisdiction over
41
<PAGE> 83
the Premises and the Space from time to time and SBCS shall obtain and keep in
effect all licenses, permits and other authorizations required with respect to
the business conducted by SBCS within the Space.
11. SOLE USE OF SPACE BY SBCS: SBCS acknowledges that it and its Affiliates (as
designated by SBCS) have been granted only a license to occupy the Space and
that it has not been granted any real property interests in the Space and that,
****, neither this Schedule nor any interest created herein shall be assigned,
mortgaged, subleased, encumbered or otherwise transferred, and that, except for
the assignment to a designated Affiliate, neither SBC nor its Affiliates neither
the Space nor any part thereof shall be encumbered in any manner by reason of
any act or omission on the part of SBCS, or used or occupied, or permitted to be
used or occupied, by anyone other than SBCS or its designated Affiliates. Any
attempt to allow the use or occupation of the Space by anyone other than SBCS or
its designated Affiliates, to assign, mortgage, sublease or encumber any rights
under this Schedule by SBCS or its designated Affiliates shall be void, unless
otherwise agreed to in writing by Williams. Such written agreement by Williams
shall not be unreasonably delayed, withheld, or conditioned.
12. EMINENT DOMAIN: In the event of a taking by eminent domain (or a conveyance
by any Landlord of all or any portion of the Premises to an entity having the
power of eminent domain after receipt of actual notice of the threat of such
taking) of all or any portion of the Premises so as to prevent, in Williams'
sole discretion, the utilization by SBCS of the Space in the Premises, relevant
Collocation Service Order(s) shall terminate as of the date of such taking or
conveyance with respect to the Space which is affected by such taking or
conveyance and the Service Fee paid or to be paid by SBCS shall be reduced
accordingly. Except as set forth below, SBCS shall have no claim against
Williams for the value of the unexpired Term of the license affected thereby
(or any portion thereof) or any claim or right to any portion of the amount
that might be awarded to the Landlord of the Premises or Williams as a result
of any such payment for condemnation or damages. Nothing contained in this
Schedule should prohibit SBCS from seeking any relief or remedy against the
condemning authority in the event of an Eminent Domain proceeding or
condemnation which affects the Space. Notwithstanding anything to the contrary
in this paragraph, Williams and SBCS shall, during the Term of the TSA, work
cooperatively to find suitable alternative sites which meet the needs of both
Williams and SBCS and which will, to the extent feasible, permit the
continuation of Service by both parties without material impairment.
13. DAMAGE TO PREMISES: If the building in which the Premises are located is
damaged by fire or other casualty, Williams shall give immediate notice to SBCS
of such damage. If a Landlord or Williams exercises an option to terminate a
particular Lease or License due to damage or destruction of the Premises
subject to such Lease, or if Williams decides not to rebuild such building or
portion thereof in which the Space is located, the Parties shall cooperate with
each other to effect the orderly relocation of the Equipment and SBCS customer
equipment to another collocation site. SBCS shall not be liable for any
Collocation Service or other fees during the period of time any the Space is
not available. If neither the Landlord of the affected Premises nor Williams
exercises the right to terminate, Williams shall repair the particular Space to
substantially the same condition it was in prior to the damage, completing the
same with reasonable speed. In the event that Williams shall fail to complete
the repair within a reasonable time period, SBCS shall thereupon have the
option to terminate relevant Collocation Service Order(s) with respect to the
affected Space, which option shall be the sole remedy available to SBCS against
Williams under this Schedule relating to such failure. If the Space or any
portion thereof shall be rendered untenable by reason of such damage, the
Service Fee for such Space shall proportionately abate, based on the amount of
square footage which is rendered untenable, for the period from the date of
such damage to the date when such damage shall have been repaired for the
portion of the Space rendered untenable.
14. CONDUCT IN SPACE & PREMISES: SBCS shall abide by Williams' and applicable
landlord's rules with regard to conduct in the Premises. Such rules include,
but are not limited to, a prohibition against smoking in the Space or the
Premises by SBCS's employees, agents, representatives, contractors,
subcontractors,
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 84
invitees or licensees. Further, SBCS shall maintain the Space in a safe
condition, including but not limited to the preclusion of storing combustible
materials in the Space.
****
IN WITNESS WHEREOF, the parties hereto have executed this Collocation Service
Schedule as of the day and year first above written.
<TABLE>
<CAPTION>
<S> <C>
SBC OPERATIONS, INC.: WILLIAMS COMMUNICATIONS, INC:
- ---------------------------------------- -----------------------------------------------------
Signature of Authorized Representative Signature of Authorized Representative
- ---------------------------------------- -----------------------------------------------------
Printed Name Printed Name
- ---------------------------------------- -----------------------------------------------------
Title Title
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
43
<PAGE> 85
EXHIBIT A
TECHNICAL SPECIFICATION FOR COLLOCATION SERVICE
WILLIAMS NETWORK STANDARDS, DESCRIPTIONS & TASKS
o DC POWER
o Backup electrical power, including batteries and shared use of an
emergency generator to the extent such generator exists and is
maintained to support the Premises.
o DC power adequate for SBCS's consumption equated to power
specified in applicable Collocation Service Order. A low-voltage
and high-voltage battery alarm will be monitored by Williams.
o Nominal 50 +/- 6V DC battery and charger supply with a minimum
four (4) hour reserve will be provided by Williams.
o Redundant chargers of adequate size will be provided by Williams,
so that in the event of a charger failure the full load required
by SBCS' equipment will be available. A charger failure alarm will
be monitored by Williams.
o AC POWER
o A 20-amp four-plex AC receptacle will be available within reach of
the SBCS's Equipment. AC power and outlets for use with test
equipment only and is not provided to operate the Equipment. This
AC power is not provided over an Uninterruptable Power Source
(UPS).
o AC power supply to SBCS equipment is backed by generator where
available. This excludes utility outlets described in the
immediately preceding subsection 2.1.
o Power Generally
o All sites shall be equipped with 24/7 power and utilities services
o Standby generator equipped with remote alarm monitoring
o Eight hours of fuel reserves with delivery of additional fuel
triggered by a generator start, exclusive of routine testing. In
California sites, 16 hours of fuel reserve will be maintained.
o Lead alert will be handled by the NCC except where otherwise required
by law
o Master House Service Panel to be equipped with Auto Start/Auto
Transfer circuitry to automatically start the emergency generator and
transfer the load in the event of a commercial power failure
o All DC power plant alarms wired for remote alarm monitoring
o Power sites equipped with the latest personal safety and hazardous
material spill equipment
o All sites equipped with battery watering equipment
o Williams will provide uninterrupted critical AC power
o Power rooms equipped with storage lockers for spare parts.
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<PAGE> 86
o ENVIRONMENTALS
o Pre-reaction sprinkler protection, where available. Smoke and fire
alarms monitored by Williams.
o Lighting.
o Ground Buss and cable interconnect.
o Grounding conductor will be supplied by Williams between the bus
bar and the SBCS's Equipment.
o Overhead cable ladder
o Interconnect signal and power cabling between Williams and SBCS.
o Concrete floors will be covered with vinyl tile.
o Ambient temperature will be maintained by Williams between
60-90(Degree)F with an objective of 35-65% humidity.
o General and administrative services directly relating to the
provision of the above listed Collocation Services.
o Building
o Dual feed conduits for entrance facilities, with structural
diversity on a go-forward basis (details of which will be agreed
in accordance with Section 24, Processes to be Developed, of this
Agreement).
o Fire alarm (equipped with dry contacts and wired for remote alarm
monitoring)
o Door Alarms monitored by NCC.
o Hi/low temperature alarm (equipped with dry contacts and wired for
remote alarm monitoring)
o Hi/low humidity alarm (equipped with dry contacts and wired for
remote alarm monitoring)
o Emergency (stumble) lighting powered from DC plant
o Air conditioning system equipped with dial up access (Landis &
Gyr)
o All sites equipped with the appropriate fire rated office
furniture (desks, chairs, bookcases, waste baskets, equipment
lockers, etc.)
o All sites equipped with designated area for trash collection
(exterior)
o All sites equipped with the designated parking areas
o All sites equipped with the proper fire extinguishers
o All sites shall comply with applicable ADA and building/seismic
code requirements
o All below grade floors equipped with sump pumps (equipped with dry
contacts and wired for remote alarm monitoring)
o All sites have loading docks where available
o All sites will have keypad access, and numbers for the Network
Control Center will be provided
o All sites have conduit runs from the main telecommunications
backboard to all other rooms within the building
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o Equipment and power rooms protected by a mutually agreed upon fire
suppression system
o All sites shall comply with all hazardous material laws and
disclosure of pre-existing conditions.
o Security: ACM 1600 or equivalent for dial up security.
In-Region Real Estate Requirements
o SBCLD will participate in the geographic and site locations for switch
placement. Site requirements range from 7,000 to 8,000 square feet.
SBCLD shall provide a list of required locations on a quarterly basis.
Should a move be required, at Williams' direction, Williams will pay
all costs incurred to transfer all network and physical assets to the
new location unless otherwise mutually agreed to in writing.
****
o These switches must be ready for testing by the dates and as
described in Section 26.2.1 of the Agreement, and ready for
customer traffic by August 31, 1999.
Out of Region Real Estate Requirements
****
REAL ESTATE REQUIREMENTS FORECAST: See Section 9.4 of the Collocation
Agreement. Williams shall have one year from the date of notification in
which to have any requested space completed, unless the Parties otherwise
agree.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
46
<PAGE> 88
EXHIBIT B
TELEHOUSING REQUIREMENTS
****
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
47
<PAGE> 89
****
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
48
<PAGE> 90
SBCS STANDARDS, DESCRIPTIONS & TASKS FOR TELEHOUSING
1.0 EQUIPMENT SPECIFICATIONS
1.1 The Equipment should be designed to operate satisfactorily
between 60-90(Degree)F with 35-65% (non-condensing) humidity.
Low 60(Degree) and high 90(Degree) temperature alarms will be
monitored by Williams.
1.2 SBCS will ensure that their equipment and surrounding area do
not pose safety hazards to personnel. This includes exposed
AC electrical hazards, trip and slip hazards, hazardous
material storage deficiencies, improperly secured or
overloaded equipment racks or ladders, inadequate ingress and
egress space. OSHA and local codes will apply.
1.3 SBCS will notify Williams of any significant equipment
additions or deletions (i.e. shelf or rack). Installation and
removals will be coordinated with local Williams management.
2.0 SPACE SPECIFICATIONS
2.1 SBCS will not jeopardize Collocation Service or damage
property of other collocated customers, Williams, or landlord
in any manner.
2.2 SBCS will take precautions to protect Williams' and
landlord's common facility and nearby equipment belonging to
other customers. This includes floor, wall, and
telecommunication equipment protection while moving equipment
and notifying Williams of any major rearrangements of
equipment, drilling, power work, and etc.
2.3 SBCS will follow good housekeeping practices. All trash must
be disposed of daily at SBCS's expense. Any trash or empty
boxes not disposed of by SBCS is subject to removal by
Williams with any associated charges borne by SBCS.
2.4 Nothing may be stored outside of the assigned rack space. A
minimum of 2.5' of aisle space must be maintained at front
and rear of equipment.
2.5 No metal ladders, stools, or chairs may be used.
2.6 Combustible or hazardous material may not be stored in the
area.
2.7 All equipment must be installed within the assigned rack
footprint (i.e. UPS units, spare equipment).
2.8 All cabling will be terminated on DSX panels in the Williams
common area. Fiber will be terminated on an appropriate Fiber
Distribution Panel ("FDP"). Any panels for SBCS end will be
supplied at SBCS's expense.
2.9 SBCS is responsible for the termination of the A & B DC power
and signal cabling in its Equipment.
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<PAGE> 91
2.10 Maximum DC power provided to SBCS as A & B power shall be
rated for the rating of a single feed. SBCS is liable for an
outage caused by the DC power exceeding the single feed
rating. SBCS will be responsible for payment of consumed
power exceeding the single feed rating specified in the
Collocation Service Order.
2.11 SBCS will follow normal telecommunications industry standards
with regards to equipment installation and removal in a
central office environment. Williams standards are to be
followed for connection of cables that interface with
Williams. All installations are subject to approval by
Williams.
2.12 Permanent use of extension cords is not allowed.
2.13 SBCS will not jeopardize Williams' ability to conduct
business in any manner.
2.14 All local, state, and federal laws will be obeyed. Local
requirements for union labor, especially for AC electrical
work, will be observed. Building management guidelines will
be followed.
2.15 SBCS will follow Williams sign-in procedures at all times.
Subject to the requirements of this Schedule, SBCS shall have
access to their equipment 24 hours a day, 365 days a year.
SBCS must coordinate their first visit to a particular
Williams' site with Williams' operations department, giving
at least five (5) days notice of such visit. For all
subsequent entries, SBCS will follow the procedure outlined
below:
2.15.1 At locations where SBCS's equipment is located in
caged space which is separate from Williams' equipment,
before entry SBCS will notify Williams' Network Control
Center at (800) 582-9069 and follow Williams' sign-in
procedures.
2.15.2 At locations where SBCS's equipment is not located in
caged space which is separate from Williams' equipment, SBCS
must be escorted by a Williams technician. SBCS may gain such
escort by notifying Williams' Network Control Center at (800)
582-9069 at least forty-eight hours prior to SBCS's desired
entry. In the case of an emergency, SBCS shall give as much
notice as is reasonably possible by contacting Williams'
Network Control Center at the number listed above. Williams'
Network Control Center shall work with SBCS to allow SBCS to
gain access as soon as reasonably possible.
2.16 If Williams notifies SBCS in writing of a violation of the
above rules, or any other unsafe or unacceptable situation or
practice, the SBCS must correct the problem within seven days
or provide a written plan for correction to Williams'
satisfaction and proposed completion date. Williams may agree
to additional time. If the problem is not resolved in seven
days or within the agreed upon time frame, which ever is
longer, Williams will have the option of either (i)
correcting the problem at SBCS's expense, or (ii) terminating
the contract and disconnecting power and signal connections
from the SBCS's equipment.
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<PAGE> 92
3.0 EXTREME SAFETY CONDITIONS. Extreme safety violations are subject to
immediate correction by Williams without prior notice to SBCS. Corrections made
by Williams are at the SBCS's expense and will be billed to the SBCS on a time
and material basis.
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<PAGE> 93
SCHEDULE D
SCHEDULE OF OSS INTEROPERABILITY
****
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
52
<PAGE> 94
****
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 95
SCHEDULE E
OPERATIONS SCHEDULE
1. ****
2. SBCS and Williams will jointly participate in the selection and
acquisition of a fraud management vendor.
3. Williams will provide fraud management through the Network Operating
Center(s) for the switching network on behalf of SBCS and SBCS will
provide fraud management through its platform(s) on behalf of Williams.
****
4. Williams will provide to SBCS its network engineering parameters and
guidelines which are developed in connection with growth planning for the
Williams Network.
5. It is William's objective to keep the network competitive by employing
equipment, current technology, and other services as necessary to maintain
an efficient cost structure, and superior customer service.
6. ****
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 96
SCHEDULE F
EARLY ENTRY SUPPORT SCHEDULE
****
(2 pages)
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 97
****
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 98
****
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 99
SCHEDULE G
SCHEDULE OF TESTING REQUIREMENTS
1.1. SBCS requires Williams to operate with the following testing principles:
1.1.1. Functionality will be defined and built in components. It takes
multiple components to accomplish a business function.
1.1.2. Component testing will be conducted as early as possible.
1.1.3. Strings of component will be tested as early as possible.
1.1.4. Prior to launch, all functionality will be tested in the same
manner as it will operate at launch.
1.2. Testing will be conducted for all components, including:
1.2.1. Business systems
1.2.2. Operational Support Systems
1.2.3. Manual processes
1.3. For key components going live on ****, SBCS and Williams agree to ****
pre-launch testing. Both parties agree that this date is critical to the
success of the Network, and will commit to complete a joint testing
schedule by ****. The joint testing schedule shall include associated
liquidated damages for failing to meet the joint testing schedule.
1.4. Pre-launch testing will be conducted in as "live-like" a manner as can be
practically supported. This includes the following:
1.4.1. All physical systems interfaces have been installed and tested.
1.4.2. All logical interfaces have been tested through up and down stream
processes.
1.4.3. All component testing has been completed.
1.4.4. All string testing of components has been completed in as large a
string as is practical to accomplish
1.5. Williams and SBCS will cooperate to establish a simulated training
environment for these systems to be maintained separately from any system
carrying live customer traffic.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 100
SCHEDULE H
SCHEDULE OF OUT-OF-REGION SERVICES
1.1 **** Neither this list nor any such notice obligates Williams to provide
such proposed service. The following list contains **** and Williams' current
availability or projected availability:
1.1.1. POTS FLAT
1.1.2. Vertical Services (e.g., CCS Features)
Need clarification
1.1.3. ISDN BRI
TBD
1.1.4. ISDN PRI
TBD
1.1.5. Internet Access (Dial Access)
(1999/date to be determined)
1.1.6. Internet Access (Dedicated Access)
(1999/date to be determined)
1.1.7. DSL 384/128
(1999/date to be determined)
1.1.8. DSL 384
(1999/date to be determined)
1.1.9. DSL T1 and Above
(1999/date to be determined)
1.1.10. Frame Relay 56
(Available Today)
1.1.11. Frame Relay 128
(Available Today)
1.1.12. Frame Relay 384
(Available Today)
1.1.13. Frame Relay DS1
(Available Today) and Above (Available by Sept. 1, 1999)
1.1.14. ATM DS1
Currently projected to developed in the fourth quarter of 1999
1.1.15. ATM DS3 and Above
DS3, OC3, and OC12 UNI ports available today
1.1.16. IP VPN (Includes Dial Access)
(1999/date to be determined)
1.1.17. Network Office
Need clarification
1.1.18. DS1
(Available Today)
1.1.19. DS3
(Available Today)
1.1.20. PBX Trunks
1.1.21. Digital Trunks (Supertrunk)
1.1.22. Outbound Local Usage
NO
1.1.23. Outbound IntraLATA Usage
YES
1.1.24. Outbound LD Domestic Usage
YES
1.1.25. Outbound LD International Usage
YES
1.1.26. Toll Free
YES
1.1.27. Calling Card
YES
1.1.28. Voice - VPN
YES; but not at launch or to 1999.
1.1.29. Operator Assisted
YES
1.1.30. Directory Assistance
YES
1.1.31. Network Integration
Williams Network does not provide Network Integration to a retail environment
(Network does have a wholesale-managed service offering). Williams offering
integration services to retail markets through its Communication Solutions unit.
1.1.31.1. CPE
Williams Network does not provide Network Integration to a retail
environment (Network does have a wholesale-managed service
offering). Williams offering integration services to retail
markets through its Communication Solutions unit.
1.1.31.2. Design
Williams Network does not provide Network Integration to a retail
environment (Network does have a wholesale-managed service
offering). Williams offering integration services to retail
markets through its Communication Solutions unit.
1.1.31.3 Outsourcing
Williams Network does not provide Network Integration to a retail
environment (Network does have a wholesale-managed service
offering). Williams offering integration services to retail
markets through its Communication Solutions unit.
1.1.31.4 Managed Services
Williams Network does not provide Network Integration to a retail
environment (Network does have a wholesale-managed service
offering). Williams offering integration services to retail
markets through its Communication Solutions unit.
1.1.32. Centrex
1.1.33. Voice Mail
Only as it relates to Enhanced Calling Card services
1.1.34. DID Number Blocks
1.1.35. Sonet
1.1.36. OCN
(Available Today)
1.1.37. Integrated Access
1.1.38. Inside Wire
1.1.39. POTs Measured
1.1.40. IVR & ACD
1.1.41. Wireless/Paging
1.1.42. CPE
NO
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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SCHEDULE I
CUSTOMER NETWORK MANAGEMENT FOR ON-NET PRIVATE LINE AND DATA SERVICES,
DESCRIPTION AND SPECIFICATIONS
1.1. SBCS CNMS Capabilities
1.1.1. Williams will provide a web-based Customer Network Management
System to allow SBCS to access CNM data specific to SBCS and
monitor Private Line, Frame Relay, and ATM circuits in the
SBCS network.
1.1.2. The web-based CNMS will be made available to SBCS 1Q99.
1.1.3. Voice features will be developed for later releases of the
CNMS:
1.1.3.1. Bulk order entry will be made available 6/99.
1.1.3.2. Bulk CDR information will be provided 6/99.
1.1.3.3. Remaining Voice features will be developed for 9/99, or
earlier, if possible.
1.1.4. For specific CNMS development, functionality, and
applications for the SBCS end-customer refer to Schedule D:
Schedule of OSS Interoperability, Item 1.7.
1.1.5. Williams recognizes that SBCS plans to provide Williams CNM
data to their end customer. Williams is not currently
developing any CNM application designed for the SBCS
customer. Williams will work with SBCS to develop tools for
SBCS to take Williams data and be able to format it for the
SBCS customer to have access to CNM data (TBD)
1.2. Service Description: Williams CNMS Features Available 1Q99 (Unless
otherwise specified) and for all data products including Frame Relay,
Private Line and ATM (Unless otherwise specified)
1.2.1. General Williams CNMS Features Available 1Q99: The following
features will be available to all current and future Williams
products and Williams CNMS applications:
<TABLE>
<CAPTION>
FEATURES CUSTOMER BENEFIT
<S> <C>
Homepage Web page that provides user login, icons to specific CNMS features and an
information section that highlights CNMS changes, new features or
updates, and important Williams Network announcements. Links provided
to Customer Care's Customer Handbook, Williams web site, etc.
Customer Contact & The customer has ability to identify, locate and contact vital Customer Care.
Account Information Network Operations, and Billing resources and information.
Web Site Security The customers network information is secure both across the Internet and
Reference 1.2.1.3 from other CNMS users. Information is customer partitioned and secure.
Network Access & Security/access screens prompt users for their Individual User ID and
Customer Administration assigned password. New users within a company are determined by an
assigned "primary administrator" within the client company.
On-Line Help Fully integrated help documentation and tools for the user.
Application Environment CNMS is designed for 24X7 level of service with 99.995% uptimes, date
assurance, and systems support
</TABLE>
1.2.1.1. Williams CNMS Homepage:
Williams customers will be greeted by a modern, well designed, highly
appealing, web site with standard navigation tools and web logic. The
home page provides the gateway for CNMS users to log-in to the system,
hyper-links to other Williams
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Internet resources such as the Williams Network web site, Customer
Care's Customer Handbook, etc., and access the CNMS next generation
network management features.
Williams CNMS provides for additional information, stored in external
information sources, to be provided to the customer. Information
specific to customers can be communicated directly to the web page
that highlights CNMS changes, new features or updates, and important
Williams Network announcements such as new pricing, new products, or
special offers. This feature allows personalized text messages to be
created by Customer Care to be displayed to Williams CNMS customers.
1.2.1.2. Customer Information:
Williams CNMS provides vital information the customer needs to conduct
business with Williams. The customer has ability to identify, locate
and contact vital Customer Care, Network Operations, and Billing
resources and information. CNMS users will be able to access the
Customer Care phone number and the NCC National 1-800#.
1.2.1.3. SECURITY MANAGEMENT
1.2.1.3.1. The Williams CNMS will be highly secure both from the
Internet and within the system databases beginning 1Q99.
1.2.1.3.2. All user information will be partitioned by company or
user group. Individual users will only be able to access
information that the Williams CNMS Administrator and/or
the SBCS CNMS Administrator have determined to be eligible
for access.
1.2.1.3.3. There will be no limit on the number of SBCS logins at the
same time nor will there be any limit on the number of
SBCS users the administrator can create.
1.2.1.3.4. Specifically:
The user is reminded at login of the high level of
security Williams CNMS provides for customer data across
the Internet, within the CNMS application, and on the user
level.
The customer's information is secure from and across the
Internet. CNMS utilizes encrypted communications --
specifically 40 bit SSL (Secure Socket Layer) encryption.
Additionally the CNMS servers are designed for secure
Internet operation and protected by multiple firewalls
with extremely tight rule sets for access. CNMS creates
user passwords to insure against hacker attacks.
The customer's network information is secure from other
CNMS users. Information is customer partitioned on
multiple user levels. Williams CNMS provides a secure
environment for customers requiring users to enter a valid
username and password to gain access to system features
for which they are authorized (see following User
Administration section).
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1.2.1.4. User Administration:
Williams CNMS will utilize a custom security application
which will allow for access levels and users to be set on
the Williams Administrator Level, the Customer User
Administrator level and the individual user level.
The Williams Administrator will be able to setup new
customers and support the Customer User Administrators.
Multiple organizational hierarchies can be set-up for CNMS
to meet individual customers internal business situations
and realities.
o Customer administrators, and/or Williams
Administrators, can establish user "groups" and define
the security privileges available to those groups
within their organizational hierarchy. Users can be
added and assigned to defined security "groups" within
their organizational hierarchy.
o CNMS requires users to enter a valid username and
password to gain access to system features for which
they are authorized.
o Privileges within each group designation can be set
down to the feature (function) level within the
application. Read, insert, delete privileges are
established for certain functions through a user group
designation.
The reliance on Customer User Administrators will allow
Williams to keep administrative tasks and cost at a
minimum while providing a comprehensive product feature
set. The custom administrative application will allow
Williams CNMS to remain flexible with the addition of new
features, user requirements and user levels.
1.2.1.5. Online Help
Williams CNMS provides on line help information about how
to use the system. This will allow CNMS to eliminate
hard-copy user manuals and update distributions.
Help information will be available from any screen for
either the current screen, or for any other system
function via a table of contents.
1.2.1.6. Application Environment:
Williams will maintain a production environment and
support infrastructure for CNMS that will reasonably
guarantee system availability, data assurance, and system
support.
o Systems: The Williams CNMS servers and all network
pieces providing connectivity to them, will be geared
to provide a 24X7 level of service with 99.995%
uptimes annually. Williams CNMS will be connected to
the Internet via redundant 5Mbit connections. Servers
will be clustered, redundant, and load balanced,
initially, however, no off-site fail-over will be
implemented. o Data Assurance: The Williams user
administrator will perform pre-release and periodic
in-service audits of customer & circuit information to
ensure data accuracy. o Help: Williams maintains
application support and user help in concert with
customer care.
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1.2.2. Williams CNMS Data Products Features Available 1Q99
(Unless otherwise specified) A variety of customer network
management tools are provided by Williams CNMS to support
Network products. CNMS will constantly be enhanced and
will grow to meet current and future needs of the Williams
customer. The current (1Q99) Williams CNMS features to
support Williams data products include:
FEATURES CUSTOMER BENEFIT
Network Monitoring A partitioned view for the customer into the
(Views & Alarms) Williams network that provides a logical map of
the specific customer's network, alarm views by
circuit, and views of specific alarms affecting
the customer's circuits.
(re: 7.1.4 Fault
Management)
Action Tickets Williams customers are able to monitor and create
(re: 7.1.4 Fault Action Tickets (Trouble Tickets) for their
Management) Customer Care, Billing, and Operations issues.
Customer can monitor the status, activities, and
projected resolution of their network issue.
Service Order Entry The customer is able to enter orders for network
(re: 7.1.1 products and services directly into the Williams
Configuration systems. The customer can monitor a log of current
Management) orders and filled orders.
Customer Billing & Customers can view and print formatted summary
Account Review invoice information from their most recent
invoice. The customer can download detail invoice
information in ASCII format to their local PC over
the web through CNMS.
Service Level Customers can access a collection of network
Statistics statistics to allow verification and monitoring of
Product Specific Service Level Agreements (SLA's)
and evaluate network usage and performance
(re: 7.1.2
Performance
Management)
Flex-CIRsm Interface CNMS allows Williams Frame Relay Flex-CIR(SM)
(Frame Relay) customers to manage and adjust their Committed
(2Q/99) Information Rate (CIR) on a time-of-day and
day-of-week basis.
Published API's Application program interfaces (API's) which give
system interface information to the customer that
allows them to utilize their own existing customer
applications to exchange information with Williams
1.2.2.1. NETWORK MONITORING (VIEWS & ALARMS) FAULT MANAGEMENT
1.2.2.1.1. Williams will provide fault management in "near-real-time"
beginning 1Q99.
1.2.2.1.2. Near Real Time: It is Williams intention to provide fault
information that is as "real-time" as possible to SBCS.
The Williams network fault information provided to SBCS
must be customer correlated and transmitted by Williams.
Williams will provide SBCS On-Net fault information within
10 minutes. Fault management will include a map view of
circuits and their status, alarm notifications by customer
circuit, and the ability to enter and monitor network
trouble tickets and their resolution.
1.2.2.1.3. Williams will provide all traffic alarms that are related
to SBCS circuits.
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1.2.2.1.4. Specifically:
CNMS provides a partitioned view into the Williams network
displaying a logical map of the customer's network, alarm
views by circuit, and views of specific alarms affecting
the customer's circuits.
The raw alarm and circuit information from Williams
internal Network Management infrastructure (OSI/NetExpert)
is correlated to the appropriate customer and provided via
CNMS to those customers.
Note: Williams CNMS will display alarms for all circuits
for which appropriate alarm information can be retrieved
from the OSI system. That means the Network elements must
be "visible" to OSI/NetExpert. Certain "off-net" circuits
will not receive alarms, but will be displayed as they are
defined in the Circuit Inventory (Metasolve/TBS).
CNMS will display network alarms for a given customer
organization in four distinct views:
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<PAGE> 108
[U.S. MAP]
o A Map View, which plots all logical customer circuits with
TWC ID's and corresponding endpoints on a map of the USA,
in a various array of alarm states designated by color or
form. These alarms will be filtered to only indicate
service affecting alarms (see "Note").
o A Circuit View, which lists all logical customer circuits
with TWC ID's in a grid control and designates various
alarm states by color or form. This view will allow
sorting by each field. These alarms will be filtered to
only indicate service affecting alarms (see "Note").
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o An Alarm View, which drills down into a TWC circuit ID to
display details about the specific service in alarm. These
alarms will be filtered to only include service affecting
alarms (see "Note").
o A Circuit Detail Window (not available until 2Q99), that
can be opened by "double-clicking" on the appropriate
circuit path on the map view. The Circuit detail window
will Identify the circuit or circuits represented on the
circuit path and will list them by number and alarm
severity. An additional "double-click will bring up the
Circuit View sorted by the identified circuit and allows
the customer to drill down to the Alarm View.
Note: "Service affecting" will be defined based on the
severity index attached to the alarm. The appropriate index
will be identified by Technical Development. This detail is
not yet available.
1.2.2.2. Action Tickets
Williams customers are able to monitor and create Action
Tickets (Trouble Tickets) for their Customer Care, Billing,
and Operations issues. This feature gives customers direct
access into the Williams Action Ticket System (Remedy) used
by Operations and Customer Care to resolve network and
customer issues. Customer can monitor the status, activities,
and projected resolution of their network issue.
Williams CNMS will interface with the Remedy system to allow
Customers to perform the following functions on-line:
o Create Action Tickets about their circuits or
administrative issues
o Add Log information about open action tickets on their
circuits or administrative issues.
o Review Open Action Tickets about their circuits or
administrative issues.
o Review Closed Action tickets about their circuits or
administrative issues.
o Void Action Tickets still in an unopened state about their
circuits or administrative issues.
When a customer "opens" an Action Ticket, Williams CNMS will
update a field in the Remedy system with the CNMS users name
for tracking purposes.
1.2.2.3. SERVICE ORDER ENTRY/CONFIGURATION MANAGEMENT
1.2.2.3.1. Upon 1Q99 release Williams CNMS will enable SBCS to enter
and change service orders (i.e. New & Add) Private Line,
Frame Relay, and ATM orders.
1.2.2.3.2. SBCS will be able to monitor the order status.
1.2.2.3.3. Change Orders and Voice features (TBD) will be available
9/99
1.2.2.3.4. Specifically:
Using the web interface, or the customers own proprietary
order entry interface via an CNMS API, the customer is able
to enter orders for network products and services directly
into the Williams systems (See
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"Note"). The customer can monitor a log of current orders
and filled orders (archive requirements defined by
system).
Williams CNMS will interface with the Intertech order
entry system to allow authorized customers to place new
orders for data and services online products (orders for
Private Line, Frame Relay, IP, and ATM). These orders will
be held in an Intertech pending table so a Customer Care
Representative can release them, upon validation.
Williams CNMS will update a field in the order entry
system with the CNMS users name for tracking purposes.
CNMS will include an API/interface for customers to submit
batch orders to William via Williams CNMS.
Williams CNMS will allow authorized customers to review
active & completed service orders in Intertech (only the
current Intertech provisioning status will be visible).
By populating the Intertech order entry system directly,
CNMS will save Customer Care valuable order entry time.
1.2.2.4. Billing
Williams CNMS allows customers to view and print formatted
summary invoice information from their company's most recent
invoice. The customer can download full detail Invoice
information in ASCII format to their local PC over the web
through CNMS.
Williams Network Billing will review and approve invoice
formats displayed through Williams CNMS.
1.2.2.5. SERVICE LEVEL STATISTICS/PERFORMANCE MANAGEMENT
Customers can access a collection of network statistics to
allow verification and monitoring of Product Specific Service
Level Agreements and evaluate network usage and performance.
1.2.2.5.1. The CNMS will allow SBCS to view the actual network
performance data for data products.
1.2.2.5.2. Some limited performance information is available with the
1Q99 release of the CNMS:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
SERVICE STATISTIC OR SLA MEASUREMENT PERIOD
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ATM Throughput Sum of cells in and out Daily, weekly, monthly, and yearly
- ----------------------------------------------------------------------------------------------------------------------------
Frame Relay Transfer Delay by PVC Edge to edge Average Monthly
- ----------------------------------------------------------------------------------------------------------------------------
Frame Delivery Ratio by Within CIR, above CIR and 15 minute, hourly, daily, weekly,
PVC overall delivery and monthly increments
- ----------------------------------------------------------------------------------------------------------------------------
Data delivery ratio by Within CIR, above CIR and 15 minute, hourly, daily, weekly,
PVC overall delivery and monthly increments
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
66
<PAGE> 111
1.2.2.5.3. Additional performance data (as specified in Schedule B:
Williams Network Technical Specifications) will be
available via the CNMS by 9/99.
1.2.2.5.4. CNMS will be able to provide a limited historical view of
performance information via a data accumulator application
for the 1Q99 release (see above).
1.2.2.5.5. By 9/99 the internal Williams SLATE (Service Level
Agreement Technical Environment) project will provide
enhanced performance statistics and expanded archiving.
Storage of historical data by Williams will not exceed
three years.
1.2.2.5.6. Specifically Customers can access a collection of network
statistics to allow verification and monitoring of Product
Specific Service Level Agreements and evaluate network
usage and performance.
1.2.2.5.7. The Parties shall jointly develop voice monitoring
capabilities in CNMS prior to September 1, 1999.
1.2.2.6. Flex-CIR Interface
CNMS will provide (2Q99) a Flex-CIR interface to allow Williams
Frame Relay Flex-CIRsm customers to manage and make changes to
their flexible Committed Information Rate (CIR) on a time-of-day
and day-of-week basis.
1.2.2.7. Published API's
Williams will expose a complete, easy to use, set of application
program interfaces (API's) from the CNMS API Server which will
allow a customer's application to retrieve the same partitioned
information as is provided through the CNMS GUI. There will be
API's for each of the functions provided by CNMS.
An API gives the customer system interface information that
allows them to utilize the Williams CNMS client application or
their own existing customer applications to exchange information
with Williams.
1.2.2.7.1. The following is a schedule of API Development and
Availability:
<TABLE>
<CAPTION>
API'S AVAILABILITY
<S> <C>
Security/Login 1Q99
Network Monitoring (Views & Alarms) 1Q99
Action Tickets 1Q99
Service Order Entry 1Q99
Customer Billing & Account Review 1Q99
Service Level Statistics 1Q99
User Administration 1Q99
</TABLE>
67
<PAGE> 112
As additional CNMS features and capabilities are
developed, API's will be written and provided to SBCS.
1.2.2.7.2. The Williams CNMS is built on a distributed "Middle Tier
system architecture to allow customer's existing
applications and/or systems to interact with the same data
interface used by the CNMS application. Clustered
transaction servers act as component based API engines.
CNMS API's can be used to integrate Williams network OSS
data into SBCS's new or existing applications or systems.
The CNMS interface supports a wide variety of client
technologies including Visual Basic, C++, Java,
Powerbuilder, etc., or any SQL compliant language (SQL
function calls).
1.2.3. CNMS Costs to SBCS
1.2.3.1. Current and planned Williams CNMS services, per this
agreement, will be provided to SBCS without charge.
1.2.3.2. At the request of SBCS certain modifications of the CNMS
or custom development may be initiated. For CNMS
development efforts conducted or additional services
provided by Williams specifically on behalf of SBCS,
SBCS will be charged ****.
1.2.3.3. For additional information related to the development of
system interfaces see Schedule D: Schedule of OSS
Interoperability, Section 1.8.1.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
68
<PAGE> 113
TSA Schedules 02-04-99 A, B, C, D, E, G, H, I, J, L, M
SCHEDULE J
Williams On-Net City List
The following chart sets forth the Williams' On-Net cities and the date upon
which such city becomes part of the Williams' Network. Williams shall send SBCS
an updated listing of On-Net cities each month.
<TABLE>
<CAPTION>
IN- IN-
CITY LOCATIONS SERVICE CITY LOCATIONS SERVICE
-------------- -------- -------------- --------
<S> <C> <C> <C>
Akron 08/01/99 Detroit 12/31/99
Albany 03/15/99 El Paso 04/01/00
Albuquerque 12/01/00 Fresno 10/01/99
Anaheim 06/01/99 Ft. Meyers 08/01/99
Atlanta In- Ft. Lauderdale 04/15/99
Service Greensboro In-
Austin 04/01/00 Service
Bakersfield 12/15/99 Harrisburg 12/31/00
Baltimore 05/01/99 Hartford 07/01/00
Baton Rouge In- Herndon, VA 04/01/99
Service (Washington, D.C.)
Birmingham In- Houston In-
Service Service
Boise 05/16/99 Indianapolis In-
Boston 12/01/99 Service
Buffalo 01/15/99 Jackson, MS 01/31/99
Charlotte In- Jacksonville 02/19/99
Service Johnson City 12/01/00
Chattanooga 07/01/00 Kansas City In-
Chicago In- Service
Service Knoxville 12/01/00
Cincinnati 06/01/99 Lansing 10/01/99
Cleveland In- Las Vegas In-
Service Service
Colorado Springs In- Little Rock 12/01/00
Service Los Angeles In-
Columbus 04/15/99 Service
Dallas In- Louisville 07/01/00
Service Macon 01/31/99
Dayton 04/15/99 Madison 10/01/99
Daytona Beach 02/15/99 Melbourne 03/15/99
Denver In- Memphis 12/01/00
Service Miami 07/15/99
Des Moines 06/15/99
</TABLE>
<TABLE>
<CAPTION>
IN- IN-
CITY LOCATIONS SERVICE CITY LOCATIONS SERVICE
-------------- -------- -------------- --------
<S> <C> <C> <C>
Milwaukee 10/01/99 Santa Fe 12/01/00
Minneapolis 02/19/99 Seattle 05/01/99
Mobile 10/15/99 South Bend 10/01/99
Modesto 10/01/99 Spartanburg In-
Nashville 12/01/00 Service
New Haven 07/01/00 Springfield, IL 07/01/00
New Orleans In- Springfield, MA 03/01/00
Service St. Louis In-
New York In- Service
Service Stamford 07/01/00
Newark 04/01/99 Syracuse 02/01/99
Norfolk 12/31/00 Tacoma, WA 03/01/00
Oakland 11/01/99 Tallahassee 11/01/99
Oklahoma City In- Tampa 04/30/99
Service Toledo 10/01/99
Orlando 04/30/99 Topeka 04/15/99
Pensicola 10/15/99 Tucson 04/15/99
Peoria, IL 07/01/00 Tulsa In-
Philadelphia In- Service
Service Washington, DC In-
Phoenix 04/30/99 Service
Pittsburgh 12/31/00 West Palm Beach 03/27/99
Portland In- Wichita, KS 12/31/00
Service Worcester 03/01/00
Providence 07/01/00 Youngstown 12/31/00
Raleigh In-
Service
Reno 11/15/99
Richmond In-
Service
Riverside, CA 03/01/00
Rochester 01/20/99
Sacramento In-
Service
Salt Lake City 04/15/99
San Antonio 04/01/00
San Diego In-
Service
San Francisco 08/01/99
Santa Clara 09/01/99
</TABLE>
SCHEDULE J--PART 2
EXTENDED ON-NET (INTERMEDIA) FRAME RELAY SWITCH LIST
1. PRICING: ****
2. AVAILABLE SERVICES: CURRENTLY INCLUDES ONLY BASIC FRAME SERVICES -(I.E.
PORT SPEEDS = 64K - 1.536M, PVC SPEEDS = 4K - 1.024M [SIMPLEX & DUPLEX])
3. NETWORK AVAILABILITY: Currently includes cities listed below, but will
expand as Intermedia grows its own Frame Relay network
<TABLE>
<CAPTION>
CITY NPA-NXX CITY NPA-NXX
---- ------- ---- -------
<S> <C> <C> <C>
Albany, NY 518-474 Daytona Beach, 904-258
Augusta, GA 706-724 FL
Albany, NY 518-437 Dayton, OH 513-222
Albany, NY 518-437 Florence, SC 803-317
Glenmont, NY 518-432 Ft. Lauderdale, FL 954-523
Atlanta, GA 404-688 Ft. Lauderdale, FL 954-269
Atlanta, GA 404-688 Ft. Myers, FL 941-337
Atlanta, GA 770-661 Fayetteville, NC 910-306
Atlanta, GA 770-661 Greenville, NC 919-321
Atlanta, GA 770-661 Greenville, SC 864-242
Atlanta, GA 404-843 Greenville, SC 864-235
Austin, TX 512-795 Gainesville, FL 352-377
Baltimore, MD 410-331 Huntsville, AL 205-220
Buffalo, NY 716-849 Harrisburg, PA 717-214
Buffalo, NY 716-849 Houston, TX 713-229
Binghamton, NY 607-772 Houston, TX 713-227
Birmingham, AL 205-802 Houston, TX 713-654
Boston, MA 617-536 Hartford, CT 203-289
Boston, MA 617-536 Indianapolis, IN 317-638
Baton Rouge, LA 504-387 Jackson, MS 601-961
Chicago, IL 312-265 Jacksonville, FL 904-634
Chicago, IL 312-467 Jacksonville, FL 904-634
Chicago, IL 312-565 Jersey City, NJ 201-451
Charlotte, NC 704-358 Knoxville, TN 423-291
Charlotte, NC 704-342 Knoxville, TN 423-546
Charlotte, NC 704-333 Kansas City, MO 816-283
Chattanooga, TN 423-634 Los Angeles, CA 213-627
Charleston, SC 803-720 Los Angeles, CA 213-627
Cleveland, OH 216-265 Louisville, KY 502-587
Columbia, SC 803-779 Little Rock, AK 501-376
Columbia, SC 803-733 Miami, FL 305-350
Columbus, OH 614-221 Miami, FL 305-350
Cincinnati, OH 513-721 Miami, FL 305-594
Columbus, GA 706-321 Miami, FL 305-594
Dallas, TX 214-464 Memphis, TN 901-522
Dallas, TX 214-969 Montgomery, AL 334-269
Detroit, MI 313-222 Nashville, TN 615-555
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
71
<PAGE> 114
<TABLE>
<CAPTION>
CITY NPA-NXX CITY NPA-NXX
---- ------- ---- -------
<S> <C> <C> <C>
New Orleans, LA 504-528 Syracuse, NY 315-471
New York City, 212-349 Syracuse, NY 315-471
NY Tampa, FL 813-225
New York City, 212-349 Tampa, FL 813-225
NY Tampa, FL 813-664
New York City, 212-349 Tampa, FL 813-664
NY Toledo, OH 419-726
Ocala, FL 352-351 Tallahassee, FL 904-681
Orlando, FL 407-648 Tallahassee, FL 904-681
Orlando, FL 407-648 Tulsa, OK 918-587
Orlando, FL 407-849 Vienna, VA 703-506
Philadelphia, PA 215-568 Washington DC, 202-789
Philadelphia, PA 215-568 MD
Pittsburgh, PA 412-471 Washington DC, 202-775
Poughkeepsie, NY 914-485 MD
Panama City, FL 904-522 Washington DC, 202-775
Pensacola, FL 904-430 MD
Providence, RI 401-331 Wilmington, NC 910-256
Richmond, VA 804-844 Winston-Salem, 910-730
Raleigh, NC 919-850 NC
Raleigh, NC 919-850 West Palm Beach, 407-832
Rochester, NY 716-454 FL
Shreveport, LA 318-424 West Palm Beach, 561-904
San Francisco, CA 415-362 FL
St. Louis, MO 314-421
St. Louis, MO 314-429
Savannah, GA 912-234
</TABLE>
72
<PAGE> 115
Schedule J - Part 3
Service Availability by City and Date
<TABLE>
<CAPTION>
CITY GX 550 CBX 500 B- LITTON PNY SENTIE M 13
STDX9000 (GX250) NT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Akron 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
Albany 1st Qtr 1st Qtr 2nd Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
Albuquerque 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
Anaheim 3rd Qtr 3rd Qtr 3rd Qtr
- ------------------------------------------------------------------------------------------------------
Atlanta 3rd Qtr 3rd Qtr 3rd Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Austin 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
Bakersfield 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
Baltimore 4th Qtr 2nd Qtr 4th Qtr 2nd Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
Baton Rouge 1st Qtr 1st Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Birmingham 1st Qtr 1st Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Boise 2nd Qtr 2nd Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
Boston 4th Qtr 4th Qtr 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
Bridgeport 1st Qtr 00 1st Qtr 00 1st Qtr 00
- ------------------------------------------------------------------------------------------------------
Buffalo 1st Qtr 1st Qtr 1st Qtr 2nd Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
Charlotte 1st Qtr 1st Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Chattanooga 2nd Qtr 00 2nd Qtr 00 2nd Qtr 00
- ------------------------------------------------------------------------------------------------------
Chicago 3rd Qtr 3rd Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Cincinnati 3rd Qtr 3rd Qtr
- ------------------------------------------------------------------------------------------------------
Cleveland 4th Qtr 1st Qtr 4th Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Colorado 1st Qtr 1st Qtr 1st Qtr 1st Qtr
Springs
- ------------------------------------------------------------------------------------------------------
Columbus 2nd Qtr 2nd Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
Dallas 3rd Qtr 3rd Qtr 1st Qtr 3rd Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Dayton 3rd Qtr 3rd Qtr 2nd Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
Daytona Beach 2nd Qtr 2nd Qtr 2nd Qtr 2nd Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
Denver 3rd Qtr 3rd Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Des Moines 2nd Qtr 2nd Qtr 2nd Qtr 3rd Qtr 3rd Qtr
- ------------------------------------------------------------------------------------------------------
Detroit 2nd Qtr 2nd Qtr 2nd Qtr 3rd Qtr 3rd Qtr
- ------------------------------------------------------------------------------------------------------
El Paso 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
Fresno 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
Ft. Lauderdale 2nd Qtr 2nd Qtr 2nd Qtr 2nd Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
Ft. Myer 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
Greensboro 1st Qtr 1st Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Hartford 1st Qtr 00 1st Qtr 00 1st Qtr 00
- ------------------------------------------------------------------------------------------------------
Houston 3rd Qtr 3rd Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Indianapolis 3rd Qtr 1st Qtr 3rd Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Jackson 1st Qtr 1st Qtr 1st Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Jacksonville 2nd Qtr 2nd Qtr 2nd Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
Kansas City 3rd Qtr 1st Qtr 3rd Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Lansing 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
Las Vegas 4th Qtr 1st Qtr 4th Qtr 1st Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Los Angeles 3rd Qtr 3rd Qtr 3rd Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Louisville 2nd Qtr 00 2nd Qtr 00 2nd Qtr 00
- ------------------------------------------------------------------------------------------------------
Macon 1st Qtr 1st Qtr 1st Qtr 1st Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Madison 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
Melbourne 2nd Qtr 2nd Qtr 2nd Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
Miami 4th Qtr 1st Qtr 4th Qtr 3rd Qtr 3rd Qtr
- ------------------------------------------------------------------------------------------------------
Milwaukee 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
Minneapolis 1st Qtr 1st Qtr 2nd Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
Mobile 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
Modesto 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
Nashville 2nd Qtr 00 2nd Qtr 00 2nd Qtr 00
- ------------------------------------------------------------------------------------------------------
New Orleans 4th Qtr 1st Qtr 4th Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
New York 1st Qtr 1st Qtr 1st Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Newark 3rd Qtr 3rd Qtr 3rd Qtr 2nd Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
Oakland 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
Oklahoma City 4th Qtr 1st Qtr 4th Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Orlando 2nd Qtr 3rd Qtr 3rd Qtr
- ------------------------------------------------------------------------------------------------------
Pensicola 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
Philadelphia 4th Qtr 2nd Qtr 4th Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
Phoenix 4th Qtr 2nd Qtr 4th Qtr 2nd Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
Portland 2nd Qtr 2nd Qtr 2nd Qtr 2nd Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
Providence 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
Raleigh 4th Qtr 4th Qtr 4th Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Reno 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
Richmond 1st Qtr 4th Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Rochester 1st Qtr 1st Qtr 2nd Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
Sacramento 3rd Qtr 3rd Qtr 3rd Qtr 3rd Qtr
- ------------------------------------------------------------------------------------------------------
Salt Lake City 3rd Qtr 2nd Qtr 3rd Qtr
- ------------------------------------------------------------------------------------------------------
San Antonio 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
San Diego 2nd Qtr 2nd Qtr 2nd Qtr 2nd Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
San Francisco 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
Santa Clara 3rd Qtr 3rd Qtr 3rd Qtr
- ------------------------------------------------------------------------------------------------------
Seattle 3rd Qtr 3rd Qtr 3rd Qtr 3rd Qtr 3rd Qtr
- ------------------------------------------------------------------------------------------------------
South Bend 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
Spartanburg 2nd Qtr 2nd Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
Springfield 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
St. Louis, MO 1st Qtr 1st Qtr 1st Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Syracuse 2nd Qtr 2nd Qtr 2nd Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
Tallahassee 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
Tampa 2nd Qtr 2nd Qtr 3rd Qtr 3rd Qtr
- ------------------------------------------------------------------------------------------------------
Topeka 2nd Qtr 2nd Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
Tucson 2nd Qtr 2nd Qtr 2nd Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
Tulsa 4th Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
Washington, D.C. 3rd Qtr 3rd Qtr 3rd Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------
West Palm Beach 2nd Qtr 2nd Qtr 2nd Qtr 2nd Qtr
- ------------------------------------------------------------------------------------------------------
Worcester 4th Qtr 4th Qtr 4th Qtr
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 116
TSA Schedules 02-04-99 A, B, C, D, E, G, H, I, J, L, M
Schedule J - Part 4
Service Availability by Quarter
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
GX CBX B- LITTO PHY SENTIE M 13
CITY 550 500 STDX9000 N (GX250) NT
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1ST QUARTER
- -------------------------------------------------------------------------------------------------------------------
Albany 1 1
- -------------------------------------------------------------------------------------------------------------------
Atlanta 2
- -------------------------------------------------------------------------------------------------------------------
Baton Rouge 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Birmingham 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Buffalo 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Charlotte 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Chicago 2
- -------------------------------------------------------------------------------------------------------------------
Cleveland 1 1
- -------------------------------------------------------------------------------------------------------------------
Colorado
Springs 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Dallas 1 2
- -------------------------------------------------------------------------------------------------------------------
Denver 1
- -------------------------------------------------------------------------------------------------------------------
Greensboro 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Houston 1
- -------------------------------------------------------------------------------------------------------------------
Indianapolis 1 1
- -------------------------------------------------------------------------------------------------------------------
Jackson 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Kansas City 1 2
- -------------------------------------------------------------------------------------------------------------------
Las Vegas 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Los Angeles 2
- -------------------------------------------------------------------------------------------------------------------
Macon 1 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Miami 1
- -------------------------------------------------------------------------------------------------------------------
Minneapolis 1 1
- -------------------------------------------------------------------------------------------------------------------
New Orleans 1 1
- -------------------------------------------------------------------------------------------------------------------
New York 1 1 2 2
- -------------------------------------------------------------------------------------------------------------------
Oklahoma City 1 1
- -------------------------------------------------------------------------------------------------------------------
Raleigh 1
- -------------------------------------------------------------------------------------------------------------------
Richmond 1 1
- -------------------------------------------------------------------------------------------------------------------
Rochester 1 1
- -------------------------------------------------------------------------------------------------------------------
St. Louis 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Tulsa 1
- -------------------------------------------------------------------------------------------------------------------
Washington D.C. 1
- -------------------------------------------------------------------------------------------------------------------
TOTAL 4 21 1 1 14 31 3
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2ND QUARTER
- -------------------------------------------------------------------------------------------------------------------
Albany 1 1
- -------------------------------------------------------------------------------------------------------------------
Baltimore 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Boise 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Buffalo 1 1
- -------------------------------------------------------------------------------------------------------------------
Columbus 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Dayton 1 1
- -------------------------------------------------------------------------------------------------------------------
Daytona Beach 1 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Des Moines 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Detroit 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Ft. Lauderdale 1 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Jacksonville 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Melbourne 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Minneapolis 1 1
- -------------------------------------------------------------------------------------------------------------------
Newark 1 1
- -------------------------------------------------------------------------------------------------------------------
Orlando 1
- -------------------------------------------------------------------------------------------------------------------
Philadelphia 1 1
- -------------------------------------------------------------------------------------------------------------------
Phoenix 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Portland 1 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Rochester 1 1
- -------------------------------------------------------------------------------------------------------------------
Salt Lake City 1
- -------------------------------------------------------------------------------------------------------------------
San Diego 1 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Spartanburg 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Syracuse 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Tampa 1 1
- -------------------------------------------------------------------------------------------------------------------
Topeka 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Tucson 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
West Palm
Beach 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
TOTAL 8 20 0 0 17 19 18
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
3RD QUARTER
- -------------------------------------------------------------------------------------------------------------------
Anaheim 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Atlanta 1 1 2
- -------------------------------------------------------------------------------------------------------------------
Chicago 1 1
- -------------------------------------------------------------------------------------------------------------------
Cincinnati, OH 1 1
- -------------------------------------------------------------------------------------------------------------------
Dallas 1 1 2
- -------------------------------------------------------------------------------------------------------------------
Dayton 1 1
- -------------------------------------------------------------------------------------------------------------------
Denver 1 2
- -------------------------------------------------------------------------------------------------------------------
Des Moines 1 1
- -------------------------------------------------------------------------------------------------------------------
Detroit 1 1
- -------------------------------------------------------------------------------------------------------------------
Houston 1 2
- -------------------------------------------------------------------------------------------------------------------
Indianapolis 1 1
- -------------------------------------------------------------------------------------------------------------------
Kansas City 1 1
- -------------------------------------------------------------------------------------------------------------------
Los Angeles 1 1 2
- -------------------------------------------------------------------------------------------------------------------
Miami 1 1
- -------------------------------------------------------------------------------------------------------------------
Newark 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Orlando 1 1
- -------------------------------------------------------------------------------------------------------------------
Sacramento 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Salt Lake City 1 1
- -------------------------------------------------------------------------------------------------------------------
Santa Clara 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Seattle 1 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Tampa 1 1
- -------------------------------------------------------------------------------------------------------------------
Washington, D.C. 1 1 2
- -------------------------------------------------------------------------------------------------------------------
TOTAL 15 11 0 0 23 7 6
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
4TH QUARTER
- -------------------------------------------------------------------------------------------------------------------
Akron 1 1
- -------------------------------------------------------------------------------------------------------------------
Albuquerque 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Austin 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Baltimore 1 1
- -------------------------------------------------------------------------------------------------------------------
Bakersfield 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Boston 1 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Cleveland 1 2
- -------------------------------------------------------------------------------------------------------------------
El Paso 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Fresno 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Ft. Myers 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Lansing 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Las Vegas 1 1
- -------------------------------------------------------------------------------------------------------------------
Madison 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Miami 1 1
- -------------------------------------------------------------------------------------------------------------------
Milwaukee 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Mobile 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Modesto 1 1 1
- -------------------------------------------------------------------------------------------------------------------
New Orleans 1 1
- -------------------------------------------------------------------------------------------------------------------
Oakland 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Oklahoma City 1 1
- -------------------------------------------------------------------------------------------------------------------
Pensacola 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Philadelphia 1 1
- -------------------------------------------------------------------------------------------------------------------
Phoenix 1 1
- -------------------------------------------------------------------------------------------------------------------
Providence 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Raleigh 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Reno 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Richmond 1
- -------------------------------------------------------------------------------------------------------------------
San Antonio 1 1 1
- -------------------------------------------------------------------------------------------------------------------
San Francisco 1 1 2
- -------------------------------------------------------------------------------------------------------------------
South Bend 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Springfield 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Tallahassee 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Tulsa 1
- -------------------------------------------------------------------------------------------------------------------
Worcester 1 1 1
- -------------------------------------------------------------------------------------------------------------------
TOTAL 32 23 0 0 36 1 1
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
1ST QUARTER
2000
- -------------------------------------------------------------------------------------------------------------------
Bridgeport 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Hartford 1 1 1
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2ND QUARTER
2000
- -------------------------------------------------------------------------------------------------------------------
Chattanooga 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Louisville 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Nashville 1 1 1
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 117
Schedule J - Part 5
Existing Switches
<TABLE>
<CAPTION>
Existing Switches
City GX 550 CBX 500 B-STDX9000 Litton
<S> <C> <C> <C> <C>
Albany, NY 1
Atlanta, GA 2 1 1
Buffalo, NY 1
Billingsly, AL 1
East Feliciana, LA 1
Charlotte, NC 1
Chicago, IL 2 1 1
Dallas, TX 3 1 1
Denver, CO 1 1 1 1
Kernersville, NC 1
Greenwood, IN 1
Hudson, OK 1
Houston, TX 1 1 1
Indianapolis 1
Covington, MS 1
Joplin, MO 1
Los Angeles, CA 2 1 1 1
New Orleans, LA 1
New York, NY 2 1 1 1
Oklahoma City, OK 1
Orlando, FL 1 1
Pevely, MO 1
Scottville, VA 1
Rochester, NY 1
San Francisco, CA 1 1 1
Spartanburg, SC 1
Syracuse, NY 1
Tucson, AZ 1
Terry Ranch, WY 1 1
Tulsa, OK 1 1 2 1
Washington, DC 2 1 1 1
Total 37 12 10 7
</TABLE>
80
<PAGE> 118
SCHEDULE K (i) --
Cost Centers and Account Classification
Schedule K(i)
****
<TABLE>
<S> <C>
</TABLE>
Depreciable Lives
Schedule K(ii)(a)
****
<TABLE>
<S> <C>
</TABLE>
Dark Fiber Depreciation Guidelines
****
Schedule K(ii)(b)
Capitalization Policy
****
Schedule K(iii)
Schedule K(iv)
Intentionally left blank.
Schedule K(v)
Intentionally left blank.
Comprehensive Cost Model Example
Schedule K(vi)
****
<TABLE>
<S> <C>
</TABLE>
SCHEDULE L - TRANSITION
1.1 GENERAL. Should any of the circumstances outlined in Section 12.1 of
the Master Alliance Agreement occur, the Parties will consider and negotiate
terms consistent with Section 12.1 of the Master Alliance Agreement and Section
4.2 of this Agreement under which they will initiate the transition of SBCS
from Williams' Network and Williams' from SBCS' Platforms.
1.2 TRANSITION TEAM. The transition will be supervised by a team
consisting of three representatives designated by each party (the "Transition
Team"). The Transition Team will meet within thirty (30) days after the event
triggering Transition. The Transition Team will (a) develop and administer a
transition plan and schedule, (b) identify, document and value the assets to be
transferred, and (c) determine the amount of any SBCS Transition Costs and
Williams Transition Costs in each case in accordance with Section 12 of the
Alliance Agreement. **** The party that owns the asset (the "Transferring
Party") shall cooperate fully with the **** in connection with the
determination of current net book value. ****
1.3 LICENSE OF SPACE. Upon the transition, Williams will continue to
license Space to SBCS to accommodate any existing assets transferred to SBCS
under the terms and conditions of the Schedule C of this Agreement. Williams
will provide reasonably sufficient room for full expansion of the network
elements that are transferred, but will not be obligated to provide room for new
or additional network elements. The license of any new space will be upon
mutually agreeable terms and conditions based substantially on the terms and
conditions of Schedule C. To the extent of Williams' rights, Williams will pass
on any non-disturbance covenants applicable to the Space.
1.4 ****
<TABLE>
<S> <C>
****
</TABLE>
SCHEDULE L - ATTACHMENT A
PRINCIPLES GOVERNING IRU ACQUISITION
****
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 119
SCHEDULE M
WILLIAMS INTRASTATE AUTHORIZATIONS
As of January 31, 1999, Williams has authority to provide intrastate interLATA
switched services in the following states (subject to approval of any required
tariffs);
Alabama
Florida
Georgia
Iowa
Kansas
Maryland
Minnesota
Missouri
Mississippi
Montana
New York
South Carolina
Texas
Virginia
<PAGE> 120
SCHEDULE N
Williams/SBC
Access Agreement (B & D)
****
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 121
Exhibit A
Williams Unbundled Pricing Proposal for
SBC Long Distance
****
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 122
EXHIBIT B
Examples of Direct End Office Trunking (DEOT) Mou Cap
****
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 123
EXHIBIT C
****
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 124
EXHIBIT D
****
[FLOW CHART DEPICTING ACCESS TO WILLIAMS POP]
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 125
EXHIBIT E
****
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 1
Redacted portions have been marked with asterisks (****). Confidential treatment
has been requested for the redacted portions. The confidential redacted portions
have been filed separately with the Securities and Exchange Commission.
CONFIDENTIAL TREATMENT
EXHIBIT 10.20
IRU AGREEMENT
(conformed version incorporating Amendments 1, 2 and 3 through 12/9/98)
THIS IRU AGREEMENT (this "Agreement") is made as of the 12 day of
December, 1996, (the "Effective Date") by and among IXC Carrier, Inc., a Nevada
corporation ("IXC") a wholly-owned subsidiary of IXC Communications, Inc.,
Vyvx, Inc., a Delaware corporation ("Vyvx") and The WilTech Group, a Delaware
corporation ("WilTech"), both Vyvx and WilTech are wholly-owned subsidiaries of
The Williams Companies, Inc.
BACKGROUND
A. IXC is constructing a fiber optic communication system as set forth
in Exhibit A attached hereto (the "IXC System").
B. Vyvx is constructing a fiber optic communication system as set forth
in Exhibit B attached hereto (the "Vyvx System").
C. The IXC System and the Vyvx System are each referred to as a "System."
Each party is referred to as the "Constructing Party" for its System and the
"Nonconstructing Party" for the other party's System.
D. IXC desires to lease to Vyvx an indefeasible right to use (an "IRU")
the Vyvx Leased Fibers (as defined below) in the IXC System, and Vyvx desires
to lease to IXC an IRU in the IXC IRU Fibers (as defined below) in the Vyvx
System, all upon the terms and conditions set forth below.
E. IXC desires to grant Vyvx an option to acquire an IRU in the Vyvx
Leased Fibers in the IXC System, and Vyvx desires to grant IXC an option to
acquire an IRU in the IXC IRU Fibers in the Vyvx System, all upon the terms and
conditions set forth below.
F. Vyvx's use of the Vyvx System and the Vyvx IRU Fibers (as defined
below) shall be in compliance with its contractural obligations to LDDS
Communications, Inc. under the Stock Purchase Agreement dated as of August 22,
1994, as amended.
TERMS OF THE AGREEMENT
Accordingly, in consideration of the mutual promises set forth below, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
1
<PAGE> 2
ARTICLE I. CONSTRUCTION
A. Upon the Both Party Completion Date (as defined below), IXC
warrants and represents that the IXC System, and Vyvx warrants and represents
that the Vyvx System, shall be designed, engineered, installed and constructed
(i) in compliance with any and all applicable building, construction and safety
codes for such construction and installation, as well as any and all other
applicable governmental laws, codes, ordinances, statutes and regulations; and
(ii) to perform in accordance with the specifications set forth in Exhibits C-1,
C-2, C-3, C-4, C-5, and C-6. The specifications set forth in Exhibits C-1
through C-6 shall be equivalent for both the IXC System and the Vyvx System.
B. On the Both Party Completion Date, each Constructing Party
warrants and represents that it has performed a complete detailed engineering
and design including development of system performance criteria for its System.
C. On the Both Party Completion Date, each Constructing Party
warrants and represents that it has performed all necessary surveying and
mapping for its System, including, without limitation:
1. A complete locations survey of the System route,
including staking and marking of the route, in accordance with standard
telecommunication engineering practices.
2. Field alignment maps showing the route of System and
property ownership, terrain description, materials and other System information.
3. Survey and staked the location of sites for
regeneration stations (for purposes of this Agreement, no distinction is made
between regenerator sites, regenerator stations and line amplifier sites) and
other facilities.
4. Railroad, highway and water crossing permit drawings.
5. Evaluation of as-built surveys of installations and
revision of records and drawings accordingly.
D. On the Both Party Completion Date, each Constructing Party
warrants and represents that it has performed all necessary actions regarding
acquisition of land and easements for its System, including, without limitation:
1. Such limited title searches to ascertain the validity
of title in present landowners along the route of the System as such party deems
necessary.
2
<PAGE> 3
2. Acquired easements, IRU's, rights-of-way, conduit or
other leases, fee interests and other rights, which are recorded (as
applicable), in the Office of the Recorder of Deeds of the appropriate county
or in such other offices as may be appropriate, secured permits for highway,
railroad and waterway crossings as well as secured any and all other permits
necessary and requisite to the construction of the System. The Nonconstructing
Party shall have the right, but not the obligation, to inspect all right-of-way
Installations, splicing and testing of the System and the documents relating
thereto. Any inspection by the Nonconstructing Party shall be in compliance
with and subject to all R of W Agreements (as defined below).
E. Notwithstanding the above provisions, Vyvx's warranties and
representations set forth in Paragraphs A through D of this Article shall be
made as of the New Orleans Lateral Completion Date (as defined below) to the
extent such warranties and representations are made with respect to the New
Orleans Lateral (as defined below).
3
<PAGE> 4
ARTICLE II. ACQUISITION OF CABLE
Each party shall be responsible for acquiring the Cable that each
party is required to install under this Agreement in its respective System. IXC
shall use its commercially reasonable efforts to assist Vyvx in obtaining the
Cable necessary to construct the Vyvx System at an attractive price.
ARTICLE III. TEMPORARY LEASE
As portions of IXC's System become available for commercial use,
IXC shall promptly notify Vyvx and shall offer to lease to Vyvx the Vyvx IRU
Fibers in the quantity and along the routes desired to be leased by Vyvx (as
set forth in Exhibit A) for the Temporary Lease Term (as defined below). Upon
receipt of IXC's notice, Vyvx shall have thirty (30) days to respond to IXC's
notice with the quantity, route(s) and dates desired, if any. Vyvx shall pay
IXC **** per fiber per route mile per month during the Temporary Lease Term.
The Temporary Lease payment shall be prorated for partial months.
ARTICLE IV. PERMANENT LEASE
A. Beginning at the Both Party Completion Date, (i) each Party shall
lease the IRU's described below to the other during the Permanent Lease Term (as
defined below); (ii) Vyvx shall pay IXC a usage fee (the "Permanent Lease Fee")
during the Permanent Lease Term in the monthly sum of **** payable at the end of
each month for a lease of the IRU rights in **** fibers on the IXC System (the
"Vyvx Leased Fibers"); (iii) IXC shall pay Vyvx a Permanent Lease Fee during the
Permanent Lease Term in the monthly sum of **** payable at the end of each month
for a lease of the IRU rights in **** fibers on the Vyvx System (the "IXC IRU
Fibers").
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
4
<PAGE> 5
B. Beginning at the Both Party Completion Date, Vyvx grants IXC an option
(the "Additional Fiber Option") to purchase a **** undivided interest in an IRU
in the Additional Fibers (as defined below) in exchange for the grant by IXC of
an IRU in **** fibers on the IXC System (the "Vyvx IRU Grant Fibers"). The Vyvx
IRU Grant Fibers and the Vyvx Leased Fibers shall be referred to herein
collectively as the "Vyvx IRU Fibers." The Additional Fiber Option is further
described in Paragraph E of the Article entitled Option to Acquire IRU's and
Consideration.
C. The terms and conditions of this Agreement shall govern the conduct
of the Parties and the lease of the IRU's during the Permanent Lease Term.
D. Vyvx grants IXC a power to convey an IRU in the IXC IRU Fibers and IXC
grants Vyvx a power to convey an IRU in the Vyvx Leased Fibers. The lease term
conveyed pursuant to either such power shall be no longer than the lesser of (i)
twenty (20) years from the Both Party Completion Date, or (ii) the remainder of
the Term of the IRU Agreement (excluding any unexercised Renewal Term). An IRU
shall not be conveyed pursuant to such power before the expiration of the
eighteen (18) month period beginning on the Both Party Completion Date. Payment
received in exchange for such a conveyance shall be apportioned equally over the
term of the IRU agreement and, upon expiration of the Permanent Lease Term
without any renewal, shall be paid for the remaining term of any such IRU to the
Constructing Party. In the event any such funds allocated to such a remaining
term were paid in advance to the Nonconstructing Party, they shall be paid by
the Nonconstructing Party to the Constructing Party within five (5) days of
expiration without renewal of the Permanent Lease Term. An IRU granted pursuant
to such power shall have commercially reasonable terms and conditions (from the
perspective of the grantor). The Nonconstructing Party shall assign such IRU's
to the Constructing Party effective as of the end of the Permanent Lease Term.
The Nonconstructing Party shall notify the Constructing Party within three days
of execution of a definitive agreement granting such an IRU; such notice shall
set forth the term and the number of fibers subject to the IRU.
ARTICLE V. OPTION TO ACQUIRE IRU'S AND CONSIDERATION
A. IXC hereby grants Vyvx an option to acquire an IRU in the Vyvx Leased
Fibers. Vyvx hereby grants IXC an option to acquire an IRU in the IXC IRU
Fibers. Either such IRU shall be subject to the provisions relating to
maintenance and repair (including the continuing obligation to make the
payments therefor pursuant to the Articles entitled Operation, Maintenance and
Repair of the IXC System and Operation, Maintenance and Repair of the Vyvx
System), and, except as expressly set forth herein, be subject to the other
terms and conditions set forth in this Agreement. Either such IRU shall be
conterminous with the Term of this Agreement (including any applicable Renewal
Term).
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
5
<PAGE> 6
B. Either IRU option set forth above shall be exercisable only: (i) upon
payment of the Parties' current estimate of the fair market value of such IRU's,
which is **** ("Cash Option") or (ii) upon execution of a **** year note ("Note
Option") for such fair market value amount. The **** note shall be at an
interest rate equal to the higher of eight percent (8%) annual interest or the
minimum long-term applicable federal rate of interest (pursuant to Section 1274
of the Internal Revenue Code of 1986) and be payable annually, interest only,
with the entire balance due and payable upon expiration of the twenty-year lease
term. The note shall have no terms or conditions except as set forth in this
paragraph or as are necessary to make the note valid and enforceable.
C. Beginning thirteen (13) months after the Both Party Completion Date
and prior to the end of the twenty-fourth (24th) month of the Permanent Lease
Term, either Party (the "Electing Party") may indicate its intent to exercise
the Cash Option or the Note Option by serving written notice upon the other
Party. Upon receipt of such notice, the other Party shall have twenty (20) days
to determine whether it also wishes to exercise the Cash Option or the Note
Option and provide written notice of same to the Electing Party. Upon receipt of
such notice by the Electing Party, the elected options shall be deemed to have
been exercised upon payment in cash or by the tendering of an executed note as
provided in Paragraph B above and the Permanent Lease Term shall expire with no
further action required on the part of either Party. A Party shall not have the
right to exercise an option with respect to less than all of the relevant fibers
or to exercise the Cash Option with respect to some fibers and the Note Option
with respect to other fibers. A Party need not exercise either the Cash Option
or the Note Option.
D. If the non-Electing Party does not elect to exercise the Cash Option
or the Note Option within the twenty (20) day period described above, then, in
that event, the Electing Party shall have ten (10) days to withdraw its notice
to exercise the elected option by providing written notice of same to the
non-Electing Party. If the Electing Party does not withdraw its notice to
exercise the elected option, then upon the expiration of said ten (10) day
withdrawal period, the option shall be deemed to be exercised upon payment in
cash or by the tendering of an executed note as provided in Paragraph B above.
E. IXC shall have the right to exercise the Additional Fiber Option with
respect to all, but not less than all, of the Additional Fibers that have not
been Sold (as defined below) at any time after the second anniversary of the
Both Party Completion Date, upon six (6) months' notice to Vyvx. Upon exercise
of such option, IXC shall pay Vyvx **** (as defined below) pro-rated so that
IXC's payment is reduced for each fiber mile of Additional Fiber that has been
Sold. For example, if the total **** and eighty percent (80%) of such fiber
miles have been Sold, IXC's Additional Fiber Option exercise price would be
****. IXC's Additional Fiber Option shall terminate when all the Additional
Fibers have been Sold. Vyvx shall have the right to terminate IXC's Additional
Fiber Option in specific Additional Fibers prior to such time in conjunction
with and to the extent necessary to grant IRU's pursuant to Additional Fiber
Transactions (as defined below). As consideration for such termination of IXC's
rights, IXC shall be entitled to receive a portion of the Additional Fiber
Revenue (as defined below) as set forth in the Article entitled Additional
Fiber Revenue.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
6
<PAGE> 7
ARTICLE VI. COMPLETION OF THE SYSTEMS
A. Subject to the provisions herein, each of IXC and Vyvx shall be
responsible for all costs to connect its System with the IXC IRU Fibers and the
Vyvx IRU Fibers, respectively. When connection is made in an existing building,
the connecting point will be at the fiber optic patch panel. Subject to
Exhibit E, each party (the "Connecting Party") may, at its sole option and at
any time during the Term, connect its System or other fiber optic systems.
7
<PAGE> 8
controlled by the party with the IXC IRU Fibers and the Vyvx IRU Fibers, as the
case may be, at the Connecting Party's sole cost, at any other existing splice
point (each a "Connecting Point") along the other party's System; provided,
however, any connection requiring a Cable or a splice to be entered will be
performed by the Constructing Party at the Connecting Party's sole expense. In
order to schedule a connection of this type the Connecting Party shall
coordinate the work at least thirty (30) days in advance of the date the
connection is requested to be completed. The Constructing Party will use its
commercially reasonable efforts to accommodate the request. Such work will be
restricted to Planned System Work Period (as defined in Exhibit E to this
Agreement) weekends unless otherwise agreed to in writing for specific
projects. The Connecting Party shall also be provided reasonable access by the
Constructing Party to any Connecting Point during the Term of this Agreement.
No connection will be allowed that the Constructing Party, in its reasonable
discretion, determines is likely to materially and adversely affect its System
or which is not permitted by the R of W Agreements with the underlying
right-of-way or property owner. Neither IXC nor Vyvx shall have any limitations
on the types of electronics or technologies employed to utilize the IXC IRU
Fibers or Vyvx IRU Fibers, respectively, subject to mutually agreeable safety
procedures and so long as such electronics or technologies do not interfere
with the use of the remaining fibers or present a risk of damage to the fibers
in the Vyvx System or the IXC System, respectively.
B. The scheduled completion date for completion of all
construction, installation and Fiber Acceptance Testing of each System shall
be December 31, 1997. Each party shall use its commercially reasonable best
efforts to complete all construction and testing obligations by such date.
However, both parties recognize that Vyvx has started the construction of its
System later than IXC and that a December 31, 1997 scheduled completion date
may not be achievable. In the event either party fails to complete its System
by July 1, 1998, (the "LD Delivery Date") then that party shall be designated
as a Late Party and the parties shall designate representatives to meet and
review the status of the Late Party's System. The Late Party shall provide
within 14 days of the LD Delivery Date, a plan and schedule to complete
construction, installation and testing on or prior to January 1, 1999.
C. In the event one party completes its System (the "Completing
Party") prior to the other party, the Late Party shall pay, whether or not it
uses any fiber in the Completing Party's System, to the Completing Party late
fee payments (each, a "Late Fee Payment") in the Completing Party's System. The
Late Fee Payments shall be payable from the date (the "Payment Start Date")
thirty (30) days after the Completing Party's Completion Date (i.e., the date
the Late Party accepts its fibers in the Completing Party's System as set forth
below) until the Late Party's Completion Date (i.e., the date the Completing
Party accepts its fibers in the Late Party's System, as set forth below);
provided however, that if the Completing Party's Completion Date is on or before
July 1, 1998, the Payment Start Date shall be July 1, 1998. The Late Fee Payment
shall be as set forth in Exhibit C-7 less, in the case of Vyvx, the monthly
amount of any Temporary Lease payments made pursuant to Article III. During the
period between the Payment Start Date and the Late Party's Completion Date, the
Completing Party shall have the option, at its sole discretion, to lease its IRU
rights on a temporary basis in any completed portions of the Late Party's
System. The Completing Party's temporary right to use the Late Party's fibers
shall be in effect until the Both Party Completion Date and shall be subject to
the terms of this Agreement. The Late Party shall use its best reasonable
efforts to make such portions of its System available to the Completing Party.
In exchange for the Completing Party's right to use the Late Party's System, the
Late Party's Late Fee Payment shall be reduced by a fraction whose numerator is
the number of route miles in the portion of the Late Party's System to be used
by the Completing Party under such temporary right to use and whose denominator
is the total number of route miles to be in the Late Party's System, or if Vyvx
is the Late Party, the total number of route miles to be in the uncompleted
segment(s) of the Vyvx System.
8
<PAGE> 9
D. In the event the Late Party does not have its Completion Date on or
before December 31, 1998 the Completing Party shall have the option, at its sole
discretion, to take over the design, engineering, installation and construction
(including all the activities referred to in the Article entitled Construction)
of the Late Party's System. If the Completing Party exercises this option, it
will be operating as an independent contractor for the Late Party, be subject to
any applicable R of W Agreements and be required to conduct its work in
accordance with applicable industry standards and the terms of this Agreement.
The Late Party will cooperate fully with the Completing Party to finish the Late
Party's System and shall directly pay when due for all reasonable, direct costs,
expenses and expenditures (including, without limitation, capital expenditures
and internal personnel and other internal and out-of-pocket costs of the
Completing Party) associated with, or incurred in connection with, the
completion of the Late Party's System. The Completing Party shall exercise
commercially reasonable efforts to reduce the costs associated with taking over
the design, engineering installation and construction.
E. Provided that the Late Party has completed its System by October 31,
1999, the Completing Party's sole and exclusive remedies against the Late Party
for failure to meet the LD Delivery Date shall be as set forth in paragraphs C
and D of this Article. The dollar amount in paragraph C is agreed upon as
liquidated damages and not as a penalty. The parties hereto have computed,
estimated and agreed upon the amount as an attempt to make a reasonable forecast
of actual loss because of the difficulty in measuring actual damages.
9
<PAGE> 10
F. For purposes of Paragraphs B, C, D, and E of this Article,
"System" or "Vyvx System" shall not include the New Orleans Lateral, and
the Vyvx System will be deemed completed upon completion of the portions
other than the New Orleans Lateral. The scheduled completion date for
completion of all construction, installation and Fiber Acceptance Testing
of the New Orleans Lateral, shall be July 1, 1998. Vyvx shall use
commercially reasonable best efforts to complete all construction and
testing obligations by such date.
G. In the event Vyvx completes the New Orleans Lateral after
December 31, 1998 and more than twenty-nine (29) days after IXC completes
its System, Vyvx shall pay to IXC late fee payments (each, an "NOL Late Fee
Payment"). The NOL Late Fee payment shall be payable from (1) the later of
January 1, 1999 or thirty (30) days after the IXC Completion Date until (2)
the New Orleans Lateral Completion Date (as defined below). The NOL Late
Fee Payment shall be **** per month (prorated, as applicable, for partial
months) and shall be made monthly on the first day of the month following
each month for which it applies. During the period between the later of
January 1, 1999 or thirty (30) days after the IXC Completion Date and the
New Orleans Lateral Completion Date, IXC shall have the option, at its sole
discretion, to lease its IRU rights on a temporary basis in any completed
portions of the New Orleans Lateral. IXC's temporary right to use the New
Orleans Lateral fibers shall be in effect until the New Orleans Lateral
Completion Date and shall be subject to the terms of this Agreement. Vyvx
shall use its best reasonable efforts to make such portions of the New
Orleans Lateral available to IXC. In exchange for IXC's right to use the
New Orleans Lateral, Vyvx's NOL Late Fee Payment shall be reduced by a
fraction whose numerator is the number of route miles in the New Orleans
Lateral used and whose denominator is the total number of route miles to be
in the New Orleans Lateral. If the New Orleans Lateral Completion Date
occurs after April 30, 2000, then after such date IXC shall have the right
to lease its IRU rights in any completed portions of the New Orleans
Lateral at no charge during the Term of this Agreement until the New
Orleans Lateral Completion Date.
H. In the event Vyvx does not complete the New Orleans Lateral, on
or before April 30, 2000, IXC shall have the option, at its sole
discretion, to take over the design, engineering,
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
10
<PAGE> 11
installation and construction (including all the activities referred to in
the Article entitled Construction) of the New Orleans Lateral. If IXC
exercises this option, it will be operating as an independent contractor
for Vyvx, be subject to any applicable R of W Agreements and be required
to conduct its work in accordance with applicable industry standards and
the terms of this Agreement. Vyvx will cooperate fully with IXC to finish
the New Orleans Lateral and shall directly pay when due for all
reasonable, direct costs, expenses and expenditures (including, without
limitation, capital expenditures and internal personnel and other internal
and out-of-pocket costs of IXC) associated with, or incurred in connection
with, the completion of the New Orleans Lateral. IXC shall exercise
commercially reasonable efforts to reduce the costs associated with taking
over the design, engineering, installation and construction.
I. Provided that Vyvx has completed the New Orleans Lateral by
April 30, 2000, IXC's sole and exclusive remedy against Vyvx for failure
to meet the July 1, 1998 scheduled completion date for the New Orleans
Lateral shall be as set forth in paragraphs F and G of this Article. The
NOL Late Fee Payment in paragraph G is agreed upon as liquidated damages
and not as a penalty. The parties have computed, estimated and agreed upon
the amount as an attempt to make a reasonable forecast of actual loss
because of the difficulty in measuring actual damages.
ARTICLE VII. ACCEPTANCE AND TESTING OF VYVX IRU FIBERS
A. IXC shall test the Vyvx IRU Fibers in accordance with the
procedures specified in Exhibit C-3 (Fiber Cable Splicing, Testing and
Acceptance Standards)("Fiber Acceptance Testing") to verify that the Vyvx IRU
Fibers are operating in accordance with the specifications in Exhibit C-3. Fiber
Acceptance Testing shall progress span by span along the System as cable
splicing progresses, so that test results may be reviewed in a timely manner.
Vyvx shall have the right, but not the obligation, to have a person or persons
present to observe IXC's Fiber Acceptance Testing and IXC agrees to provide Vyvx
prior notice of its testing
11
<PAGE> 12
schedule. Within fourteen (14) days of the conclusion of IXC's Fiber Acceptance
Testing of the Vyvx IRU Fibers, IXC shall provide Vyvx with a copy of the test
results.
B. Upon the receipt by Vyvx from IXC of the initial test results referred
to above or of the results of re-testing as set forth below, Vyvx shall have the
right, but not the obligation, at its sole expense, to conduct its own Fiber
Acceptance Testing of the Vyvx IRU Fibers to verify that they are operating in
accordance with specifications in Exhibit C-3. Subject to paragraph D of this
Article, Vyvx shall commence its Fiber Acceptance Testing of the Vyvx IRU Fibers
within fourteen (14) days of receiving such results and complete such testing
within fourteen (14) days thereafter. Vyvx shall provide IXC with seven (7) days
notice prior to beginning Vyvx Fiber Acceptance Testing. IXC shall have the
right, but not the obligation, to have a person or persons present to observe
Vyvx Fiber Acceptance Testing. Within seven (7) days of the conclusion of Vyvx
Fiber Acceptance Testing of the Vyvx IRU Fibers, Vyvx shall provide IXC with a
copy of the test results.
C. In the event the results of the tests of the Vyvx IRU Fibers show the
Vyvx IRU Fibers not to be operating within the parameters of the applicable
specifications, Vyvx shall notify IXC in writing that some or all portions of
the Vyvx IRU Fibers are unacceptable. Thereupon, IXC shall expeditiously take
such action as shall be reasonably necessary with respect to such portion of
the Vyvx IRU Fibers as do not operate within the parameters of the applicable
specifications to bring the operating standards of such portion of the Vyvx IRU
Fibers within such parameters. After taking such actions and re-testing of the
Vyvx IRU Fibers, IXC shall provide Vyvx with a copy of the new test results and
Vyvx shall again have the right to conduct its own Fiber Acceptance Testing as
set forth above. The cycle described above of testing, taking corrective action
and re-testing shall take place as many times as necessary to ensure that the
Vyvx IRU Fibers do operate within the parameters of the applicable
specifications.
D. Vyvx shall be deemed to have accepted the Vyvx IRU Fibers unless it
notifies IXC within seven (7) days of receipt of IXC's Fiber Acceptance Testing
results that such results are unacceptable. If the test results of Vyvx Fiber
Acceptance Testing are within the parameters of the specifications in Exhibit
C, Vyvx shall, within seven (7) days of receipt of the test results, provide
IXC with a written notice accepting the Vyvx IRU Fibers. The date of this
notice or the date of deemed acceptance of the Vyvx IRU Fibers (for all spans
in the System), as the case may be, shall be the "Vyvx IRU Acceptance Date" or
the "IXC Completion Date."
ARTICLE VIII. ACCEPTANCE AND TESTING OF IXC IRU FIBERS
A. Vyvx shall test the IXC IRU Fibers in accordance with the Fiber
Acceptance Testing to verify that they are operating in accordance with the
specifications in Exhibit C-3. Fiber Acceptance Testing shall progress span by
span along the system as cable
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<PAGE> 13
splicing progresses, so that test results may be reviewed in a timely manner.
IXC shall have the right, but not the obligation, to have a person or persons
present to observe Vyvx Fiber Acceptance Testing and Vyvx agrees to provide IXC
prior notice of its testing schedule. Within fourteen (14) days of the
conclusion of Vyvx Fiber Acceptance Testing of the IXC IRU Fibers, Vyvx shall
provide IXC with a copy of the test results.
B. Upon the receipt by IXC from Vyvx of the initial test results
referred to above or of the results of re-testing as set forth below, IXC shall
have the right, but not the obligation, at its sole expense, to conduct its own
Fiber Acceptance Testing of the IXC IRU Fibers to verify that they are operating
in accordance with the specifications in Exhibit C-3. Subject to paragraph D of
this Article, IXC shall commence its Fiber Acceptance Testing of the IXC IRU
Fibers within fourteen (14) days of receiving such results and complete such
testing within fourteen (14) days thereafter. IXC shall provide Vyvx with seven
(7) days notice prior to beginning IXC's Fiber Acceptance Testing. Vyvx shall
have the right, but not the obligation, to have a person or persons present to
observe IXC's Fiber Acceptance Testing. Within seven (7) days of the conclusion
of IXC's Fiber Acceptance Testing of the IXC IRU Fibers, IXC shall provide Vyvx
with a copy of the test results.
C. In the event the results of the tests of the IXC IRU Fibers show
the IXC IRU Fibers not to be operating within the parameters of the applicable
specifications, IXC shall notify Vyvx in writing that the results with respect
to some or all portions of the IXC IRU Fibers are acceptable. Thereupon, Vyvx
shall expeditiously take such action as shall be reasonably necessary with
respect to such portion of the IXC IRU Fibers as do not operate within the
parameters of the specifications to bring type operating standards of such
portion of the IXC IRU Fibers within such parameters. After taking such actions
and re-testing of the IXC IRU Fibers, Vyvx shall provide IXC with a copy of the
new test results and IXC shall again have the right to conduct its own Fiber
Acceptance Testing as set forth above. The cycle described above of testing,
taking corrective action and re-testing shall take place as many times as
necessary to ensure that the IXC IRU Fibers do operate within the parameters of
the applicable specifications.
D. IXC shall be deemed to have accepted the IXC IRU Fibers unless it
notifies Vyvx within seven (7) days of receipt of Vyvx Fiber Acceptance Testing
results that such results are unacceptable. If the test results of IXC IRU Fiber
Acceptance Testing are with the parameters of the specifications in Exhibit C,
IXC shall, within seven (7) days of receipt of the test results, provide Vyvx
with a written notice accepting the IXC IRU Fibers.
The day of this notice or the date of deemed acceptance of the
IXC IRU Fibers (for all spans in the System excluding the New
Orleans Lateral), as the case may be, shall be the "IXC IRU
Acceptance Date" or the "Vyvx Completion Date." The date of
this notice or the date of deemed acceptance of the IXC IRU
Fibers for the New Orleans Lateral, as the case may be, shall
be the "New Orleans Lateral Completion Date."
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<PAGE> 14
ARTICLE IX. SYSTEM DOCUMENTATION
After the Both Party Completion Date (or, with respect to the
New Orleans Lateral after the New Orleans Lateral Completion Date) and upon
thirty (30) days prior notice from the other party, each party shall provide the
other party with documentation ("Deliverables") which shall consist of the
following:
1. As-built drawings as set forth in Exhibit D as available
for the IXC System or the Vyvx System, as the case may be.
2. Technical specifications of the optical fiber cable and
associated splices, regenerators and other equipment placed in the IXC
System or the Vyvx System, as the case may be.
ARTICLE X. SERVICE INTERRUPTIONS
In order to encourage timely restoral of service, the
Constructing Party shall owe the Non-Constructing Party a payment (an "Outage
Damage Payment") for every fiber hour (prorated for a portion of a fiber hour)
whenever the Constructing Party's System experiences a Service Interruption (as
defined below) on lighted fiber affecting IXC's use of the IXC IRU Fibers or
Vyvx's use of the Vyvx IRU Fibers, as the case may be, unless such Service
Interruption is due to: the negligence or willful misconduct of the
Non-Constructing Party, the failure of the Non-Constructing Party's electronic
equipment which it is required to maintain under Exhibit E, Section 1g or a
Natural Disaster (as defined below) but, with respect to a Natural Disaster,
only as long as the Constructing Party uses its commercially reasonable best
efforts to rectify the Service Interruption. The Outage Damage Payment for any
one Service Interruption incident (i.e., a specific accident or disaster) shall
be ****. Each party shall record Service Interruptions experienced on its System
and the other party's System. On each anniversary date of the Effective Date,
the parties shall reconcile their Service Interruption records and determine (i)
which Constructing Party had the greatest aggregate Outage Damage Payments on
its System (the "Outage Payor") and (ii) how much more Outage Damage Payments
that Constructing Party owes than the other party (the amount of the excess owed
is referred to as the "Outage Damage Payment Excess"). Such Outage Payor shall
pay the other party the amount of the Outage Damage Payment Excess within
forty-five (45) days of each anniversary of the Effective Date. As the Outage
Damage Payment Excess reflects the net difference in Outage Damage Payments,
such other party will not be required to pay its Outage Damage Payment to the
Outage Payor. An example of this calculation is set forth in Exhibit C-8. The
payment for the Outage Damage Payment is the Non-Constructing Party's sole and
exclusive remedy for Service Interruptions and is agreed upon as liquidated
damages and not as a penalty. The parties hereto have computed, estimated and
agreed upon the amount as an attempt to make a reasonable forecast of actual
loss because of the difficulty on measuring actual damages. "Natural Disaster"
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 15
shall mean any natural disaster which causes a Service Interruption, including
but not limited to, floods, earthquakes, volcanic eruptions, avalanches, rock
slides, mud slides, tornados and forest fires. Natural Disaster shall not
include disasters or other conditions primarily involving man-made equipment,
structures or transportation, as for example, train wrecks, bomb damage,
building fires or bridge collapse (except if caused by an event constituting a
Natural Disaster).
ARTICLE XI. ADDITIONAL FIBER REVENUE
A. Vyvx shall pay all costs associated with the installation of all fibers
in the fiber bundle on the Vyvx System. All fibers in the initial fiber bundle
in excess of **** fibers shall be referred to as the "Additional Fibers." The
Additional Fibers shall be at least **** fibers and may be increased upon the
mutual consent of the Parties. Vyvx shall exercise commercially reasonable
efforts to market IRU's in the Additional Fibers to third parties, but in
performing such obligation Vyvx shall act on its own behalf and not as agent of
IXC and shall have no authority to sell any IRU's on behalf of IXC. (The revenue
generated from Vyvx's marketing of IRU's in the Additional Fibers shall
hereinafter be referred to as the "Additional Fiber Revenue.") It is the
intention of each Party that each such transaction ("Additional Fiber
Transaction") shall be characterized **** so that the consideration for such
transaction **** shall be paid ****. Neither Party's approval to an Additional
Fiber Transaction shall be unreasonably withheld. As an example, and without
limitation as to other reasonable objections to a proposed Additional Fiber
Transaction, neither party shall be required to approve any Additional fiber
Transaction that would (i) cause a lien or any other encumbrance on the Vyvx
System or on the property of IXC or Vyvx, or their parents or affiliates or (ii)
in any way impair the operations of Vyvx, its parent, its affiliates or the Vyvx
System.
B. During the Term of this Agreement and the period before IRU's on all the
Additional Fibers are Sold, neither Party shall sell, grant IRU's in, lease,
trade or in any way make available for a third party's use, any dark fibers
contained in the Vyvx System (other than Additional Fiber Transactions in the
Additional Fibers, as set forth herein) or any other fibers along any portion of
the route of the Vyvx System that such Party owns or has an IRU interest. The
foregoing, however, shall not limit the rights of either Party to sell, lease or
trade transmission capacity (as opposed to dark fiber transactions) on its
fibers in the IXC or Vyvx Systems. Notwithstanding anything herein to the
contrary, in the event Vyvx or any affiliate of Vyvx installs, owns or has
rights in additional fiber optic cable not in the initial fiber bundle along any
portion of the route of the Vyvx System ("Additional Vyvx Cable"), such
Additional Vyvx Cable shall not be used in any way by Vyvx, any affiliate of
Vyvx or any person prior to the Sale of IRU's in all the Additional Fibers.
C. Vyvx shall terminate IXC's Additional Fiber Option with respect to any
Additional Fibers prior to or contemporaneously with the grant of an IRU
pursuant to an
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
15
<PAGE> 16
Additional Fiber Transaction. Vyvx shall compensate IXC for termination of such
option by paying amounts as set forth in this Paragraph. After reimbursing Vyvx
for its Related Transaction Expenses (as defined below), Vyvx shall retain or
shall pay to IXC amounts equal to the **** in the following amounts and in the
following order of priority:
1. Vyvx shall pay IXC an amount equal to all **** up to ****.
2. After paying IXC **** of the **** Vyvx shall be entitled to retain
all **** up to the amount equal to the sum of **** plus the amount (the "****")
equal to the sum of (a) **** and (b) one half of the ****. The **** shall
include only ****. Such **** shall be the ****. The **** shall not include any
****.
3. After Vyvx receives the **** in the amount of **** plus the ****,
Vyvx shall pay IXC an amount equal to all **** up to ****.
4. After paying IXC **** Vyvx shall be entitled to retain all **** up to
****.
5. After the above Sales and distributions, Vyvx shall pay to IXC an
amount equal to ****.
By way of example, if the **** equal **** and the **** equal ****, Vyvx would
retain **** pursuant to Step 2, **** pursuant to Step 4, and **** pursuant to
Step 5) and Vyvx would pay IXC **** pursuant to Step 1, **** pursuant to Step 3,
and **** pursuant to Step 5).
D. Five (5) years after the Effective Date, the Parties will agree upon
the market value of the IRU's in any remaining Additional Fibers in which no IRU
has been Sold (the "Remaining Fibers"). Any dispute as to fair market value
shall be determined by arbitration as set forth below. The Parties shall then
distribute the Remaining Fibers, with IXC having an undivided IRU interest
(governed by the relevant provisions of this Agreement) in the Remaining Fibers
assigned to it and Williams having undivided full use of the other Remaining
Fibers unencumbered by the Additional Fiber Option. The
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
16
<PAGE> 17
Remaining Fibers will then be distributed in accordance with the following steps
and in the following order of priority:
Step 1. IXC shall be entitled to sole ownership in IRU's in the
Remaining Fibers such that the market value of the IRU's received is equal to
the difference between **** and the amount actually received by IXC under
paragraph C 1 above.
Step 2. To the extent any Remaining Fibers remain after Step 1, then
Vyvx shall be entitled to unencumbered ownership of the Remaining Fibers such
that the market value of IRU's in the Remaining Fibers received is equal to the
difference between the sum of **** plus the Incremental Costs and the amount
actually received by Vyvx under paragraph C 2 above.
Step 3. To the extent any Remaining Fibers remain after Step 2, then
IXC shall be entitled to sole ownership in IRU's in the Remaining Fibers such
that the market value of the IRU's received is equal to the difference between
**** and the amount actually received by IXC under paragraph C 3 above.
Step 4. To the extent any Remaining Fibers remain after Step 3, then
Vyvx shall be entitled to unencumbered ownership in the Remaining Fibers such
that the market value of IRU's in the Remaining Fibers received is equal to the
difference between **** and the amount actually received by Vyvx under
paragraph C 4 above.
Step 5. To the extent any Remaining Fibers remain after Step 4, then
IXC shall be entitled to sole ownership in IRU's in **** the Remaining Fibers
and Vyvx will have unencumbered ownership in **** of any Remaining Fibers.
Step 6. After completion of the foregoing five steps, all such
Remaining Fibers shall be deemed to be Sold and IXC shall no longer have the
Additional Fiber Option with respect to the Remaining Fibers.
E. During the period when Additional Fibers remaining are available for
IRU Sale either IXC or Vyvx may, in its sole discretion, choose to acquire sole
ownership (collectively "Purchase") in the IRU in any number of such Additional
Fibers at **** subject to comparable terms as third parties have obtained in
similar Sales of IRU's in the Additional Fibers. IXC and Vyvx shall mutually
agree upon the terms and conditions of such Sales. The non-purchasing Party may
not unreasonably withhold its approval to any such Sale. Any dispute as to ****
or other terms and conditions of such Sale shall be determined by arbitration
as set forth below. Any **** generated from the Sale of an IRU in the Additional
Fibers to IXC or Vyvx ****. The IRU in the Additional Fibers Purchased by
either IXC or Vyvx under this paragraph E shall be subject to the restriction
set forth in paragraph B of this Article as to any further transfer, sale or
exchange. Notwithstanding the foregoing, if either IXC or Vyvx presents to the
other Party an IRU exchange or a long-term leased capacity exchange with a
third party which such other Party does not
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 18
elect to participate, then IXC or Vyvx, as the case may be, may Purchase
Additional Fibers **** and exchange those Purchased IRU's with such third party
transaction substantially similar to that presented to the other Party.
F. If a party (the "Selling Party") submits a written request
for approval of an Additional Fiber Transaction to the other party,
preceded by or accompanied by the proposed IRU Agreement and all Exhibits
documenting such Additional Fiber Transaction, the Reviewing Party shall
respond, within fifteen (15) business days of receiving such request,
either approving such terms or providing specific changes to such terms.
After receipt of and subject to a letter of consent from the Reviewing
Party, the Selling Party may enter into an Additional Fiber Transaction
that complies with the provisions of this Agreement relating to Additional
Fiber Transactions, such consent not to be unreasonably delayed or
withheld.
G. Within five (5) business days of receipt of any **** and
within thirty (30) business days of receipt of any **** the Selling Party
shall (i) pay any amounts to be paid to the Reviewing Party pursuant to
Paragraph C accompanied by evidence of the date of receipt of any amounts
by the Selling Party and (ii) deliver to the Reviewing Party a written
statement setting forth its computation of the amounts to be retained or
paid pursuant to Paragraph C. The Reviewing Party shall promptly notify the
Selling Party in writing: (x) of any reasons known to it that would make
such computation inaccurate or (y) that the computation is accurate. The
provisions of this Paragraph shall not prejudice the rights of either party
in the event the computation, or the review of the computation, are in
error.
H. Payments made in accordance with Paragraph G herein, shall
accrue interest according to Paragraph XXXVII. Late Payments the same as
any other payments, and this provision is equally applicable to **** paid
to date and not paid in accordance with this Agreement, unless otherwise
agreed in writing by the parties.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 19
ARTICLE XII. TERM AND RENEWAL
A. The Initial Term of this Agreement shall begin on the Effective
Date and shall end on the earlier of: (i) the IXC ROW Termination Date or (ii)
twenty years from the Both Party Completion Date. The "IXC ROW Termination
Date" shall be the later of: (i) January 1, 2016 or (ii) the latest date
through which IXC is able (using its commercially reasonable efforts) to extend
the rights-of-way, IRU's or other underlying rights to continue to maintain the
IXC System in place.
B. Each party will exercise commercially reasonable efforts to renew
or replace existing right-of-way, IRU's or other underlying rights to continue
to maintain such party's System in place beyond the Initial Term. If the
Constructing Party determines it is not commercially practicable to renew or
replace its existing rights-of-way, IRU's or other underlying rights, then the
Constructing Party shall cooperate with the other party and allow such other
party to attempt to renew or replace such right-of-way, IRU's or other
underlying rights, but at such other party's sole expense. If both parties are
able to renew or replace all material existing rights-of-way, IRUs or other
underlying rights to continue to maintain each party's System in place for the
applicable term, this Agreement, including the leasehold interests or the IRUs
granted under this Agreement, may be renewed for two renewal terms of ten (10)
years each or, if shorter, the term remaining under any material R of W
Agreement, IRU or other underlying right (a "Renewal Term"). Either party may
renew this Agreement at the end of the Initial Term or any Renewal Term by
giving written notice to the other party during the period between March 31 and
July 1 of the calendar year preceding the calendar year of the expiration of the
Initial Term or the then effective Renewal Term. All terms and conditions of
this Agreement shall be applicable to any Renewal Terms. The Initial Term and
any Renewal Term exercised under this Agreement shall be collectively referred
to as the "Term."
C. The temporary Lease Term shall begin on the date Vyvx elects
to lease under Article III and shall terminate upon the Both Party Completion
Date.
D. The Permanent Lease Term shall commence on the Both Party
Completion Date and terminate for any lease upon the earlier of (i) the
effective date of the exercise by the lessee of the Cash Option or the Notes
Option with respect to the IXC IRU Fibers or the Vyvx Leased Fibers, or (ii) the
tenth (10th) anniversary of the Both Party Completion Date. Either or both of
the Parties may renew the Permanent Lease Term for an additional ten (10) year
term, under the same terms and conditions as provided herein and under the same
payment terms, at fair market value to be determined at that time.
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<PAGE> 20
ARTICLE XIII. OPERATION, MAINTENANCE AND REPAIR OF THE IXC SYSTEM
A. During the Term hereof, IXC shall be responsible, at its sole
expense (including training), for the emergency and non-emergency maintenance
and repair of the IXC System, the Vyvx IRU Fibers and any common equipment of
IXC and Vyvx on the IXC System, all pursuant to the operations and
specifications set forth on Exhibit E so as to assure continuing conformity of
the IXC System and the Vyvx IRU Fibers with their respective specifications,
including replacement of individual fibers and any maintenance as is reasonably
necessary for the normal operation of the IXC System and the Vyvx IRU Fibers.
IXC, at Vyvx's sole expense and at IXC's then prevailing rates, shall perform
maintenance and repair necessitated by Vyvx's negligence or willful misconduct
or Vyvx's elective maintenance or repair requests. IXC shall not be responsible
for maintenance or repair of any Vyvx equipment except as set forth above.
B. IXC may subcontract for maintenance and restoration services
hereunder. Notwithstanding any other provisions of this Agreement, IXC shall
require the subcontractor(s) to meet maintenance and repair standards for the
IXC System which shall be at least as high as those standards utilized by IXC
for the maintenance and repair of other portions of its communications systems.
IXC shall be responsible for splicing of the cables in the IXC System so as to
assure continuing conformity with their respective specifications, including,
without limitation, conducting continual monitoring of the cable system
containing the Vyvx IRU Fibers in the IXC System, location of faults, splicing
and splice testing associated with any restoration, and procurement of
replacement cable used in restoration. IXC shall, at no charge to Vyvx, perform
or cause its subcontractor(s) to perform routine inspections of the IXC System
and routine right-of-way maintenance in accordance with its standard
maintenance procedures, including, without limitation, any flights that may be
made over the routes where the IXC System is located. The use of any such
subcontractor shall not relieve IXC of any of its obligations hereunder. In the
event IXC determines to Subcontract over half of its maintenance and/or
restoration work on its System, it shall give Vyvx the opportunity to perform
such work if Vyvx agrees to match the best rates and terms offered for such
work by a third party.
C. Vyvx will perform all maintenance on Vyvx equipment on the IXC
System, however, in the event IXC agrees to perform repair or maintenance with
respect to such Vyvx equipment, Vyvx shall pay for all repair and maintenance
of such equipment performed by IXC at IXC's rates then in effect. IXC shall, on
or before January 1 of each year during the Term, provide Vyvx notice of IXC's
rates for repair and maintenance for such calendar year. Vyvx reserves the
right to perform maintenance on any of its own equipment wherever located.
D. IXC shall use its best reasonable efforts to respond to any
interruption of service or a failure of the Vyvx IRU Fibers to perform in
accordance with the specifications in Exhibits C-1, C-3, C-4, C-5 and Exhibit E
(in any event, an "Outage") as quickly as possible in accordance with the
procedures set forth in Exhibit E. In the event the Outage is not cured within 4
hours, maintenance and repair services may be performed by Vyvx, subject to the
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<PAGE> 21
provisions of applicable R of W Agreements. In such event, Vyvx may access any
part of the IXC System to perform such service. In the event Vyvx requires IXC
personnel to unlock any IXC facility, IXC shall cooperate fully with Vyvx to
allow Vyvx access. In those parts of the IXC System that Vyvx does not require
IXC personnel to enter IXC facilities, Vyvx shall provide IXC with oral
notification of those parts of the IXC System that were entered as soon as
possible. Vyvx shall only use the preceding rights to enter the IXC System to
the extent necessary for the emergency situation. IXC shall reimburse Vyvx its
direct costs and out-of-pocket expenses of providing such maintenance services.
Vyvx shall provide supporting documentation for such costs.
E. IXC shall use such care in performing repair and maintenance pursuant
to this Agreement which equals or exceeds that which is normal and customary in
the telecommunications industry.
F. In the event of damage to the IXC System which results from a specific
accident or disaster, or deterioration of the fibers in IXC System requiring
the replacement of fibers ("IXC Damage or Deterioration"), Vyvx shall pay a
proportional amount (according to the number of Vyvx fibers (i.e., fibers in
which Vyvx owns or leases an IRU at the time of the incident) relative to the
total fibers in the IXC System) of any additional costs incurred in repairing
such IXC Damage or Deterioration, unless such IXC Damage or Deterioration is due
to the negligence or wilful misconduct of IXC. IXC agrees that no request for
reimbursement from Vyvx shall be made unless Vyvx's proportional amount of the
repair or replacement cost for such project exceeds ****.
G. Vyvx shall pay IXC's invoice for Vyvx's proportional amount of the cost
to repair the IXC Damage or Deterioration within thirty (30) days after receipt
of the invoice. Upon request by Vyvx, IXC will promptly provide the necessary
substantiating information which will allow Vyvx to verify the accuracy of the
invoice.
H. Vyvx shall pay IXC (1) **** per month, payable at the end of each month
and (2) ****, for performance of the maintenance and repair services (excluding
the cost of repairing IXC Damage or Deterioration) set forth in this Article.
"Maintenance Charges" means any and all recurring fees, charges or monies of any
kind collected from third parties owning IRU's in the Additional Fibers in
consideration of Vyvx R of W Agreements or of Vyvx's maintenance to the
Additional Fibers. Maintenance Charges do not include any fees, charges or
monies of any kind collected from third parties owning or leasing IRU's in the
Additional Fibers which arise from specific occurrences (as opposed to being
recurring such as maintenance charges) such as those in consideration of
repairing damage resulting from a specific accident or disaster to, or
deterioration of the Vyvx System requiring replacement of fibers. The Parties
estimate that the amounts IXC will receive pursuant to Subparagraph H(2) will be
approximately equal to the difference between **** and the value of IXC's
maintenance and repair services, which are valued at **** per route mile
multiplied by four thousand, one hundred ninety eight (4,198), the number of
route miles on the IXC System.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
21
<PAGE> 22
ARTICLE XIV. OPERATION, MAINTENANCE AND REPAIR OF THE VYVX SYSTEM
A. During the term hereof, Vyvx shall be responsible, at its sole
expense (including training), for the maintenance and repair of the Vyvx
System, the IXC IRU Fibers and any common equipment of IXC and Vyvx on the
Vyvx System, all pursuant to the operations specifications set forth on Exhibit
E so as to assure continuing conformity of the Vyvx System and the IXC IRU
Fibers with their respective specifications, including replacement of
individual fibers and any maintenance as Vyvx is reasonably necessary for the
normal operation of the Vyvx System and the IXC IRU Fibers. Vyvx, at IXC's sole
expense and at Vyvx's then prevailing rates, shall perform maintenance and
repair necessitated by IXC's negligence or
22
<PAGE> 23
willful misconduct or IXC's elective maintenance or repair requests. Vyvx shall
not be responsible for any maintenance or repair of any IXC equipment except as
set forth above.
B. Vyvx may subcontract for maintenance and restoration services
hereunder. Notwithstanding any other provisions of this Agreement, Vyvx shall
require the subcontractor(s) to meet maintenance and repair standards for the
Vyvx System which shall be at least as high as those standards utilized by Vyvx
for the maintenance and repair of other portions of its communications systems.
Vyvx shall be responsible for splicing of the cables in the Vyvx System so as
to assure continuing conformity with their respective specifications,
including, without limitation, conducting continual monitoring of the cable
system containing the IXC IRU Fibers in the Vyvx System, location of faults,
splicing and splice testing associated with any restoration, and procurement of
replacement cable used in restoration. Vyvx shall, at no charge to IXC, perform
or cause its subcontractor(s) to perform routine inspections of the Vyvx System
and routine right-of-way maintenance in accordance with its standard
maintenance procedures, including, without limitation, any flights that may be
made over the routes where the Vyvx System is located. The use of any such
subcontractor shall not relieve Vyvx of its obligations hereunder. In the event
Vyvx determines to subcontract over half of its maintenance and/or restoration
work on its System, it shall give IXC the opportunity to perform such work if
IXC agrees to match the best rates and terms offered for such work by a third
party.
C. IXC will perform all maintenance on IXC equipment on the Vyvx System,
however, in the event Vyvx agrees to perform repair or maintenance with respect
to such IXC equipment, IXC shall pay for all repair and maintenance of such
equipment performed by Vyvx at Vyvx rates then in effect. Vyvx shall, on or
before January 1 of each year during the Term, provide IXC notice of Vyvx rates
for repair and maintenance for such calendar year. IXC reserves the right to
perform maintenance on any of its own equipment wherever located.
D. Vyvx shall use its best reasonable efforts to respond to any Outage on
the IXC IRU Fibers as quickly as possible in accordance with the procedures set
forth in Exhibit E. In the event the Outage is not cured within 4 hours,
maintenance and repair services may be performed by IXC subject to the
provisions of applicable R of W Agreements. In such event, IXC may access any
part of the Vyvx System to perform such services. In the event IXC requires Vyvx
personnel to unlock any Vyvx facility, Vyvx shall cooperate fully with IXC to
allow IXC access. In those parts of the Vyvx System that IXC does not require
Vyvx personnel to enter Vyvx facilities, IXC shall provide Vyvx with oral
notification of those parts of the Vyvx System that were entered as soon as
possible. IXC shall only use the preceding rights to enter the Vyvx System to
the extent necessary for the emergency situation. Vyvx shall reimburse IXC its
direct costs and out-of-pocket expenses of providing such maintenance services.
IXC shall provide supporting documentation for such costs.
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<PAGE> 24
E. Vyvx shall use such care in performing repair and maintenance
pursuant to this Agreement which equals or exceeds that which is normal and
customary in the telecommunications industry.
F. In the event of damage to the Vyvx System which results from a
specific incident or disaster, or deterioration of the fibers in Vyvx System
requiring replacement of fibers ("Vyxx Damage or Deterioration"), IXC shall pay
a proportional amount (according to the number of IXC fibers (i.e., fibers in
which IXC owns or leases an IRU at the time of the incident) relative to the
total fibers in the Vyvx System) of any additional costs incurred in repairing
such Vyvx Damage or Deterioration, unless such Damage or Deterioration is due to
the negligence or wilful misconduct of Vyvx. Vyvx agrees that no request for
reimbursement from IXC shall be made unless IXC's proportional amount of the
repair or replacement cost for such project exceeds ****
G. IXC shall pay Vyvx's invoice for IXC's proportional amount of
the cost to repair the Vyvx Damage or Deterioration within thirty (30) days
after receipt of the invoice. Upon request by IXC, Vyvx will promptly provide
the necessary substantiating information which will allow IXC to verify the
accuracy of the invoice.
H. IXC shall pay Vyvx **** per route mile multiplied by one
thousand, seven hundred sixty four (1764), (the number of route miles on the
Vyvx System) per month, payable at the end of each month, for performance of the
maintenance and repair services (excluding the cost of repairing Vyvx Damage or
Deterioration) set forth in this Article.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 25
ARTICLE XV. PERMITS; PHYSICAL PLANT AND REQUIRED RIGHTS
A. As of the Both Party Completion Date IXC will have obtained (and
will cause to remain effective through the Term of this Agreement) all R of W
Agreements, including without limitation, rights, licenses, authorizations,
rights-of-way and other agreements necessary for the use of poles, conduit,
cable, wire or other physical plant facilities, as well as any other such
rights, licenses, authorizations (including any necessary state, tribal or
federal authorizations such as environmental permits), rights-of-way and other
agreements necessary for the installation and use of the IXC System hereunder
(all of which are referred to as "IXC Required Rights"). Vyvx shall have the
right to review all documents reflecting the IXC Required Rights.
B. As of the Both Party Completion Date (or with respect to the New
Orleans Lateral, as of the New Orleans Lateral Completion Date), Vyvx will have
obtained (and will cause to remain effective through the Term of this Agreement)
all R of W Agreements, including without limitation, rights, licenses,
authorizations, rights-of-way and other agreements necessary for the use of
poles, conduit, cable, wire or other physical plant facilities, as well as any
other such rights, licenses, authorizations (including any necessary state,
tribal or federal authorizations such as environmental permits), rights-of-way
and other agreements necessary for the installation and use of the Vyvx System
hereunder (all of which are referred to as "Vyvx Required Rights"). IXC shall
have the right to review all documents reflecting the Vyvx Required Rights.
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<PAGE> 26
C. In the event of the Constructing Party's refusal or claimed
inability to take the steps described in paragraphs A or B, as applicable, such
circumstances shall be communicated to the Non-Constructing Party in writing,
and, if such circumstance is not either due to an event identified in the
Article entitled Force Majeure or due to the Non-Constructing Party's fault,
the Non-Constructing Party shall be entitled to obtain specific performance from
the Constructing Party in addition to any other remedies available at law or in
equity.
ARTICLE XVI. RELOCATION.
A. If, for any reason, either party (the "Relocating Party") is
required to relocate the Cable or any of the facilities used or required in
providing the other party with its IRU, the Relocating Party shall give the
other party sixty (60) days prior notice of any such relocation, if possible and
shall have the obligation to proceed with such relocation, including, but not
limited to, the right to determine the extent of, the timing of, and methods to
be used for such relocation; provided that any such relocation: (i) shall be
constructed and tested in accordance with the specifications and requirements
set forth in Exhibits C-1, C-2, C-3, C-4, C-5 and C-6, and (ii) shall not result
in an adverse change to the operations, performance, connection points with the
network of the other party, or end points of the applicable System. The
Relocating Party shall relocate the affected portion of its System and so long
as such relocation is not necessitated by a breach of the Relocating Party's
obligations under this Agreement, the other party shall reimburse the Relocating
Party for the other party's proportionate share of all Relocation Costs,
including, without limitation, fiber acquisition, splicing and testing, pro
rated based on the party's owned or leased IRUs to the total fiber count in the
affected Cable so relocated. In the event that a third party (which does not
have an interest in the fibers on the Cable) reimburses the Relocating Party for
all of or a portion of the cost to relocate the Relocating Party's System, then
this reimbursement amount shall reduce on a dollar for dollar basis the
aggregate amount of Relocation Costs deemed to have been spent by the Relocating
Party under this Article. The Relocating Party agrees that no request for
reimbursement from the other party shall be requested unless the other party's
proportional amount of the Relocation Costs for such project exceeds ****. The
Relocating Party shall deliver to the other party updated as-built drawings as
set forth in Exhibit D with respect to any relocated portion of its System not
later than one hundred eighty (180) days following the completion of such
relocation.
B. The Relocating Party's invoice for the other party's
proportional amount of the Relocation Costs shall be paid within thirty (30)
days after receipt of the invoice by such party. Upon request by such party, the
Relocating Party will promptly provide the necessary substantiating information
which will allow the other party to verify the accuracy of the invoice.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 27
ARTICLE XVII. USE OF IXC SYSTEM AND VYVX SYSTEM
A. Each of Vyvx and IXC warrants that its use of the IXC System and
the Vyvx System, respectively, shall comply with all applicable government
codes, ordinances, laws, rules, regulations and/or restrictions.
B. The IRUs to be leased or granted to each party hereunder shall
include, without limitation, the right to install additional equipment, or
replace existing equipment at each Transmission Site on the other party's
System. Each party shall provide the other party with space in regenerator,
optical/amplifier, and junction sites **** but as a minimum (i) Vyvx shall be
assigned at least **** at optical amplifier sites, **** at regenerator sites and
**** at junction sites on the IXC System; and (ii) IXC shall be assigned at
least **** optical amplifier sites, **** at regenerator sites and **** at
junction sites. Such Transmission Sites will meet or exceed the power and
building requirements specified in Exhibits C-5 and C-6. All equipment installed
at regenerator facilities shall be maintained in accordance with the terms set
forth herein. In addition, each party will have the right, subject to
availability, to space and power at the sites of the other party listed in
Exhibit A or Exhibit B, as applicable, at such other party's then prevailing
rates (which rates shall not be unreasonable).
C. Either party shall have the right to abandon its lease or
ownership of IRUs in the other party's System (in which event the right to the
use thereof would revert to the other party), at which time the abandoning
party shall have no further rights with respect to its IRU. Such abandonment
shall not reduce or otherwise affect the abandoning party's obligations to
continue to pay the Permanent Lease Fee or any other obligations hereunder.
D. Each Party may use its IRU or IRU lease for any lawful purpose.
During the term of any IRU grant or IRU lease, IXC agrees and acknowledges that
it has no right to use the Vyvx IRU Fibers subject to such grant or lease and
Vyvx agrees and acknowledges that it has no right to use the IXC IRU Fibers
subject to such grant or lease.
E. Vyvx and IXC shall promptly notify each other of any matters
pertaining to any damage or impending damage to or loss of the Vyvx System or
the IXC System, respectively, that are known to such party.
F. IXC shall respect Vyvx's right to its use of the Vyvx IRU
Fibers, and Vyvx shall respect IXC's right to its use of the IXC IRU Fibers.
Each Party shall take all reasonable precautions against, and assume liability,
subject to the terms herein, for, any damage caused by such Party to the fibers
in the IXC or Vyvx Cable that the other Party owns or in which it holds an IRU
or IRU lease.
G. Neither Party shall use fibers that it owns or in which it holds
an IRU or IRU lease in a way that interferes in any way with or adversely
affects the use of the fibers the other Party owns or in which the other Party
holds an IRU or IRU lease.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 28
H. Vyvx and IXC each agree to cooperate with and support the
other in complying with any requirements applicable to the fiber by any
governmental or regulatory agency or authority.
I. Subject to availability of space and power, either party
shall be entitled to collocate in locations of the other party at the then
currently published rates. Each party shall install its own equipment in each
location and regeneration station. The Constructing Party shall deliver all
power to the appropriate bays.
J. Except as otherwise explicitly set forth herein, neither
party shall charge the other party any maintenance charges arising from or
related to R of W Agreements.
ARTICLE XVIII. INDEMNIFICATION
A. IXC hereby releases and agrees to indemnify, defend, protect
and hold harmless Vyvx, its employees, officers, directors, agents, shareholders
and affiliates, from and against, and assumes liability for:
1. Any injury, death, loss or damage to any person,
tangible property or facilities of any person or entity (including reasonable
attorneys' fees and costs), to the extent arising out of or resulting from the
acts or omissions, negligent or otherwise, of IXC, its officers, employees,
servants, affiliates, agents or contractors in connection with its performance
under this Agreement;
2. Any claims, liabilities or damages arising out of any
violation by IXC of regulations, rules, statutes or court orders of any local,
state or federal governmental agency, court or body in connection with it's
performance under this Agreement; and
3. Any and all losses, damages, expenses, cost and
liabilities for anything and everything whatsoever arising in any way from or
out of the presence of any Hazardous Materials in, on, under, at or about the
IXC System route or originating in, on, under, at or about the IXC System route
and migrating offsite, regardless of the source of such Hazardous Materials,
including, without limitation, any damage to property or personal injury
incurred by any party; provided, however, that nothing contained herein shall
require IXC to remediate or indemnify, defend, protect or hold Vyvx harmless
from and against any loss, damage, expense, cost and/or liability arising in any
way from or out of any environmental condition arising out and to the extent of
the negligence or willful misconduct of Vyvx. The indemnity set forth in this
paragraph includes, without limitation, (i) any reasonable expense relating to
the time or travel of any employee or other individual involved in the defense
of a claim, reasonable costs associated with consultants or witnesses,
reasonable attorneys' fees and costs associated with investigation, preparation,
mediation, arbitration or litigation; (ii) all costs
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<PAGE> 29
associated with remediation including but not limited to testing, sampling,
assessment, investigation, response, clean-up, detoxification, containment,
closure, restoration, repair, removal, transport, storage, or disposal or other
remedial work which is required or reasonably necessary to comply with any
environmental agency, any law or court order, or reasonably necessary in the
application of prudent environmental engineering standards; and (iii) costs
associated with claims for damage to persons, property or natural resources
related to the presence of any Hazardous Materials.
B. Vyvx hereby release and agrees to indemnify, defend, protect and hold
harmless IXC, its employees, officers, directors, agents, shareholders and
affiliates, from and against, and assumes liability for:
1. Any injury, death, loss or damage to any person, tangible
property or facilities of any person or entity (including reasonable attorneys'
fees and costs), to the extent arising out of or resulting from the acts or
omissions, negligent or otherwise, of Vyvx, its officers, employees, servants,
affiliates, agents or contractors in connection with its performance under this
Agreement;
2. Any claims, liabilities or damages arising out of any violation
by Vyvx or regulations, rules, statutes or court orders of any local, state or
federal governmental agency, court or body in connection with its performance
under this Agreement; and
3. Any and all losses, damages, expenses, cost and liabilities for
anything and everything whatsoever arising in any way from or out of the
presence of any Hazardous Materials in, on, under, at or about the Vyvx System
route or originating in, on, under, at or about the Vyvx System route and
migrating offsite, regardless of the source of such hazardous Materials,
including, without limitation, any damage to property or personal injury
incurred by any party; provided, however, that nothing contained herein shall
require Vyvx to remediate or indemnify, defend protect or hold IXC harmless from
and against any loss, damage, expense, cost and/or liability arising in any way
from or out of any environmental condition arising out and to the extent of the
negligence or willful misconduct of IXC. The indemnity set forth in this
paragraph includes, without limitation, (i) any reasonable expense relating to
the time or travel of any employee or other individual involved in the defense
of a claim, reasonable costs associated with consultants or witnesses,
reasonable attorneys' fees and costs associated with investigation, preparation,
mediation, arbitration or litigation; (ii) all costs associated with remediation
including but not limited to testing, sampling, assessment, investigation,
response, clean-up, detoxification, containment, closure, restoration, repair,
removal, transport, storage, or disposal or other remedial work which is
required or reasonably necessary to comply with any environmental agency, any
law or court order, or reasonably necessary in the application of prudent
environmental engineering standards; and (iii) costs associated with claims for
damage to persons, property or natural resources related to the presence of any
Hazardous Materials.
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<PAGE> 30
C. The parties hereby expressly recognize and agree that each
party's said obligation to indemnify, defend, protect and save the other
harmless is not a material obligation to the continuing performance of the
parties' other obligations, if any, hereunder. In the event that a party shall
fail for any reason to so indemnify, defend, protect and save the other
harmless, the injured party hereby expressly recognizes that its sole remedy in
such event shall be the right to bring an arbitration proceeding pursuant to the
terms of this Agreement against the other party for its damages as a result of
the other party's said failure to indemnify, defend, protect and save harmless.
These obligations shall survive the expiration or termination of this Agreement.
D. Nothing contained herein shall operate as a limitation on the
right of either party hereto to bring an action for damages against any third
party, including indirect, special or consequential damages, based on any acts
or omissions of such third party as such acts or omissions may affect the
construction, operation or use of the Vyvx IRU Fibers or the IXC IRU Fibers, as
the case may be; provided, however, that each party hereto shall assign such
rights of claims, execute such documents and do whatever else may be reasonably
necessary to enable the other party to pursue any such action against such third
party.
ARTICLE XIX. INSURANCE
A. During the term of this Agreement, each party shall obtain and
maintain and shall require any of its permitted contractors to obtain and
maintain not less than the following insurance:
1. Commercial General Liability Insurance with a combined single
limit of $2,000,000 for bodily injury and property damage.
2. Worker's Compensation Insurance in amounts required by
applicable law and Employers Liability Insurance with limits not less than
$500,000 each accident. If work is to be performed in Nevada, North Dakota,
Ohio, Washington, Wyoming or West Virginia, the party will participate in the
appropriate state fund(s) to cover all eligible employees and provide a stop gap
endorsement.
3. Automobile Liability Insurance with a combined single limit of
$1,000,000 for bodily injury and property damage, to include coverage for all
owned, non-owned and hired vehicles.
The limits set forth above are minimum limits and will not be
construed to limit either party's liability.
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<PAGE> 31
B. Unless otherwise agreed, the Vyvx insurance policies required above
shall be obtained and maintained with companies rated A or better by Best's Key
Rating Guide and IXC, its parent and affiliated companies will be named as
additional insureds as respects the indemnifications under this Agreement. Vyvx
shall provide IXC with an insurance certificate confirming compliance with the
insurance requirements in Article XVIII. The insurance certificate shall
indicate that IXC shall be notified not less than thirty (30) days prior to any
cancellation or material change in coverage.
C. Unless otherwise agreed, the IXC insurance policies required above
shall be obtained and maintained with companies rated A or better by Best's Key
Rating Guide and Vyvx, its parent and affiliated companies will be named as
additional insureds as respects the indemnifications under this Agreement. IXC
shall provide Vyvx with an insurance certificate confirming compliance with the
insurance requirements in Article XVIII. The insurance certificate shall
indicate that Vyvx shall be notified not less than thirty (30) days prior to any
cancellation or material change in coverage.
D. In the event coverage is denied or reimbursement of a properly
presented claim is disputed by the carrier for insurance provided above, the
party carrying such coverage shall make commercially reasonable efforts to
pursue such claim with its carrier.
E. Vyvx and IXC shall each obtain from the insurance companies providing
the coverages required by this Agreement a waiver of all rights of subrogation
or recovery in favor of the other party, its parent corporation, affiliates,
subsidiaries, assignees, officers, directors, and employees or any other party
entitled to indemnity under this Agreement.
ARTICLE XX. TAXES AND FRANCHISE, LICENSE AND PERMIT FEES
A. Each of IXC and Vyvx shall be responsible for and shall timely pay any
and all (i) taxes and franchise, license and permit fees based on the physical
location of the IXC System or the Vyvx System, respectively, and/or the
respective construction thereof in or on public roads, highways or
rights-of-way; and (ii) right-of-way payments on the IXC System or the Vyvx
System, respectively. Failure of either party to pay such taxes or payments
which continues after seven (7) days written notice thereof by the other party,
shall authorize, but not obligate, the other party to make such payments and
such other party will then have the right to be reimbursed for such payments by
the party which failed to pay such taxes.
B. Each of IXC and Vyvx shall be responsible for any and all sales, use,
income, gross receipts or other taxes assessed on the basis of revenues received
by such party due to its use of the IXC IRU Fibers or the Vyvx IRU Fibers
respectively.
C. Notwithstanding any provision herein to the contrary, Vyvx shall have
the right to protest by appropriate proceedings the imposition and/or amount of
any taxes or
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<PAGE> 32
franchise, license or permit fees imposed on or assessed against Vyvx,
including, but not limited to, any taxes or franchise, license or permit fees
assessed on the basis of revenues received by Vyvx due to its use of the IXC
System and/or based on the physical location of the IXC System and/or the
construction thereof. In such event, Vyvx shall indemnify and hold IXC harmless
from any expense, legal action or cost, including reasonable attorneys' fees,
resulting from Vyvx's exercise of its rights hereunder. In the event of any
refund, rebate, reduction or abatement to Vyvx of such taxes or franchise,
license or permit fees. Vyvx shall be entitled to receive the entire benefit of
such refund, rebate, reduction, or abatement attributable to Vyvx's use of the
IXC System. In the event Vyvx has exhausted all its rights of appeal in
protesting any imposition or assessment of any taxes or franchise, license or
permit fees, as previously described herein and has failed to obtain the relief
sought in such proceedings or appeals ("Finally Determined Taxes and Fees"),
Vyvx and IXC may jointly agree, at a cost to be shared equally, or either Vyvx
or IXC may at its sole option and cost, agree to relocate a portion of the fiber
optic system so as to bypass the jurisdiction which had imposed or assessed such
Finally Determined Taxes and Fees. If Vyvx and IXC, or either of them, do not
determine to relocate the fiber optic system, Vyvx shall have the right to
terminate its use of all or a portion of the Vyvx IRU Fibers over all or the
portion of the system affected by the relocation, at its sole option, without
any effect on the IXC IRU Fibers. Such termination shall be effective on the
date specified by Vyvx in a notice of termination, which date shall be at least
ninety (90) days after the notice. After such termination, Vyvx's IRU in the IXC
System or any part thereof as applicable shall immediately terminate and all
rights of Vyvx to use the IXC System or any part thereof as applicable, shall
cease and IXC may thereafter disconnect, terminate or remove the affected Vyvx
IRU Fibers and the IXC System for any purpose without any liability or
obligation to Vyvx. The parties agree to modify this Agreement as necessary to
reflect the fact that Vyvx has ceased to use all or a part of the IXC System.
D. Notwithstanding any provision herein to the contrary, IXC shall have
the right to protest by appropriate proceedings the imposition and/or amount of
any taxes or franchise, license or permit fees imposed on or assessed against
IXC, including, but not limited to, any taxes or franchise, license or permit
fees assessed on the basis of revenues received by IXC due to its use of the
Vyvx System and/or based on the physical location of the Vyvx System and/or the
construction thereof. In such event, IXC shall indemnify and hold Vyvx harmless
from any expense, legal action or cost, including reasonable attorneys' fees,
resulting from IXC's exercise of its rights hereunder. In the event of any
refund, rebate, reduction or abatement to IXC of such taxes or franchise,
license or permit fees, IXC shall be entitled to receive the entire benefit of
such refund, rebate, reduction or abatement attributable to IXC's use of the
Vyvx System. In the event IXC has exhausted all its rights of appeal in
protesting any imposition or assessment of any Finally Determined Taxes and
Fees, IXC and Vyvx may jointly agree, at a cost to be shared equally, or either
IXC or Vyvx may at its sole option and cost, agree to relocate a portion of the
fiber optic system so as to bypass the jurisdiction which had imposed or
assessed such Finally Determined Taxes and Fees. If IXC and Vyvx, or either of
them, do not determine to relocate the fiber optic system, IXC shall have the
right to terminate its use of all or a portion
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of the IXC IRU Fibers over all or the portion of the System affected by the
relocation at its sole option without any effect on the Vyvx IRU Fibers. Such
termination shall be effective on the date specified by IXC in a notice of
termination, which date shall be at least ninety (90) days after the notice.
After such termination, IXC's IRU in the Vyvx System or any part thereof as
applicable shall immediately terminate and all rights of IXC to use the Vyvx
System or any part thereof as applicable, shall cease and Vyvx may thereafter
disconnect, terminate or remove the affected IXC IRU Fibers and the Vyvx System
for any purpose without any liability or obligation to IXC. The parties agree
to modify this Agreement as necessary to reflect the fact that IXC has ceased
to use all or part of the Vyvx System.
E. Without the prior consent of the other party, neither party
shall enter into any agreement relating to any easement, right-of-way (or
similar right) for its System which provides for payment for such easement,
right-of-way or similar right based upon System usage, revenues, profitability
or other similar compensation method.
ARTICLE XXI. DISCLAIMER OF WARRANTY; LIMITATION OF LIABILITY
EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT,
NEITHER PARTY MAKES ANY WARRANTY TO THE OTHER PARTY OR ANY OTHER PERSON OR
ENTITY, WHETHER EXPRESS, IMPLIED OR STATUTORY, AS TO THE DESCRIPTION, QUALITY,
MERCHANTABILITY, COMPLETENESS OR FITNESS FOR ANY PURPOSE OF ANY FIBERS OR ANY
SERVICE PROVIDED HEREUNDER OR DESCRIBED HEREIN, OR AS TO ANY OTHER MATTER, ALL
OF WHICH WARRANTIES ARE HEREBY EXCLUDED AND DISCLAIMED.
NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT TO THE CONTRARY
OTHER THAN IN THE ARTICLE ENTITLED INDEMNIFICATION, IN NO EVENT SHALL EITHER
PARTY BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, INCIDENTAL, INDIRECT,
PUNITIVE, RELIANCE OR CONSEQUENTIAL DAMAGES, WHETHER FORESEEABLE OR NOT,
ARISING OUT OF, OR IN CONNECTION WITH, TRANSMISSION INTERRUPTIONS OR PROBLEMS,
INCLUDING, BUT NOT LIMITED TO, DAMAGE OR LOSS OF PROPERTY OR EQUIPMENT, LOSS OF
PROFITS OR REVENUE, COST OF CAPITAL, COST OF REPLACEMENT SERVICES, OR CLAIMS OF
CUSTOMERS, WHETHER OCCASIONED BY ANY REPAIR OR MAINTENANCE PERFORMED BY, OR
FAILED TO BE PERFORMED BY, THE FIRST PARTY OR ANY OTHER CAUSE WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, BREACH OF CONTRACT, BREACH OF WARRANTY,
NEGLIGENCE OR STRICT LIABILITY. THIS PARAGRAPH SHALL NOT BE CONSTRUED TO LIMIT
EITHER PARTY'S ABILITY TO RECOVER UNDER THE ARTICLE ENTITLED INDEMNIFICATION
WITH RESPECT TO CLAIMS OF THIRD PARTIES BROUGHT AGAINST SUCH PARTY OR THE RIGHT
TO RECOVER LIQUIDATED DAMAGES
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UNDER THE ARTICLES ENTITLED COMPLETION OF THE SYSTEMS AND SERVICE INTERRUPTIONS.
PURSUANT TO THIS ARTICLE, NO PARTY SHALL BE PREVENTED FROM MAKING A
CLAIM OR FILING SUIT AGAINST AN INDEPENDENT CONTRACTOR FOR SPECIAL, INCIDENTAL,
INDIRECT, PUNITIVE, RELIANCE OR CONSEQUENTIAL DAMAGES ARISING OUT OF SUCH
INDEPENDENT CONTRACTOR'S PERFORMANCE OF MAINTENANCE OR REPAIR SERVICES FOR THE
SYSTEM OWNER, BUT THE PARTY MAKING THE CLAIM OR FILING SUIT AGREES THAT IT WILL
NOT SEEK RECOVERY OF SUCH DAMAGES TO THE EXTENT SUCH INDEPENDENT CONTRACTOR HAS
A CONTRACTUAL OR COMMON LAW RIGHT OF RECOVERY AGAINST OR AN INDEMNITY FROM THE
SYSTEM OWNER.
ARTICLE XXII. NOTICE
A. Unless otherwise provided herein, all notices and communications
concerning this Agreement shall be in writing and addressed to the other party
as follows:
If to IXC: IXC Carrier, Inc.
Attn: Chief Financial Officer
5000 Plaza on the Lake
Suite 200
Austin, TX 78746
Facsimile No.: (512) 328-0239
with a copy to: Michael P. Whalen, Esq.
Riordan & McKinzie
695 Town Center Drive
Suite 1500
Costa Mesa, CA 92626
Facsimile No.: (714) 549-3244
If to Vyvx: Vyvx, Inc.
Attn: Chief Operating Officer
111 East First Street
Tulsa, OK 74103-2808
Facsimile No.: (918) 561-6024
and to: General Counsel
Vyvx, Inc.
One Williams Center
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Tulsa, OK 74172
Facsimile No.: (918) 588-3005
If to WilTech: The WilTech Group
Attn: Chief Operating Officer
111 East First Street
Tulsa, OK 74103-2808
Facsimile No.: (918) 561-6024
and to: General Counsel
The WilTech Group, Inc.
One Williams Center
Tulsa, OK 74172
Facsimile No.: (918) 588-3005
or at such other address as may be designated in writing to the other party.
B. Unless otherwise provided herein, notices shall be sent by
registered or certified U.S. Mail, postage prepaid, or by commercial overnight
delivery service, or by facsimile, and shall be deemed served or delivered to
the addressee or its office on the date of receipt acknowledgment or, if postal
claim notices are given, on the date of its return marked "unclaimed,"
provided, however, that upon receipt of a returned notice marked "unclaimed,"
the sending party shall make reasonable effort to contact and notify the other
party by telephone.
ARTICLE XXIII. CONFIDENTIALITY
A. If the parties to this Agreement have entered into (or later
enter into) a Confidentiality Agreement, the terms of such an agreement shall
control and paragraph B of this Article shall not apply; however, if any such
Confidentiality Agreement expires or is no longer effective at any time during
the Term of this Agreement, paragraph B of this Article shall be in effect
during those periods.
B. In the absence of a separate Confidentiality Agreement between
the parties, if either party provides confidential information to the other in
writing and identified as such, the receiving party shall protect the
confidential information from disclosure to third parties with the same degree
of care accorded its own confidential and proprietary information. Neither
party shall be required to hold confidential any information which (i) becomes
publicly available other than through the recipient; (ii) is required to be
disclosed by a governmental or judicial order, rule or regulation; (iii) is
independently developed by the disclosing party; or (iv) becomes
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available to the disclosing party without restriction from a third party. These
obligations shall survive expiration or termination of this Agreement.
C. Notwithstanding paragraph A and B of this Article, confidential
information shall not include information disclosed by the receiving party as
required by applicable law or regulation, provided, however, that the
information disclosed is limited to the existence and general nature of the
relationship between the parties, including, as required, the scope,
approximate revenues, purposes and expectations related to such relationship
and a description of any disputes relating thereto. Notwithstanding the
foregoing, this Agreement may be provided to any governmental agency or court
of competent jurisdiction to the extent required by applicable law.
D. Neither party, nor their respective affiliates, including any
shareholders, directors or officers of either of them, shall, without the
written consent of the other party, make any announcement or other disclosure
relating to the Agreement herein, except to their professional advisers, unless
otherwise required by law. In the event of such a disclosure required by law,
the disclosing party shall serve prompt notice on the nondisclosing party prior
to the required disclosure. Each party shall disclose the Agreement herein to
professional advisers and to their respective employees on a need-to-know basis
only, and shall instruct such persons to maintain confidentiality.
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ARTICLE XXIV. DEFAULT
A. Vyvx shall not be in default under this Agreement herein unless
and until IXC shall have given Vyvx written notice of such default and Vyvx
shall have failed to cure the same within thirty (30) days after receipt of such
notice; provided, however, that where such default cannot reasonably be cured
within such thirty (30) day period, if Vyvx shall proceed promptly to cure the
same and prosecute such curing with due diligence, the time for curing such
default shall be extended for a period no longer than sixty (60) days from the
date of the receipt of the default notice. Events of default shall include, but
not be limited to, the making by Vyvx of a general assignment for the benefit of
its creditors, the filing of a voluntary petition in bankruptcy or the filing of
a petition in bankruptcy or other insolvency protection against Vyvx which is
not dismissed within ninety (90) days thereafter, or the filing by Vyvx of any
petition or answer seeking, consenting to, or acquiescing in reorganization,
arrangement, adjustment, composition, liquidation, dissolution or similar
relief. Any event of default by Vyvx may be waived under the terms of this
Agreement at IXC's option. Upon the failure by Vyvx to timely cure any such
default after notice thereof from IXC, IXC may (i) take such action as it
determines, in its sole discretion, to be necessary to correct the default, and
(ii) pursue any legal remedies it may have under applicable law or principles of
equity relating to such breach. Notwithstanding the above, if Vyvx certifies to
IXC in writing that a default has been cured, such default shall be deemed to be
cured unless IXC otherwise notifies Vyvx in writing within fifteen (15) days of
receipt of such notice from Vyvx.
B. IXC shall not be in default under this Agreement herein unless
and until Vyvx shall have given IXC written notice of such default and IXC
shall have failed to cure the same within thirty (30) days after receipt of
such notice; provided, however, that where such default cannot reasonably be
cured within such thirty (30) day period, if IXC shall proceed promptly to cure
the same and prosecute such curing with due diligence, the time for curing such
default shall be extended for a period no longer than sixty (60) days from the
date of the receipt of the default notice. Events of default shall include, but
not be limited to, the making by IXC of
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a general assignment for the benefit of its creditors, the filing of a
voluntary petition in bankruptcy or the filing of a petition in bankruptcy or
other insolvency protection against IXC which is not dismissed within ninety
(90) days thereafter, or the filing by IXC of any petition or answer seeking,
consenting to, or acquiescing in reorganization, arrangement, adjustment,
composition, liquidation, dissolution or similar relief. Any event of default
by IXC may be waived under the terms of this Agreement at Vyvx option. Upon the
failure by IXC to timely cure any such default after notice thereof from Vyvx,
Vyvx may (i) take such action as it determines, in its sole discretion, to be
necessary to correct the default, and (ii) pursue any legal remedies it may
have under applicable law or principles of equity relating to such breach.
Notwithstanding the above, if IXC certifies to Vyvx in writing that a default
has been cured, such default shall be deemed to be cured unless Vyvx otherwise
notifies IXC in writing within fifteen (15) days of receipt of such notice from
IXC.
ARTICLE XXV. TERMINATION
A. Upon expiration of the Term of this Agreement, IXC's IRU (if any),
IRU leases, Cash Option, Note Option and Additional Fiber Option shall
immediately terminate (except to the extent they have already expired or
terminated) and all rights of IXC to use the Vyvx System, or any part thereof,
shall cease and Vyvx shall owe IXC no additional duties or consideration. IXC
shall remove all electronics and equipment from any Vyvx facilities at its sole
cost under Vyvx's supervision.
B. Upon expiration of the Term of this Agreement, Vyvx's IRU's, IRU
leases, Cash Option and Note Option, shall immediately terminate (except to the
extent they have already expired or terminated) and all rights of Vyvx to use
the IXC System, or any part thereof, shall cease and IXC shall owe Vyvx no
additional duties or consideration. Vyvx shall remove all electronics and
equipment from any IXC facilities at its sole cost under IXC's supervision.
C. Notwithstanding the foregoing, no termination of this Agreement shall
affect the rights or obligations of any party hereto with respect to any
payment hereunder for services rendered prior to the date of termination or
pursuant to the Articles entitled Indemnification, Insurance, Arbitration, and
Taxes and Franchise, License and Permit Fees herein.
ARTICLE XXVI. FORCE MAJEURE
Neither party shall be in default under this Agreement nor be
classified as a Late Party with respect to any delay in such party's
performance caused by any of the following conditions: (i) act of God, (ii)
fire, (iii) flood, (iv) material shortage or unavailability not resulting from
the responsible party's failure to timely place orders or take other necessary
actions therefor, (v) lack of transportation, (vi) legal inability to access
property,
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(vii) government codes, ordinances, laws, rules, regulations or restrictions
(collectively, "Regulations") (but not to the extent the delay caused by such
Regulations could be avoided by rerouting the Cable if such a reroute was
commercially reasonable), (viii) war or civil disorder, or (ix) any other cause
beyond the reasonable control of such party, provided that in order to be
classified as a force majeure event, the delay occasioned by the existence of
one of the events identified in (i) through (ix) shall have a duration of at
least thirty (30) consecutive days. The party claiming relief under this Article
shall promptly notify the other in writing of the existence of the event(s) (i)
through (ix) relied on, the expected duration of the force majeure event, and
the cessation or termination of said event. The party claiming relief under this
Article shall exercise commercially reasonable efforts to minimize the time for
any such delay. Notwithstanding the foregoing, except as set forth in the
Article entitled Service Interruptions with respect to Natural Disasters, no
event described in this Article shall effect or diminish the obligations of
either party with respect to Service Interruptions or Outage Damage Payments.
ARTICLE XXVII. ARBITRATION
A. Any dispute or disagreement arising between IXC and Vyvx
in connection with this Agreement which is not settled to the mutual
satisfaction of IXC and Vyvx within thirty (30) days from the date that either
party informs the other in writing that such dispute or disagreement exists,
shall be settled by arbitration in Dallas, Texas, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association in effect
on the date that such notice is given. If the parties are unable to agree on a
single arbitrator within fifteen (15) days from the date of receipt of the
notice notifying a party of a dispute or disagreement, each party shall select
an arbitrator within fifteen (15) days and the two (2) arbitrators shall select
a third arbitrator within ten (10) days. The decision of the arbitrator(s) shall
be final and binding upon the parties and shall include written findings of law
and fact, and judgment may be obtained thereon by either party in a court of
competent jurisdiction. Each party shall bear the cost of preparing and
presenting its own case. The cost of the arbitration, including the fees and
expenses of the arbitrator(s), shall be shared equally by the parties hereto
unless the award otherwise provides. The arbitrator(s) shall be instructed by
the parties to establish procedures such that a decision can be rendered by the
arbitrator(s) within sixty (60) days of their appointment.
B. The obligation herein to arbitrate shall not be binding
upon any party with respect to requests for preliminary injunctions, temporary
restraining orders, specific performance or other procedures in a court of
competent jurisdiction to obtain interim relief when deemed necessary by such
court to preserve the status quo or prevent irreparable injury pending
resolution by arbitration of the actual dispute.
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ARTICLE XXVIII. WAIVER
The failure of either party hereto to enforce any of the
provisions of this Agreement, or the waiver thereof in any instance, shall not
be construed as a general waiver or relinquishment on its part of any such
provision, but the same shall nevertheless be and remain in full force and
effect.
ARTICLE XXIX. GOVERNING LAW
This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Oklahoma without reference to
its choice of law principles.
ARTICLE XXX. RULES OF CONSTRUCTION
A. The captions or headings in this Agreement are strictly
for convenience and shall not be considered in interpreting this Agreement or as
amplifying or limiting any of its content. Words in this Agreement which import
the singular connotation shall be interpreted as plural, and words which import
the plural connotation shall be interpreted as singular, as the identity of the
parties or objects referred to may require.
B. Unless expressly defined herein, words having well-known
technical or trade meanings shall be so construed. All listing of items shall
not be taken to be exclusive, but shall include other items, whether similar or
dissimilar to those listed, as the context reasonably requires.
C. Except as set forth to the contrary herein, any right or
remedy of Vyvx or IXC shall be cumulative and without prejudice to any other
right or remedy, whether contained herein or not.
D. Nothing in this Agreement is intended to provide any
legal rights to anyone not an executing party of this Agreement.
E. This Agreement has been fully negotiated between and
jointly drafted by the parties.
F. In the event of a conflict between the provisions of this
Agreement and those of any Exhibit, the provisions of this Agreement shall
prevail and such Exhibits shall be corrected accordingly.
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G. All actions, activities, consents, approvals and other
undertakings of the parties in this Agreement shall be performed in a
reasonable and timely manner. Except as specifically set forth herein, for the
purpose of this Article the normal standards of performance within the
telecommunications industry in the relevant market shall be the measure of
whether a party's performance is reasonable and timely.
ARTICLE XXXI. ASSIGNMENT
A. Except as provided below, IXC shall not assign or
otherwise transfer this Agreement or its rights or obligations hereunder to any
other party (except to its corporate parent or to majority or wholly-owned
subsidiaries of IXC or its parent) without the prior written consent of Vyvx,
which will not be unreasonably withheld or delayed; provided, however, that
IXC may sell, lease or otherwise transfer all or a portion of its rights in any
of the IXC IRU Fibers or in its interest in the Additional Fibers without Vyvx
consent provided (i) it is in accordance with the Article entitled Additional
Fiber Revenue, and (ii) such third party lessee or IRU owner is subject to and
bound by provisions substantially the same as those set forth in Exhibit G. IXC
shall have the right, without Vyvx consent, to assign or otherwise transfer
this Agreement as collateral to any lender or to any parent, subsidiary or
affiliate of IXC or to any person, firm or corporation which shall control, be
under the control of or be under common control with IXC, or any corporation
into which IXC may be merged or consolidated or which purchases all or
substantially all of the assets of IXC; provided, however, (i) that any such
assignment or transfer shall be subject to Vyvx rights under this Agreement and
any assignee or transferee shall continue to perform IXC's obligations to Vyvx
under the terms and conditions of this Agreement and (ii) as a part of such
assignment, IXC shall require that no further assignments of this Agreement or
any of the rights and obligations under the Agreement be permitted except with
the prior written consent of Vyvx. In the event of any permitted partial
assignment of any rights hereunder or in any fibers, IXC shall remain the sole
point of contact with Vyvx.
B. Except as provided below, Vyvx shall not assign or otherwise
transfer this Agreement or its rights or obligations hereunder to any other
party (except to its corporate parent or majority or wholly-owned subsidiaries
of Vyvx or its parent) without the prior written consent of IXC, which will not
be unreasonably withheld or delayed; provided, however, that Vyvx may sell,
lease or otherwise transfer its rights in any of the Vyvx IRU Fibers without
IXC's consent so long as such third party lessee or IRU owner is subject to and
bound by provisions substantially the same as those set forth in Exhibit G. Vyvx
shall have the right, without IXC's consent, to assign or otherwise transfer
this Agreement as collateral to any institutional lender or to any parent,
subsidiary or affiliate of Vyvx or to any person, firm or corporation which
shall control, be under the control of or be under common control with Vyvx, or
any corporation into which Vyvx may be merged or consolidated or which
purchases all or substantially all of the assets of Vyvx; provided, however,
that (i) any such assignment or transfer shall be subject to
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IXC's rights under this Agreement and any assignee or transferee shall continue
to perform Vyvx obligations to IXC under the terms and conditions of this
Agreement and (ii) as a part of such assignment Vyvx shall require that no
further assignments of this Agreement or any of the rights and obligations
under the Agreement be permitted except with the prior written consent of IXC.
In the event of any permitted partial assignment of any rights hereunder or in
any fibers, Vyvx shall remain the sole point of contact with IXC.
C. This Agreement and each of the parties' respective rights and
obligations under this Agreement, shall be binding upon and shall inure to the
benefit of the parties hereto and each of their respective permitted successors
and assigns.
ARTICLE XXXII. REPRESENTATIONS AND WARRANTIES
Each party represents and warrants that:
1. It has the full right and authority to enter into, execute,
deliver and perform its obligations under this Agreement;
2. It has taken all requisite corporate action to approve the
execution, delivery and performance of this Agreement;
3. This Agreement constitutes a legal, valid and binding obligation
enforceable against such party in accordance with its terms; and
4. Its execution of and performance under this Agreement shall not
violate any applicable existing regulations, rules, statutes or court orders of
any local, state or federal government agency, court or body.
ARTICLE XXXIII. ENTIRE AGREEMENT: AMENDMENT
This Agreement constitutes the entire and final agreement and
understanding between the parties with respect to the subject matter hereof and
supersedes all prior agreements relating to the subject matter hereof, which
are of no further force or effect. The Exhibits referred to herein are integral
parts hereof and are hereby made a part of this Agreement. This Agreement may
only be modified or supplemented by an instrument in writing executed by a duly
authorized representative of each party.
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ARTICLE XXXIV. NO PERSONAL LIABILITY
Each action or claim against any party arising under or relating to
this Agreement shall be made only against such party as a corporation, and any
liability relating thereto shall be enforceable only against the corporate
assets of such party. No party shall seek to pierce the corporate veil or
otherwise seek to impose any liability relating to, or arising from, this
Agreement against any shareholder, employee, officer or director of the other
party. Each of such persons is an intended beneficiary of the mutual promises
set forth in this Article and shall be entitled to enforce the obligations of
this Article.
ARTICLE XXXV. CONFLICTS OF INTEREST
Neither party shall use any funds received under this Agreement for
illegal or otherwise "improper" purposes. Neither party shall pay any
commission, fees or rebates to any employee of the other party, or favor any
employee of such other party with gifts or entertainment of significant cost or
value. If either party has reasonable cause to believe that one of the
provisions in this Article has been violated, it, or its representative, may
audit the books and records of the other party for the sole purpose of
establishing compliance with such provisions.
ARTICLE XXXVI. RELATIONSHIP OF THE PARTIES
The relationship between Vyvx and IXC shall not be that of partners,
agents or joint venturers for one another, and nothing contained in this
Agreement shall be deemed to constitute a partnership or agency agreement
between them for any purposes, including, but not limited to federal income tax
purposes. Vyvx and IXC, in performing any of their obligations hereunder, shall
be independent contractors or independent parties and shall discharge their
contractual obligations at their own risk.
ARTICLE XXXVII. LATE PAYMENTS
In the event a party shall fail to make any payment under this
Agreement when due, such amounts shall accrue interest, from the date such
payment is due until paid, including accrued interest, at a rate equal to
eighteen percent (18%) per annum or, if lower, the highest percentage allowed
by law.
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ARTICLE XXXVIII. SEVERABILITY
If any term, covenant or condition herein shall, to any extent, be
invalid or unenforceable in any respect under the laws governing this
Agreement, the remainder of this Agreement shall not be affected thereby, and
each term, covenant or condition of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
ARTICLE XXXIX. COUNTERPARTS
This Agreement may be executed in one or more counterparts, all of
which taken together shall constitute one and the same instrument.
ARTICLE XL. CERTAIN DEFINITIONS
The following terms shall have the stated definitions in this
Agreement.
A. "Additional Fibers" shall have the definition set forth in the
Article entitled Additional Fiber Revenue.
B. "Additional Fiber Transaction(s)" shall have the definition set
forth in the Article entitled Additional Fiber Revenue.
C. "Cable" means the fiber optic cable and the fibers contained
therein, and associated splicing connections, splice boxes and vaults, and
conduit, to be installed by IXC or Vyvx, as the case may be.
D. "Connecting Party" shall have the definition set forth in the
Article entitled Completion of the Systems.
E. "Connecting Point" shall have the definition set forth in the
Article entitled Completion of the Systems.
F. "Constructing Party" means IXC with respect to the IXC System
and Vyvx with respect to the Vyvx System.
G. "Deliverables" shall have the definition set forth in the
Article entitled System Documentation.
H. "Both Party Completion Date" means the later to occur of the IXC
IRU Acceptance Date or the Vyvx IRU Acceptance Date. The Both Party Completion
Date may occur before the New Orleans Lateral Completion Date.
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I. "Fiber Acceptance Testing" shall have the definition set forth in the
Article entitled Acceptance and Testing of Vyvx IRU Fibers.
J. "Finally Determined Taxes and Fees" shall have the definition set forth
in the Article entitled Taxes and Franchise, License and Permit Fees.
K. "Hazardous Materials" shall mean any substance which is or contains (i)
any "hazardous substance" as now or hereafter defined in Section 101(14) of the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended ("CERCLA); (ii) any "hazardous waste" as now or hereafter defined in
the Resource Conservation & Recovery Act ("RCRA") (42 U.S.C. Section 6901 et
seq.) or any regulations promulgated under RCRA; (iii) any substance regulated
by the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.) or (iv)
any laws of any state the Vyvx or IXC System travels through or regulations
promulgated under any such state law; (v) natural gas, gasoline, diesel fuel,
oil, waste oil, fertilizer or components thereof or other petroleum
hydrocarbons or by-products; and (vi) any additional substances or materials
which are now or hereafter classified or treated as hazardous or toxic under
any law including court decisions.
L. "Indefeasible Right of Use" or "IRU" is an unrestricted indefeasible
right to use the fibers in which an IRU has been granted, provided however,
that granting of such IRU does not convey ownership of the fibers.
M. [Intentionally omitted]
N. "IXC Damage or Deterioration" shall have the definition set forth in
the Article entitled Operation, Maintenance and Repair of the IXC System.
O. "IXC IRU Acceptance Date" shall have the definition set forth in the
Article entitled Acceptance and Testing of IXC IRU Fibers.
P. "IXC IRU Fibers" shall have the definition set forth in the Article
entitled Permanent Lease.
Q. "IXC IRU" shall mean the IRU granted to IXC, if IXC exercises its Cash
Option or Note Option, in the IXC IRU Fibers.
R. "IXC Required Rights" shall have the definition set forth in the
Article entitled Permits: Physical Plant and Required Rights.
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S. "IXC System" shall have the definition set forth in Paragraph A of
Background.
T. "Late Fee Payment" shall have the definition set forth in the Article
entitled Completion of The Systems.
U. "Nonconstructing Party" means IXC with respect to the Vyvx System and
Vyvx with respect to the IXC System.
V. "Outage" shall have the definition set forth in the Article entitled
Operation, Maintenance and Repair of the IXC System.
W. "Permanent Lease Fee" shall have the definition set forth in the
Article entitled Permanent Lease.
X. "Permanent Lease Term" shall have the definition set forth in the
Article entitled Term and Renewal.
Y. "Purchase" shall have the definition set forth in the Article entitled
Additional Fiber Revenue.
Z. "Regulations" shall have the definition set forth in the Article
entitled Force Majeure.
AA. "Related Transaction Expenses" shall mean all costs incurred by either
party in the negotiation and documentation of any sale of an IRU in any
Additional Fibers, including, without limitation, attorney's fees.
BB. "Relocating Party" shall have the definition set forth in the Article
entitled Relocation.
CC. "Relocation Costs" means actual and related costs including, without
limitation, the following: (1) labor costs, including wages and salaries, and
benefits and overhead allocable to such labor costs (overhead allocation
percentage shall not exceed the lesser of (x) the percentage IXC or Vyvx, as
applicable, allocates to its internal projects or (y) one hundred and thirty
percent (130%), and (2) other direct costs and out-of-pocket expenses on a
pass-through basis (e.g., equipment, materials, supplies, contract services,
etc.).
DD. "Remaining Fibers" shall have the definition set forth in the Article
entitled Additional Fiber Revenue.
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EE. "Renewal Term" shall have the definition set forth in the Article
entitled Term and Renewal.
FF. "R of W Agreements" shall mean all agreements with right of way
owners, property owners, utilities, government entities or other parties which
the Constructing Party must reasonably obtain in order to get access to and/or
the authority to undertake activities on the route where the IXC System or Vyvx
System, as the case may be, is located.
GG. "Sale" or "Sold" shall have the definition set forth in the Article
entitled Additional Fiber Revenue.
HH. "System" shall have the definition set forth in Paragraph C of
Background.
II. "Service Interruption" means, with respect to the Vyvx IRU Fibers or
the IXC IRU Fibers, any complete interruption of transmission on any fiber
which, in the case of a fiber cut, is longer than four (4) hours or, in the case
of equipment (i.e, buildings, HVAC, power and uninterruptible power systems)
failure or human negligence, is longer than one (1) hour.
JJ. "Term" shall have the definition set forth in the Article entitled
Term and Renewal.
KK. "Transmission Site" shall mean a regenerator station optical amplifier
site, junction or a point of presence performing the same function as a
regeneration station or junction.
LL. "Vyvx Damage or Deterioration" shall have the definition set forth in
the Article entitled Operation, Maintenance and Repair of the Vyvx System.
MM. "Vyvx IRU Acceptance Date" shall have the definition set forth in the
Article entitled Acceptance and Testing of Vyvx IRU Fibers.
NN. "Vyvx IRU Fibers" shall have the definition set forth in the Article
entitled Permanent Lease.
OO. "Vyvx IRU" shall mean the IRU granted to Vyvx in the Vyvx IRU Grant
Fibers and, if Vyvx exercises its Cash Option or Note Option, in the Vyvx Leased
Fibers.
PP. "Vyvx Required Rights" shall have the definition set forth in the
Article entitled Permits, Physical Plant and Required Rights.
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QQ. "Vyvx System" shall have the definition set forth in Paragraph B
of Background.
RR. "Additional Fiber Cost" shall have the definition set forth in the
Article entitled Additional Fiber Revenue.
SS. "Additional Laterals" means the following portions of the Vyvx
System:
1. The lateral extending between Jackson Junction and Jackson,
excluding those portions in Hinds County or in those portions of Rankin
County north of and outside of the Interstate 20 right-of-way;
2. The lateral extending between Raleigh Junction and Raleigh,
excluding those portions in Wake County; and
3. The lateral extending between Greensboro Junction and
Greensboro, North Carolina.
TT. "Additional Lateral Cost" means Vyvx's actual incremental cost of
constructing the Additional Laterals (excluding the Additional Fiber Cost
attributable to the Additional Laterals). The Additional Lateral Cost shall
include only the increased costs incurred by Vyvx in constructing the Vyvx
System with the Additional Laterals over the costs it would have incurred had it
constructed the Vyvx System without the Additional Laterals, adjusted to
eliminate double counting of the Additional Fiber Cost when computing
Incremental Costs. For example, if Vyvx incurred incremental costs of $1 million
in constructing the Vyvx System with the Additional Fibers and $5 million in
constructing the Vyvx System with the Additional Laterals and if such $5 million
included $200,000 of the $1 million Additional Fiber Cost, the Incremental Costs
would be $1 million in Additional Fiber Cost plus $2.4 million in Additional
Lateral Cost ($5 million minus $200,000 with the difference divided by two). To
the extent Vyvx incurs costs that must be allocated between Additional Lateral
Costs and other costs, it shall allocate such costs, where practical (and where
the costs cannot be allocated directly) on the basis of the ratio of the number
of miles in the Additional Laterals to the number of miles in the Vyvx System,
with all mileage based on actual as-built route miles. For example, if Vyvx
purchased 1000 miles of fiber optic cable (with each spool containing cable of
the same type and with the same type and number of fibers) under one purchase
order and used 50 miles of the cable in the Additional Laterals and the
remainder elsewhere on its System, 1/20 of the cost of the fiber optic cable
(assuming the delivery costs were the same for all spools) would be allocated to
the Additional Lateral Cost (subject to the above-described adjustment to
eliminate double counting when computing Incremental Costs).
UU. "Incremental Cost" shall have the definition set forth in the
Article entitled Additional Fiber Revenue.
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VV. "Invoicing Party" shall have the definition set forth in the
Article entitled Right to Audit.
WW. "New Orleans Lateral" means those fiber optic communications
facilities on the Vyvx System between Baton Rouge Junction and New Orleans
excluding those facilities used to connect the Baton Rouge Junction to
Vyvx's Baton Rouge point of presence.
XX. "New Orleans Lateral Completion Date" shall have the definition
set forth in the Article entitled Acceptance and Testing of IXC IRU Fibers.
YY. "NOL Late Fee Payments" shall have the definition set forth in
the Article entitled Completion of the Systems.
ZZ. "Additional Fiber Option" shall have the definition set forth in
the Article entitled Permanent Lease.
AAA. "Additional Vyvx Cable" shall have the definition set forth in
the Article entitled Additional Fiber Revenue.
BBB. "Cash Option" shall have the definition set forth in the Article
entitled Option to Acquire IRU's and Consideration.
CCC. "Electing Party" shall have the definition set forth in the
Article entitled Option to Acquire IRU's and Consideration.
DDD. "Maintenance Charges" shall have the definition set forth in the
Article entitled Operation, Maintenance and Repair of the IXC System.
EEE. "Note Option" shall have the definition set forth in the Article
entitled Option to Acquire IRU's and Consideration.
FFF. "Vyvx IRU Grant Fibers" shall have the definition set forth in
the Article entitled Permanent Lease.
GGG. "Vyvx Leased Fibers" shall have the definition set forth in the
Article entitled Permanent Lease.
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In the event any maintenance or repairs to the Vyvx System or the IXC
System are required as a result of a breach of any warranty made by any
manufacturers, contractors or vendors, Vyvx or IXC, as applicable, shall pursue
any remedies it may have against such manufacturers, contractors or vendors, and
the System owner shall reimburse the IRU owner's costs for any maintenance that
the IRU owner has incurred as a result of any such breach of warranty to the
extent the manufacturer, contractor or vendor has paid such costs.
ARTICLE XLII. RIGHT TO AUDIT
To the extent a party ("Invoicing Party") is entitled to charge another
party based on the Invoicing Party's costs, time, or materials, the Invoicing
Party shall keep such books and records (which books and records shall be
maintained on a consistent basis and substantially in accordance with generally
accepted accounting principles) as shall readily disclose the basis for any
charges or credits, ordinary or extraordinary, billed or due to the other party
under this Agreement and shall make them available for examination, audit, and
reproduction for a period of three (3) years after the Invoicing Party issues
any invoice including such charges or credits.
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In confirmation of their consent to the terms and conditions
contained in this Agreement and intending to be legally bound hereby, the
parties have executed this Agreement as of the date first above written.
"Vyvx"
Vyvx, Inc.
a Delaware corporation
By: /s/ HOWARD E. JANZEN
-------------------------------------
Name: Howard E. Janzen
-------------------------------
Title: Chairman
------------------------------
"IXC"
IXC CARRIER, INC.
a Nevada corporation
By: /s/ KENNETH E. HINTLER
-------------------------------------
Name: Kenneth E. Hintler
-------------------------------
Title: Exec VP. COO, Asst. Secy.
------------------------------
"WilTech"
The WilTech Group, Inc.
a Delaware corporation
By: /s/ S. MILLER WILLIAMS
-------------------------------------
Name: S. Miller Williams
-------------------------------
Title: Senior Vice President
------------------------------
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EXECUTION COPY
AMENDMENT NO. 4
TO
IRU AGREEMENT
This Amendment No. 4, effective December ___, 1998, revises the IRU
Agreement of December 12, 1996, by and among IXC Carrier, Inc. (a predecessor
to IXC Communications Services, Inc.), Vyvx, Inc. ("Vyvx"), (now known as
Williams Communications, Inc.), and The WilTech Group (now known as Williams
Communications Group, Inc.), as previously amended by Amendment No. 1,
Amendment No. 2, and Amendment No. 3 (as amended, the "IRU Agreement").
Capitalized terms used in this Amendment No. 4 shall have the same meaning as
in the IRU Agreement, subject to any amendment of such definitions contained
herein.
BACKGROUND
This Amendment No. 4 is made with reference to the following facts:
A. Article XI of the IRU Agreement provides IXC with an Additional Fiber
Option and obligates Williams to compensate IXC upon termination of such
Additional Fiber Option through the payment of a portion of Additional
Fiber Revenue.
B. IXC and Williams wish to terminate, for the consideration set forth below,
IXC's Additional Fiber Option with respect to six (6) Additional Fibers
(the "Supplemental Fibers") so that Williams will, subject to the
provisions of the IRU Agreement (other than those set forth in Article
XI), have the right to use and resell IRU rights in the Supplemental
Fibers.
C. The parties desire to terminate or confirm the termination of, certain
restrictions on the sales of IRUs in fibers on portions of the Vyvx
System.
TERMS OF AMENDMENT NO. 4
Accordingly, in consideration of the mutual promises set forth below, the
parties hereto agree as follows:
I. TERMINATION OF ADDITIONAL FIBER OPTION
A. TERMINATION OF OPTION. As of December 31, 1998, and subject to
IXC's receipt of the consideration set forth below, IXC's Additional Fiber
Option shall be terminated with respect to the Supplemental Fibers. The
Supplemental Fibers shall be six (6) SMF-LS Additional Fibers selected by
Williams, with IXC's approval, which shall not be unreasonably withheld, on the
portion of the Vyvx System between Atlanta and Washington, D.C. (including
spurs).
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EXECUTION COPY
B. PAYMENT FOR TERMINATION. Williams shall, no later than January 31,
1999, pay IXC the amount of six million, three hundred fifty-five thousand,
eight hundred dollars ($6,355,800) which is product of:
1. 963, the estimated number of route miles along the Vyvx System
between Atlanta and Washington, D.C. (including spurs);
2. multiplied by six, the number of Supplemental Fibers;
3. multiplied by $2200, the parties' agreed valuation of the IRU
rights on such fibers;
4. multiplied by fifty percent, to account for IXC's Additional
Fiber Option to purchase a fifty percent IRU interest in the fibers.
At the time Williams provides IXC with as-built drawings pursuant to the
IRU Agreement, it shall also provide IXC with a written statement of the actual
route miles along the Vyvx System between Atlanta and Washington, D.C.
(including spurs) and any amount to be paid by Williams to IXC or by IXC to
Williams to reflect any difference between the amounts paid by Williams for the
Supplemental Fibers and the amounts that would have been paid if the actual
route miles had been used to compute such payment. The party owing such amount
shall pay such difference within thirty (30) days of delivery of such statement.
C. EFFECT OF TERMINATION. Except for purposes of calculating the
Incremental Costs, as of December 31, 1998, the Supplemental Fibers shall no
longer be deemed Additional Fibers or Remaining Fibers for purposes of the IRU
Agreement. Neither the money paid to IXC or by IXC pursuant to Paragraph B,
above, nor the value of the Supplemental Fibers paid for or retained by
Williams shall be deemed Additional Fiber Revenues.
II. REMOVAL OF RESTRICTIONS ON IRU SALES
A. On or after December 31, 1998, Williams may, notwithstanding the
restrictions set forth in Article XI of the IRU Agreement, sell IRU rights in
six (6) fibers, other than the Additional Fibers or the IXC IRU Fibers, on the
portion of the Vyvx System between Atlanta and Houston (including spurs). Such
sales shall not require IXC's approval and the resulting revenues shall not be
deemed Additional Fiber Revenues.
B. On or after December 31, 1998, IXC may, notwithstanding the
restrictions set forth in Article XI of the IRU Agreement, sell IRU rights in
two (2) of the IXC IRU Fibers on the Vyvx System (i.e., between Washington and
Houston, including spurs). Such sales shall not require Williams' approval and
the resulting revenues shall not be deemed Additional Fiber Revenues.
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EXECUTION COPY
C. Upon determining that all the Additional Fibers on the portion of the
Vyvx System between Atlanta and Houston (including spurs) have been Sold,
Williams shall promptly notify IXC. Upon the date of such notice, all
restrictions on sales of IRU rights by Williams in the fibers owned by Williams
and not subject to IXC's IRU, or by IXC in the IXC IRU Fibers, shall expire
pursuant to Paragraph XI.B of the IRU Agreement. Subsequent sales of IRUs in
fibers on such portion of the Vyvx System by either party shall not require the
other party's approval and the resulting revenues shall not be deemed
Additional Fiber Revenues.
IN WITNESS WHEREOF the Parties have caused this Amendment No. 4 to be
executed by their duly authorized representatives as of the dates set forth
below.
IXC COMMUNICATIONS WILLIAMS COMMUNICATIONS,
SERVICES, INC. (successor to IXC INC. (formerly Vyvx, Inc.)
Carrier, Inc.)
By: /s/ JEFFREY C. SMITH By: /s/ S. MILLER WILLIAMS
---------------------------------- -------------------------
Name: Jeffrey C. Smith Name: S. Miller Williams
-------------------------------- -----------------------
Sr. Vice President, General
Title: Counsel and Secretary Title: Sr. Vice President
------------------------------- ----------------------
Date: December 22, 1998 Date: December 22, 1998
[SEAL]
WILLIAMS COMMUNICATIONS
GROUP, INC. (formerly The WilTech
Group, Inc.)
By: /s/ S. MILLER WILLIAMS
-------------------------
Name: S. Miller Williams
-----------------------
Title: Sr. Vice President
----------------------
Date: December 22, 1998
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EXHIBIT 10.21
CONFIDENTIAL
STOCK PURCHASE AGREEMENT
FOR
CNG COMPUTER NETWORKING GROUP INC.
BY AND AMONG
THE SELLERS LISTED HEREIN
AND
WILTEL COMMUNICATIONS (CANADA), INC., AND
WILLIAMS COMMUNICATIONS SOLUTIONS, LLC
DATED AS OF OCTOBER 13, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C> <C>
PARTIES AND PREAMBLES ................................................... 1
ARTICLE I PURCHASE AND SALE OF THE SHARES ....................... 1
1.1 Purchase and Sale ..................................... 1
1.2 Consideration ......................................... 1
1.3 Closing ............................................... 2
1.4 Deliveries by Sellers ................................. 3
1.5 Deliveries by Buyer ................................... 3
ARTICLE II RELATED MATTERS ....................................... 4
2.1 Related Party Transactions ............................ 4
2.2 Non-Competition Agreements ............................ 4
2.3 Employee and Associate Plans .......................... 4
2.4 Service Credit ........................................ 5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
SELLERS ........................................... 5
3.1 Organization .......................................... 5
3.2 Authorization ......................................... 6
3.3 Capitalization ........................................ 6
3.4 Consents and Approvals; No Violations ................. 6
3.5 Financial Statements .................................. 7
3.6 Absence of Undisclosed Liabilities .................... 7
3.7 Absence of Material Adverse and Other
Changes ...................................... 7
3.8 Title to Company Stock ................................ 8
3.9 Customers; Agreement .................................. 8
3.10 Property Leases ....................................... 8
3.11 Inventory; Fixed Assets; Accounts Receivable .......... 8
3.12 Licenses; Authorizations .............................. 9
3.13 Intellectual Property ................................. 9
3.14 Litigation ............................................ 9
3.15 Environmental and Safety Matters ...................... 9
3.16 Insurance ............................................. 9
3.17 Employment and Labor Matters .......................... 10
3.18 Minute Books .......................................... 13
3.19 Taxes ................................................. 14
3.20 Certain Fees .......................................... 14
3.21 Disclosure ............................................ 14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER ............... 14
4.1 Organization and Authority of Buyer ................... 14
4.2 Consents and Approvals; No Violations ................. 14
4.3 Availability of Funds ................................. 15
4.4 Certain Fees .......................................... 15
4.5 Disclosure ............................................ 15
</TABLE>
<PAGE> 3
<TABLE>
ARTICLE V COVENANTS .............................................. 15
<S> <C> <C> <C>
5.1 Conduct of the Company ................................. 15
5.2 Access to Information; Confidential Information ........ 16
5.3 Consents ............................................... 17
5.4 Exclusive Negotiations ................................. 18
5.5 Covenant to Satisfy Conditions ......................... 18
5.6 Public Announcements ................................... 18
ARTICLE VI CERTAIN TAX MATTERS .................................... 18
6.1 Tax Matters ............................................ 18
6.2 Definitions ............................................ 20
ARTICLE VII CONDITIONS TO OBLIGATIONS OF THE PARTIES ............... 21
7.1 Conditions to Each Party's Obligations ................. 21
7.2 Conditions to Obligations of Sellers ................... 22
7.3 Conditions to Obligations of Buyer ..................... 22
ARTICLE VIII TERMINATION; AMENDMENT; WAIVER ......................... 22
8.1 Termination ............................................ 22
8.2 Effect of Termination .................................. 23
8.3 Amendment, Modification and Waiver ..................... 23
ARTICLE IX SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION ........... 23
9.1 Non-Survival of Representations,
Warranties and Agreements .............................. 23
9.2 Sellers' Agreement to Indemnify ........................ 24
9.3 Buyer's Agreement to Indemnify ......................... 25
9.4 Third Party Indemnification ............................ 25
ARTICLE X MISCELLANEOUS .......................................... 26
10.1 Fees and Expenses ...................................... 26
10.2 Further Assurances ..................................... 27
10.3 Notices ................................................ 27
10.4 Severability ........................................... 28
10.5 Binding Effect; Assignment ............................. 28
10.6 No Third Party Beneficiaries ........................... 28
10.7 Interpretation ......................................... 28
10.8 Entire Agreement ....................................... 29
10.9 Governing Law .......................................... 29
10.10 Resolution of Disagreements Among Parties .............. 29
10.11 Counterparts ........................................... 30
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS Reference
---------
<S> <C> <C> <C>
A. Form of Certificate from Sellers 1.4(e)
B. Form of Certificate from the Company 1.4(e)
C. Form of Certificate from Buyer 1.5(b)
D. Form of Non-Competition Agreement 2.2
</TABLE>
SCHEDULES
3.3 Capitalization
3.4 Consents and Approvals
3.5 Supplement to Financial Statements
3.7 Absence of Material Adverse and Other Changes
<PAGE> 4
3.8 Ownership of Shares
3.9(a) Customers
3.9(b) Material Contracts
3.10 Property Leases
3.11(a) Inventory
3.11(b) Fixed Assets
3.11(c) Accounts Receivable
3.12 Licenses
3.14 Litigation (None)
3.16 Insurance
3.17(a) Employee List, Employment Agreements and Independent
Contractors
3.17(b) Employee Benefit Plans
3.17(d) Plan Disclosures
3.18 Taxes
4.2 Consents and Approvals
<PAGE> 5
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated October 13, 1998 (the "Agreement"), by
and among 1310038 Ontario Inc., George Johnston, Hayden Marcus, the H. Marcus
Family Trust and Gary White (collectively, "Sellers") and WilTel Communications
(Canada), Inc., a Canadian corporation ("Buyer") and Williams Communications
Solutions, LLC ("Parent").
WHEREAS, pursuant to the terms and conditions of this Agreement,
Sellers desire to sell to Buyer, and Buyer desires to purchase from Sellers, all
of the issued and outstanding shares (the "Shares") of the capital stock in CNG
Computer Networking Group Inc., an Ontario corporation (the "Company"); and
WHEREAS, Sellers desire Parent to perform certain of the obligations
and guaranty certain of the payments hereunder.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES
Section 1.1 Purchase and Sale. Subject to the terms and conditions of this
Agreement, at the Closing provided for in Section 1.3 hereof (the "Closing"),
Sellers will sell, convey, assign, transfer and deliver to Buyer, and Buyer will
purchase, acquire and accept from Sellers, the Shares. The total number and type
of Shares to be sold by each of the Sellers and the Purchase Price (defined in
Section 1.2) to be allocated to each of the Sellers hereunder is shown on
Schedule 1.1.
Section 1.2 Consideration. Subject to the terms and conditions of this
Agreement and in reliance upon the representations, warranties, covenants and
agreements of Sellers contained herein, in consideration of the aforesaid sale,
conveyance, assignment, transfer and delivery of the Shares, Buyer will deliver
or cause to be delivered to Sellers' Representative the following (the sum of
(a) and (b), the "Purchase Price"):
(a) $4,459,493.00 in cash (unless otherwise indicated all dollar amounts in
this Agreement shall denote
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Canadian dollars) at the Closing by wire transfer of immediately available funds
to such bank accounts as will be designated by Sellers prior to the Closing (the
"Initial Purchase Price"); and
(b) on the first anniversary of the Closing an amount equal to
$3,866,331.00, on the second anniversary of the Closing an amount equal to
$4,212,330.00, on the third anniversary of the Closing an amount equal to
$4,948,334.00, and on the fourth anniversary of the Closing an amount equal to
$5,000,000.00; provided however that each of such amounts will be reduced by an
amount not to exceed $750,000 annually for failure to meet performance targets
detailed in Schedule 1.2(b) attached hereto; provided further however, that if
Hayden Marcus has ceased to be employed by the Company or any Affiliate of Buyer
for any reason whatsoever (except as provided in Section 1.2(c)), prior to the
third anniversary of the Closing any payments due under this Section 1.2(b)
after his termination are forfeited by the Sellers.
(c) Notwithstanding the foregoing, termination by the Company of
Hayden Marcus' employment for reasons other than Cause (as defined below) or the
death or disability of Hayden Marcus shall not cause a forfeiture under Section
1.2(b). The terms of employment of Hayden Marcus are as outlined in Exhibit A to
the Non-Competition Agreement signed by Hayden Marcus as referenced in Section
2.2. "Cause" shall mean (i) failure, after notification, to perform assigned
material duties diligently and in the best interest of the Company and its
affiliates, other than such failure resulting from a disability covered by
Buyer's disability plans, (ii) negligence or willful misconduct, (iii) willful
violation or disregard of the Code of Business Conduct or other published policy
of the Company or of its affiliates which is applicable to the Company the
violation or disregard of which causes a Material Adverse Effect, or (iv)
willful breach of a material term of the Non-Competition Agreement executed by
Hayden Marcus referenced in Section 2.2; provided however that Cause shall not
mean a refusal to relocate from Ottawa provided that Hayden Marcus agrees to,
and does spend, a sufficient amount of his time at his assigned location (if
other than Ottawa) necessary to perform his assigned duties, which unless the
parties agree otherwise will be at least forty percent (40%) with the
understanding that Hayden Marcus' other travel requirements will be somewhat
(but not correspondingly) reduced.
(d) Parent guaranties the payment of the Purchase Price upon the same
terms as provided above.
Section 1.3 Closing. The Closing of the transactions contemplated by this
Agreement will take place on October 13, 1998, at 9:00 a.m., local time, at the
offices of
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Soloway, Wright, in Ottawa, Ontario, or on such other date and at such other
time or place as the parties may agree. The date of the Closing is sometimes
referred to herein as the "Closing Date."
Section 1.4 Deliveries by Sellers. At the Closing, Sellers will deliver or
cause to be delivered to Buyer (unless delivered previously) the following:
(a) stock certificates (or similar evidence of ownership) representing
all of the Shares, accompanied by stock powers duly executed in blank or duly
executed stock transfer forms or instruments of transfer which validly transfer
title to such Shares;
(b) the resignations of all members of the Board of Directors of the
Company;
(c) the stock books, ledger books and corporate seals of the Company
and the Amalgamated Companies (defined in Section 2.1(c);
(d) executed Non-Competition Agreements, as referred to in Section
2.2;
(e) certificates, substantially in the form set forth as Exhibits A
and B attached hereto, from each of the Sellers and the Company, dated as of the
Closing Date and executed by each Seller and an authorized officer of the
Company, as the case may be;
(f) an opinion of counsel for Sellers and the Company reasonably
acceptable to Buyer; and
(g) all other documents, instruments and writings required to be
delivered by Sellers at or prior to the Closing pursuant to this Agreement or
otherwise required in connection herewith.
Section 1.5 Deliveries by Buyer. At the Closing, Buyer will deliver or
cause to be delivered to Sellers (unless delivered previously) the following:
(a) the Initial Purchase Price referred to in Section 1.2 hereof;
(b) a certificate, substantially in the form set forth as Exhibit C
attached hereto, dated as of the Closing and executed by an authorized officer
of Buyer; and
(c) an opinion of in-house counsel for Buyer, reasonably acceptable to
Sellers; and
(d) all other documents, instruments or writings required to be
delivered by Buyer at or prior to the Closing
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pursuant to this Agreement or otherwise required in connection herewith.
ARTICLE II
RELATED MATTERS
Section 2.1 Related Party Transactions. On or prior to the Closing Date,
all related party transactions between the Company, on the one hand, and Sellers
and their respective affiliates, on the other hand, shall be canceled or
settled. Any amounts owing by any of the Sellers to the Company which remain
outstanding as of the Closing Date will be reduced from the Initial Purchase
Price. Specific related party transactions to be canceled or settled include but
are not limited to the following:
(a) employment, consulting and/or management agreements between any of
the Sellers and the Company will be deemed cancelled as of the Closing Date;
(b) any and all loans made by various of the Sellers to the Company,
all of which are shown on Schedule 2.1(b), shall be paid by the Company within
fifteen (15) days of the Closing Date;
(c) 1065820 Ontario Inc., 1221827 Ontario Inc., Kendalmead Limited,
Anderson Telecommunications Consulting Inc., 1101501 Ontario Inc., and A&L Bowes
Consulting Ltd. (the "Amalgamated Companies") will be amalgamated with and into
the Company (the definition of which will be deemed to include the Amalgamated
Companies for all purposes under this Agreement unless the context clearly
requires otherwise) prior to Closing pursuant to the plan of amalgamation
attached as Schedule 2.1(c); and
(d) the Buyer shall cause the Guaranties listed on Schedule 2.1 (d) of
George Johnston and Hayden Marcus of certain of the Company's obligations to be
released within fifteen (15) days of the Closing Date.
Section 2.2 Non-Competition Agreements. Each of George Johnston, Hayden
Marcus, and Gary White will execute a Non-Competition Agreement substantially in
the form attached hereto as Exhibit D.
Section 2.3 Employee and Associate Plans. The Buyer and Parent shall
establish the Employee Stock Option Plan, Employee Incentive Plan and Associate
Incentive Plan in accordance with plan documents to be established by Buyer and
Parent with input from George Johnston and Hayden Marcus which provide for bonus
payments and stock options to be granted to the individuals, in the amounts and
for the periods shown on Schedule 2.3. The Signing Bonus is to be paid on or
before October 31, 1998; the Year 1 bonus is to
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<PAGE> 9
be paid on or before October 31, 1999; the Year 2 bonus is to be paid on or
before October 31, 2000; and the Year 3 bonus is to be paid and on or before
October 31, 2001.
Section 2.4 Service Credit. Buyer or Parent, as appropriate, will provide
the employees of the Company with service credit for purposes of vesting in
Buyer's retirement savings program or Parent's 401k plan, and participation and
benefit levels in Buyer's or Parent's vacation policy equivalent to the credit
such employees had under the Company's respective plans.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each of the Sellers represent and warrant to Buyer, only to the extent that
such representations and warranties apply to themselves and George Johnston and
Hayden Marcus jointly and severally represent and warrant to Buyer, as such
representations and warranties apply to the Company, as applicable, as follows;
provided that any Schedules attached relating to Sections 3.4, 3.11, 3.16,
3.17(a) and 3.17(e), may provide disclosure as of the last day of the month
prior to Closing rather than on the Closing Date:
Section 3.1 Organization. The Company is a corporation duly organized,
validly existing, and a private company as that term is defined in the
Securities Act (Ontario), and is in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own, lease and operate the Company's properties owned, leased and
operated by it and to carry on the operations of the Company as now being
conducted by it. The Company is duly qualified or licensed and in good standing
to do business in each jurisdiction in which the property owned, leased or
operated by it with respect to the Company or the nature of the business
conducted by it with respect to the Company makes such qualification necessary,
except in any such jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not have a Material Adverse Effect. For
purposes of this Agreement, a "Material Adverse Effect" will be an event, or a
combination of events, which has an adverse effect in an amount, individually or
in the aggregate, equal to or greater than $50,000 on the business, results of
operations or financial condition of the Company; if an event is capable of
being cured it will not be considered to have a Material Adverse Effect until
after thirty (30) days prior written notice. Sellers have heretofore made
available to Buyer complete and correct copies of the Certificate of
Incorporation and By-laws or similar constituent documents, as the case may be,
of the Company as currently in effect.
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Section 3.2 Authorization. Each of the Sellers are not non-resident persons
within the meaning of section 116 of the Income Tax Act (Canada) and has the
requisite power and authority to execute and deliver this Agreement and
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by each of the Sellers and constitutes, and, when
executed and delivered, each of the other agreements, documents and instruments
to be executed and delivered by each of the Sellers pursuant hereto will
constitute, a valid and binding agreement of each of the Sellers, enforceable
against Sellers in accordance with its terms.
Section 3.3 Capitalization. The ownership of the Shares and the authorized
and issued share capital of the Company and any Shareholders Agreements
affecting the shares, which will be terminated at Closing, are set forth in
Schedule 3.3. All of the Shares are duly authorized, validly issued, fully paid
and non-assessable and are not subject to any contractual preemptive rights.
There are not now, and at Closing there will not be, (a) issued or outstanding
(i) any shares of capital stock or issued share capital of the Company except as
disclosed in Schedule 3.3 or (ii) any securities convertible into or
exchangeable for, or any options, warrants, calls, subscriptions or other rights
(preemptive or otherwise) to acquire, any shares of capital stock or issued
share capital of the Company, or (b) any agreements or contractual commitments
(other than this Agreement) obligating Sellers, or restricting Sellers' rights,
to transfer or sell the Shares or obligating the Company to issue securities.
There are no agreements, plans or arrangements in existence which pertain to the
dividend rights, voting, sale or transfer of any shares of capital stock or
issued share capital of the Company.
Section 3.4 Consents and Approvals; No Violations. Except as set forth in
Schedule 3.4, neither the execution and delivery of this Agreement, the
consummation by Sellers of the transactions contemplated hereby, nor, to the
best of their knowledge and belief, the amalgamation of the Company after
continuation into the Buyer will (a) conflict with or result in any breach of
any provision of the Certificate of Incorporation or By-Laws or similar
constituent documents, as the case may be, of the Company; (b) require on the
part of Sellers any filing with, or the obtaining of any permit, authorization,
consent or approval of, any governmental or regulatory authority, whether within
or outside Canada, the United States, or any third party; (c) result in the
breach of any term or provision of, or constitute a default (or give rise to any
right of termination, cancellation or acceleration) under, or result in the
creation or imposition of any lien, charge, pledge, security interest or other
encumbrance upon any part of the property of the Company or the Shares pursuant
to, any of the terms, conditions or
6
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provisions of any note, mortgage, other evidence of indebtedness, guarantee,
license, agreement, lease or other contract or instrument or obligation to which
Sellers or the Company is a party or by which Sellers, the Shares, the Company
or any of the Company's assets may be bound; or (d) to the best knowledge of
Sellers, violate any order, judgment, arbitration award, injunction, decree,
statute, rule or regulation applicable to Sellers or the Company.
Section 3.5 Financial Statements. Sellers have previously furnished to
Buyer true and accurate copies of the Company's (a) balance sheet as of August
31, 1998 (unaudited internal) and April 30, 1998 (audited), and (b) statements
of operations for the periods ended August 31, 1998 (unaudited internal) and
April 30, 1998 (audited) (the financial statements referred to in clauses (a)
and (b) above and the accompanying notes thereto are referred to herein
collectively as the "Financial Statements"). Except as disclosed in the
accompanying notes to the Financial Statements or in Schedule 3.5, such balance
sheets fairly present, in all material respects, the financial position of the
Company as of the respective dates thereof, and such statements of operations
fairly present, in all material respects, the results of operations of the
Company for the respective periods indicated, in each case in accordance with
Canadian generally accepted accounting principles, consistently applied
("GAAP").
Section 3.6 Absence of Undisclosed Liabilities. As of the Closing Date,
except (a) for liabilities incurred in the ordinary course of business and
consistent with past practice since April 30, 1998, and (b) as reported in the
Financial Statements or in the Schedules hereto, the Company has not incurred
any liabilities or obligations (whether direct, indirect, accrued or contingent)
that would be required to be reflected or reserved against in a balance sheet of
the Company prepared in accordance with GAAP, as used in preparing the Financial
Statements, or that would have a Material Adverse Effect. The Company is not a
party to or bound by any guarantee, indemnification, surety, or similar
obligation or any contract or commitment to pay any royalty, license fee or
management fee (other than the management fee owing to George Johnston and
Hayden Marcus for the period October 1-13, 1998).
Section 3.7 Absence of Material Adverse and Other Changes. Except as set
forth in Schedule 3.7, since April 30, 1998, there has not been any material
adverse change in the business, prospects, results of operations or financial
condition of the Company. Since April 30, 1998 the business of the Company has
been carried on in its usual and ordinary course and the Company has not entered
into any transaction out of the usual and ordinary course of business.
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Section 3.8 Title to Company Stock. Each Seller represents and warrants
that his portion of the Shares (a) is duly authorized, validly issued, fully
paid and nonassessable and is owned by such Seller free and clear of all liens,
encumbrances, charges, assessments and adverse claims, (b) is subject to no
restrictions with respect to transferability to Buyer in accordance with the
terms of this Agreement, and (c) upon transfer of such Shares, Buyer will, as a
result, receive good and marketable title to such Shares, free and clear of all
security interests, liens, encumbrances, charges, assessments, restrictions and
adverse claims. The number of Shares held by each Seller is set forth on
Schedule 3.8.
Section 3.9 Customers; Agreements. Schedule 3.9(a), to be attached at
Closing, will be a true and correct list of all customers with which the Company
has transacted business during the last three (3) year period, together with
summary information with respect to each customer's transactions with the
Company. Schedule 3.9(b) will list any agreement which (i) may not be terminated
by the Company on thirty (30) or fewer days' notice at any time without penalty,
including, without limitation, prepayment penalties, (ii) has a remaining term,
as of the date of this Agreement, of over one year (with respect to obligations
on the part of the Company) and (iii) involves the receipt or payment by the
Company after the date hereof of more than $100,000. Except as set forth in
either Schedule 3.4 or 3.9(b), to the best knowledge of Sellers, all agreements
with customers, or any other listed agreements, are valid, binding and
enforceable in accordance with their terms and the Company is not in default
under any of the aforesaid agreements other than such defaults, if any, which
would not, individually or in the aggregate, have a Material Adverse Effect.
Section 3.10 Property Leases. Schedule 3.10 is a complete list of the real
and personal property leases to which the Company is a party (the "Leases").
Each of the Leases is a valid and existing lease, enforceable in accordance with
its terms, and there are no existing defaults, events of default or events,
occurrence or acts that, with the giving of notice or lapse of time or both,
would constitute defaults, in each case by Seller and, to the knowledge of
Seller, by any other party thereto, under any of the Leases.
Section 3.11 Inventory; Fixed Assets; Accounts Receivable. Schedules
3.11(a), reflecting the inventory of the Company, and 3.11(b), reflecting the
fixed assets of the Company, collectively list as of August 31, 1998, all of the
assets and properties that are used, held for use, or useful in the conduct of
the Company's business. All equipment and other tangible assets listed are in
good operating condition and repair, other than items in transit to repair
facilities
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and other miscellaneous non-functional items. Attached hereto as Schedule
3.11(c) is a copy of the outstanding receivable balances for the Company as of
August 31, 1998. All accounts receivable listed on Schedule 3.11(c) represent
sales made in the ordinary course of the Company's business.
Section 3.12 Licenses; Authorizations. The Company holds all of the
material licenses, permits, approvals, authorizations and consents which are
necessary to conduct its business as presently conducted. Schedule 3.12 to be
attached at Closing, lists all of such licenses, permits, approvals,
authorizations and consents which are held by the Company as of the Closing
Date.
Section 3.13 Intellectual Property. The Company freely owns or possesses a
valid license to all the proprietary and technical information, patents,
copyrights, trademarks and trade names, service marks, trade secrets, manuals,
technologies, methods, formulations, product software (including documentation),
and other intellectual property which are used to conduct its business as
presently conducted.
Section 3.14 Litigation. The Company does not have any pending, nor is it
aware of any threatened, cause of action, litigation, arbitrations, claims, toll
fraud claims or complaints, grievances, unfair labor complaints, employee
benefit related complaints, employment discrimination complaints, other
employment related complaints, investigations or notices by any governmental
agency, demands, complaints, regulatory or administrative proceedings, nor are
any of the Sellers subject to any judgments, injunctions, court orders, consent
decrees or regulatory orders with respect to the Shares or the business or
assets of the Company. To the knowledge of Sellers, no basis for any action,
suit or proceeding against the Company exists.
Section 3.15 Environmental and Safety Matters. The Company is not in
violation of any statute, regulation, ordinance, order or judgment relating to
environmental protection or employee or workplace safety where such violation
would have a Material Adverse Effect.
Section 3.16 Insurance. Schedule 3.16 sets forth a complete and accurate
list of all policies (including their respective limits and expiration dates) of
first party property, liability, product liability, worker's compensation,
health, life, title and other forms of insurance in effect during the last five
(5) years with respect to the Company, its operations, and its employees, or for
which the Company is making payments or reimbursements.
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Section 3.17 Employment and Labor Matters.
(a) Attached hereto as Schedule 3.17(a)(i) is a true and complete list
of the employees as of August 31, 1998 (including regular full and part-time
employees) (the "Company Active Employees"), identified by name and employee
number, together with job titles and/or current assignment, compensation and
service information concerning such employees. Attached hereto as Schedule
3.17(a)(iii) is a true and complete list of the independent contractors
currently on assignment with the Company (the "Company Associates"), identified
by name and identification number, together with current assignment,
compensation and service information concerning such Company Associates. Except
as set forth on Schedule 3.17(a)(iii), Company is not a party to any employment
contract with and will not have any liability (other than accrued salary,
commissions, bonuses, draws, allowances, overtime, vacation pay and other
statutory amounts) to any Company Active Employees or any other employees, any
former employees or independent contractors of the Company (collectively,
"Company Employees").
(b) Except as set forth on Schedule 3.17(b), Company is not a party to
any collective bargaining agreement or union contract with respect to Company
Employees and no collective bargaining agreements are being negotiated by
Company with respect to any of the Company Employees; and no notice of a
proposed union certification or recognition election has been received by
Company or, to the best knowledge of Sellers, has there been any union
organizing activities at the Company during the last three years..
(c) No trade union, council of trade unions, employee bargaining
agency or affiliated bargaining agent:
(i) holds bargaining rights with respect to any Company Employees
by way of certification, interim certification, voluntary recognition,
designation or successor rights;
(ii) has applied to be certified as the bargaining agent of any
Company Employees; or
(iii) has applied to have Company declared a related employer or
successor employer pursuant to applicable labor legislation.
(d) Except as otherwise set forth on Schedule 3.17(d), no Company
Employees are currently on a leave of absence for any reason, including without
limitation sickness or disability, maternity/paternity and workers'
compensation, and no Claim is pending and, to the best knowledge of Sellers, no
Claim is expected to be made by any
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Company Employees or Company Associates for workers' compensation benefits.
(e) Company has complied in all material respects with all laws
relating to the employment of Company Employees.
(f) Attached hereto as Schedule 3.17(f) is a true and complete list of
each of the following which is, or has been, sponsored, maintained or
contributed to by Company or any of its Affiliates in respect of Company
Employees: each personnel policy, stock option plan, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy, severance pay plan and/or
golden parachute agreement, policy, program or agreement, pension, retirement,
supplementary retirement, deferred compensation agreement or arrangement,
retiree benefit plan or arrangement, fringe benefit program or practice (whether
or not taxable), employee loan, consulting agreement, employment agreement and
each other employee benefit plan, agreement, arrangement, program, practice or
understanding ("Benefit Programs or Agreements").
(g) True, correct and complete copies or descriptions of all Benefit
Programs or Agreements and all amendments thereto along with the related funding
agreements, as amended, have been furnished or made available to Buyer by
Company.
(h) Sellers has no knowledge of any fact, condition or circumstance
since the date of the documents provided in accordance with Section 3.17(f)
which would materially affect the information contained therein and, in
particular, and without limiting the generality of the foregoing, no promises or
commitments have been made by Company to amend any Benefit Program or Agreement
or to provide increased benefits thereunder to any employee, dependant or
independent contractor, except as required by law.
(i) All Benefit Programs or Agreements have been maintained in
compliance with their respective terms and with the requirements prescribed by
any and all applicable statutes, orders, rules and regulations. Notice has not
been received of any pending investigations by any Authority involving or
relating to any Benefit Program or Agreement, there are no threatened or pending
Claims (except for Claims for benefits payable in the normal operation of the
Benefit Programs or Agreements), suits or proceedings against any Benefit
Program or Agreement or asserting any rights or claims to benefits under any
Benefit Program or Agreement that could give rise to a liability nor, to the
best knowledge of Sellers, are there any facts that could give rise to any
liability in the event of such investigation, claim, suit or proceeding. No
notice has been received by
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Company or its Affiliates of any complaints or other proceedings of any kind
involving Company or, to the best knowledge of Sellers, any Company Employees
before any Authority relating to any Benefit Program or Agreement.
(j) Each investment held in respect of a Benefit Program or Agreement
is a qualified or eligible investment, no investment held in respect of a
Benefit Program or Agreement is a prohibited investment under the terms of the
Benefit Program or Agreement and all supporting documents or any applicable
legislation, and each Benefit Program or Agreement has or had the power and
authority to make each investment and is permitted under all applicable
legislation and the terms of the Benefit Programs or Agreements and all
supporting documents to continue to hold such investments.
(k) Except as permitted by the Benefit Program or Agreement and
applicable legislation, there has been no withdrawal of assets or any other
amounts from any of the Benefit Programs or Agreements other than proper
payments of benefits to eligible beneficiaries, refunds of over-contributions to
plan members and permitted payments of reasonable expenses incurred by or in
respect of such Benefit Program or Agreement.
(l) All employer and, if applicable, employee contributions under the
Benefit Programs or Agreements have been remitted in a timely manner (other than
current contributions not in arrears), and the Benefit Programs or Agreements
have been funded in accordance with their respective terms.
(m) All returns, filings, reports and disclosures relating to the
Benefit Programs or Agreements required pursuant to the terms of the Benefit
Programs or Agreements, applicable legislation or any Authority, have been filed
or distributed in accordance with all requirements, all filing fees and levies
imposed on the Benefit Programs or Agreements by the applicable Authorities or
applicable legislation have been made on a timely basis and the funds of the
Benefit Programs or Agreements are not exposed to any late filing fees that have
not been remitted.
(n) No event has occurred and there has been no failure to act on the
part of Company, any funding agent or any administrator of any of the Benefit
Programs or Agreements that could subject Company or the fund of any Benefit
Program or Agreement to the imposition of any tax, penalty or other disability
with respect to any Benefit Programs or Agreements, whether by way of indemnity
or otherwise.
(o) No insurance contract or any other contract or agreement affecting
a Benefit Program or Agreement requires or permits a retroactive increase in
premiums or
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payments, loss sharing arrangement or other actual or contingent liability due
thereunder. The level of insurance reserves under each insured Benefit Program
or Agreement is reasonable and sufficient to provide for all incurred but
unreported claims.
(p) None of the Benefit Programs or Agreements provides benefit
increases or payments of any kind that are contingent upon or that will become
effective upon entering into this Agreement or the completion of the
transactions contemplated hereby.
(q) Attached hereto as Schedule 3.17(q) is a list of all employee
terminations and transfers out of the Company Business since January 1, 1997.
Section 3.18 Minute Books. The minute books of Company and any entities to
which it is the successor, including the Amalgamated Companies, copies of which
have heretofore been made available to Buyer, contain true and complete minutes
and records of all meetings, proceedings and other actions of shareholders and
the Board of Directors of Company and its predecessor entities, none of which
have been amended to the best knowledge of Sellers (except as set forth in such
copies) and are in full force and effect as of the date hereof.
Section 3.19 Taxes. Except as set forth in Schedule 3.19, the Company, or
each of the Sellers, as appropriate, has (i) duly and timely filed with the
appropriate tax authorities all Tax Returns (defined in Section 6.2), and such
Tax Returns are true, correct and complete in all material respects; and (ii)
paid or made adequate provision for the payment of all Taxes (defined in Section
6.2) and other amounts shown to be due on such Tax Returns. Except as set forth
in Schedule 3.19, neither the Company nor any of the Sellers has received any
written notice of deficiency or assessment from any federal, state, local or
foreign taxing authority with respect to liabilities for Taxes of the Company
which has not been fully paid or finally settled or accurately reflected in the
Financial Statements. There are no tax sharing agreements or arrangements
affecting the Company. There are no liens or encumbrances with respect to Taxes
upon any of the properties or assets of the Company.
Section 3.20 Certain Fees. None of the Sellers or the Company has employed
any broker, financial advisor or finder with respect to the Company or incurred
any liability for any brokers', financial advisory or finders' fees in
connection with this Agreement or the transactions contemplated hereby.
Section 3.21 Disclosure. No written representation, warranty or statement
made by the Company or any of the
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Sellers in (a) this Agreement, or (b) the exhibits or Schedules attached hereto,
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained therein not false or misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
Section 4.1 Organization and Authority of Buyer and Parent.
(a) Buyer is a corporation duly organized, validly existing and in
good standing under the laws of Canada.
(b) Parent is a limited liability company duly formed, validly
existing and in good standing under the laws of the state of Delaware.
(c) Each of Buyer and Parent has the requisite power and authority to
execute and deliver this Agreement and consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Buyer and Parent
and constitutes, and, when executed and delivered, each of the other agreements,
documents and instruments to be executed and delivered by Buyer and Parent
pursuant hereto will constitute, a valid and binding agreement of Buyer or
Parent, as applicable, enforceable against such in accordance with its terms.
Section 4.2 Consents and Approvals; No Violations. Except as set forth in
Schedule 4.2, neither the execution and delivery of this Agreement nor the
consummation by Buyer of the transactions contemplated hereby will (a) conflict
with or result in any breach of any provision of the Certificate of
Incorporation or By-Laws of Buyer; (b) require on the part of Buyer any filing
with, or the obtaining of any permit, authorization, license, consent or
approval of, any governmental or regulatory authority, whether within or outside
the United States, or any third party; (c) conform to Section 3.4(c) result in a
default (or give rise to any right of termination, cancellation or acceleration)
under any of the terms, conditions or provisions of any note, mortgage, other
evidence of indebtedness, guarantee, license, agreement, lease or other
instrument or obligation to which Buyer is a party or by which Buyer or any of
its assets may be bound; or (d) to the best knowledge of Buyer, violate any
order, judgment, arbitration award, injunction, decree, statute, rule or
regulation applicable to Buyer.
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Section 4.3 Availability of Funds. Buyer has on the date of execution of
this Agreement and will have at the Closing sufficient immediately available
funds, in cash or pursuant to credit agreements in effect on the date of this
Agreement, to pay the Purchase Price and any other amounts payable pursuant to
this Agreement and to effect the transactions contemplated hereby and by the
other agreements, documents and instruments to be executed and delivered by
Buyer pursuant hereto.
Section 4.4 Certain Fees. Neither Buyer nor any of its affiliates has
employed any broker, financial advisor or finder or incurred any liability for
any brokers', financial advisory or finders' fees in connection with this
Agreement or the transactions contemplated hereby.
Section 4.5 Disclosure. No written representation, warranty or statement
made Buyer in (a) this Agreement, or (b) the exhibits or Schedules attached
hereto, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained therein not false or
misleading.
ARTICLE V
COVENANTS
Section 5.1 Conduct of the Company. Sellers represent and agree that,
during the period from April 30, 1998, through the Closing, except as otherwise
contemplated by this Agreement or consented to by Buyer in writing:
(a) Sellers have caused and will cause the business operations of the
Company to be conducted in the ordinary course consistent with past practice and
preserve intact the Company's business organization in all material respects;
and
(b) Sellers have used and will use their best efforts not to (i)
permit or allow any of the properties or assets of the Company to be subjected
to any lien or encumbrance, whether or not in the ordinary course; (ii) sell or
dispose of any of the material properties or assets of the Company, other than
in the ordinary course; (iii) make any loans, advances (other than advances in
the ordinary course of business and consistent with past practice of the
Company) or capital contributions to, or investments in, any other person on
behalf of the Company; (iv) except as required by Section 2.1, terminate or
materially amend any of the material contracts, leases or licenses of the
Company, except in the ordinary course of business; (v) increase in any manner
the compensation of any of the directors, officers or other employees of the
Company, except such increases as are granted in the ordinary course of business
in accordance with its customary
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practices (which will include normal periodic performance reviews and related
compensation and benefit increases; (vi) adopt, grant, extend or increase the
rate or terms of any bonus, insurance, pension or other benefit programs or
agreements, payment or arrangement made to, for or with any such directors,
officers or employees of the Company, except (x) increases occurring in the
ordinary course of business in accordance with its customary practices, (y)
increases required by any applicable law, rule or regulation, or (z);changes
contemplated in this Agreement; (vii) make any change in any of the present
accounting methods and practices of the Company, except as required by GAAP; or
(viii) make any payment of bonus, dividends or return of capital to any of the
Sellers or affiliates of Sellers.
Section 5.2 Access to Information; Confidential Information. (a) Between
the date of this Agreement and the Closing, Sellers will (i) give Buyer and its
authorized representatives, including Buyer's independent auditors and Buyer's
employees who will be on Company's premises full-time, full and complete access
to all books, records, auditor's workpapers, offices and other facilities and
properties of the Company; (ii) permit Buyer to make such inspections thereof as
Buyer may request; and (iii) cause the officers of the Company and its outside
accountants and attorneys to furnish Buyer with the information in clause (i)
above within such person's control and such other financial and operating data
and other information with respect to the business and properties of the Company
as Buyer may from time to time request.
(b) The parties agree that the terms and conditions of this Agreement
and all information concerning Sellers or the Company furnished or provided by
Sellers or the Company or their affiliates to Buyer or its representatives
(whether furnished before or after the date of this Agreement) (the
"Confidential Information") will be kept confidential and will not be disclosed
to the public or to any persons other than directors, officers, employees,
affiliates or agents of the parties or to such other person who has entered into
a confidentiality agreement with the disclosing parties, unless otherwise
mutually agreed by the parties in writing. The parties further agree that any
news or press releases or other announcements to be made public with respect to
the existence of, or the matters set forth in, this Agreement will either be
jointly made or will be approved in writing by the party not making the news or
press release or other announcement.
(c) The restrictions on disclosure stated above will not prevent the
receiving Party from disclosing any Confidential Information where such
disclosure is required (i) in order to obtain the consents listed in Schedule
3.4, or (ii) by law or legal process or is made in a judicial proceeding to
enforce a party's rights under this Agreement.
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(d) If either party is required to disclose Confidential Information
to any regulatory or judicial authority, or pursuant to legal process, the
disclosing party will notify the other party in writing prior to such disclosure
in order to allow the other party the opportunity to request from the relevant
regulatory or judicial authority protection against public disclosure of any
such information.
(e) Either party's violation of the provisions of this Section 5.2
will subject such party to suit by the other party, provided, however, that
neither party will be liable for any incidental or consequential damages
relating to its obligations under this Section.
(f) The parties acknowledge that, because of the special and unique
nature of the Confidential Information, it would be difficult to measure the
damage to either party from any breach of the provisions of this Section 5.2 by
the other party, and that such aggrieved party, will suffer irreparable harm in
the event that the other party fails to comply with such provisions.
Accordingly, the parties agree that, in the event of a breach of any provision
of this Section 5.2 by either party, the other party will be entitled, in
addition to other remedies it may have in law or in equity, to injunctive or
other appropriate orders to restrain any such breach without showing or
providing any actual damage sustained by itself.
Section 5.3 Consents. Each of the Sellers and Buyer will cooperate and use
their respective best efforts to make all filings and obtain all licenses,
permits, consents, approvals, authorizations, qualifications and orders of
governmental authorities and other third parties necessary to consummate the
transactions contemplated by this Agreement. Each of the parties hereto will
furnish to the other party such necessary information and reasonable assistance
as such other party may reasonably request in connection with the foregoing and
will provide the other party with copies of all filings made by such party with
any governmental entity or any other information supplied by such party to a
governmental entity in connection with this Agreement and the transactions
contemplated hereby.
Section 5.4 Exclusive Negotiations. Each of the Sellers agree that neither
he nor it nor the Company will "shop" or in any other way solicit, entertain or
discuss the sale of the Company or its assets with any other party, whether
directly or indirectly, until October 31, 1998, or such other date as will be
agreed by the parties. The obligation under the preceding sentence will
automatically terminate pursuant to a termination under Section 8.1.
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Section 5.5 Covenant to Satisfy Conditions. Each of the Sellers and the
Company will use their respective best efforts to ensure that the conditions set
forth in Article VII hereof are satisfied, insofar as such matters are within
the control of Sellers or the Company, and Buyer will use its best efforts to
ensure that the conditions set forth in Article VII hereof are satisfied,
insofar as such matters are within the control of Buyer. Sellers and Buyer
further covenant and agree, with respect to a threatened or pending preliminary
or permanent injunction or other order, decree or ruling or statute, rule,
regulation or executive order that would adversely affect the ability of the
parties hereto to consummate the transactions contemplated hereby, to use all
reasonable efforts to prevent or lift the entry, enactment or promulgation
thereof, as the case may be.
Section 5.6 Public Announcements. The parties will not issue any report,
statement or press release or otherwise make any public statements with respect
to this Agreement and the transactions contemplated hereby, except as in the
reasonable judgment of the party may be required by law or in connection with
the obligations of a publicly-held, exchange-listed company, in which case the
language of any such report, statement or press release will be mutually agreed
to by the parties except as may be otherwise so required.
ARTICLE VI
CERTAIN TAX MATTERS
Section 6.1 Tax Matters. (a) Tax Returns, Payment of Taxes, Purchase Price
Adjustment. Tax Elections, and Refunds. (i) Buyer will cause to be prepared and
filed by McIntyre and McLarty all Tax Returns of the Company (including any
amendments thereto) with respect to any taxable period ending on or prior to the
Closing Date on a basis consistent with prior years, including any taxable
period ending as of the close of business on the Closing Date (any such period
being referred to herein as a "Pre-Closing Period"). The Company will pay such
Taxes and the Sellers will reimburse the Company for any Taxes for Pre-Closing
Periods in excess of the amounts accrued for periods up to the Closing Date on a
basis consistent with prior years in the ordinary course of business by the
Company prior to Closing (the "Accruals"). Buyer will pay, or will cause the
Company to pay, all Taxes reflected in the Accruals and for all taxable periods
which do not constitute Pre-Closing Periods.
(ii) Any refund of Taxes paid with respect to the Company shall
be for the account of Buyer. Sellers shall pay the Company the amount of any
such refund received by any Seller within fifteen (15) calendar days after
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receipt of such refund. Sellers, Buyer and the Company shall assist each other
in preparing, filing, obtaining, and defending any refund payable pursuant to
this Section 6.1(a)(iv).
(b) Control of Contest. Each party will have the right, at its own
expense, to control any audit or determination by any taxing authority, to
initiate any claim for refund or file any amended Tax Return, and to contest,
resolve and defend against any assessment, notice of deficiency, or other
adjustment or proposed adjustment of Taxes for any taxable period for which such
party (or any of its affiliates) is charged with responsibility for filing a Tax
Return under this Agreement (except that a party charged with payment
responsibility for Taxes under this Agreement will have such rights with respect
to any taxable period which includes a deemed Pre-Closing Period described in
Section 6.1(a)(ii) hereof); provided, however, that no party will have the right
to agree to any assessment, deficiency, settlement, or other adjustment or
proposed adjustment of Taxes that would adversely affect the interests of
another party without such other party's written consent, which consent will not
be unreasonably withheld. Buyer will promptly forward to Sellers all written
notifications and other written communications from any Taxing authority
received by Buyer or by a Company relating to any liability for Taxes for any
taxable period, including any Straddle Period, for which a Seller is charged
with payment responsibility under this Agreement. Buyer will assist the Sellers
and will cause the Company to assist the Sellers to enable the Sellers to take
any and all actions with respect to any proceedings for any such taxable period.
The failure by Buyer to provide any such notice to Sellers within twenty (20)
business days of receipt by Buyer or the Company of such notice will relieve
Sellers from any obligations with respect to the subject matter of any
notification not so forwarded.
(c) (i) Access to Information. Each of Buyer and Sellers will provide
the others, and Buyer will cause the Company to provide the Sellers, with the
right, at reasonable times and upon reasonable notice, to have access to and to
copy and use any records or information and personnel which may be relevant for
the taxable period for which the requesting party is charged with payment
responsibility for Taxes under this Agreement in connection with the preparation
of any Tax Returns, any audit or other examination by any taxing authority, the
filing of any claim for a refund of Tax or for the allowance of any Tax credit,
or any judicial or administrative proceedings relating to liability for Taxes.
The party requesting assistance hereunder will reimburse the other party for
reasonable expenses incurred in providing such assistance. Any information
obtained pursuant to this Section 6.1(c)(i) will be held in strict confidence
and will be used solely in
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connection with the reason for which it was requested. Notwithstanding anything
to the contrary in this Agreement, none of the Sellers, Buyer or any affiliate
of the Sellers or Buyer will have any obligation to make available or provide a
copy of any consolidated, combined or unitary Tax Return filed by any of the
Sellers or Buyer, or any related materials.
(ii) Retention of Records. For a period of seven (7) years from
the Closing Date, Buyer will not, and will cause the Company not to, dispose of
or destroy any of the business records and files of the Company relating to
Taxes in existence on the Closing Date without first offering to turn over
possession thereof to Sellers by written notice to Sellers at least thirty (30)
days prior to the proposed date of such disposition or destruction.
Section 6.2 Definitions. For purposes of this Agreement:
(a) the term "Taxes" will mean all taxes, levies or other like
assessments, charges or fees (including estimated taxes, charges and fees),
including, without limitation, income, corporation, advance corporation, gross
receipts, transfer, excise, property, sales, use, value-added, license, payroll,
employer health tax, workplace insurance payments and premiums, pay as you earn
("PAYE"), withholding, social security and franchise or other governmental taxes
or charges imposed by Canada, the United States or any province, state, county,
local or foreign government or subdivision or agency thereof; and such term will
include any interest, penalties or additions to tax attributable to such Taxes;
(b) the term "Tax Return" will mean any report, return, statement or
other written information required to be supplied to a taxing authority by the
Company in connection with Taxes; and
(c) the term "Tax Benefit" will mean the incremental effect on the
liability for taxes associated with (i) a loss, deduction or credit for any Tax
purpose or (ii) a carry forward or carry back of a loss, deduction or credit for
any Tax purpose.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE PARTIES
Section 7.1 Conditions to Each Party's Obligations. The respective
obligation of each party to consummate the transactions contemplated herein is
subject to the satisfaction at or prior to the Closing of the following
conditions:
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(a) Any waiting periods applicable to the transactions contemplated
by this Agreement under applicable antitrust or trade regulation laws and
regulations, will have expired or been terminated and all governmental
authorizations or approvals required in connection with the transactions
contemplated by this Agreement will have been obtained or given;
(b) No statute, rule or regulation will have been enacted, entered,
promulgated or enforced by any court or governmental authority which prohibits
the consummation of the transactions contemplated hereby;
(c) There will not be in effect any judgment, order, injunction or
decree of any court of competent jurisdiction enjoining the consummation of the
transactions contemplated hereby;
(d) There will not be any suit, action, investigation, inquiry or
other proceeding instituted, pending or threatened by any governmental or other
regulatory or administrative agency or commission which seeks to enjoin or
otherwise prevent consummation of the transactions contemplated hereby;
(e) The consent of the parties to the agreements set forth in Schedule
3.4 will have been obtained; and
(f) The amalgamation of the Amalgamated Companies with and into the
Company shall have been completed.
Section 7.2 Conditions to Obligations of Sellers. The obligations of
Sellers to consummate the transactions contemplated herein are further subject
to the satisfaction (or waiver) at or prior to the Closing of the following
conditions:
(a) The representations and warranties of Buyer contained in this
Agreement will be true and correct at the date hereof and as of the Closing as
if made at and as of such time, except for changes permitted or contemplated
hereby and except for representations which are as of a specific date;
(b) Buyer will have performed in all material respects its obligations
under this Agreement required to be performed by it at or prior to the Closing
pursuant to the terms hereof; and
(c) Buyer will have delivered the items required under Section 1.5.
Section 7.3 Conditions to Obligations of Buyer. The obligations of Buyer to
consummate the transactions
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contemplated hereby are further subject to the satisfaction (or waiver) at or
prior to the Closing of the following conditions:
(a) The representations and warranties of Sellers contained in this
Agreement will be true and correct at the date hereof and as of the Closing as
if made at and as of such time, except for changes permitted or contemplated
hereby and except for representations which are as of a specific date;
(b) Sellers will have performed in all material respects each of their
obligations under this Agreement required to be performed by them at or prior to
the Closing pursuant to the terms hereof; and
(c) Each of the Sellers and the Company, as applicable, will have
delivered the items required under Section 1.4.
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
Section 8.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned:
(a) at any time, by mutual written consent of Sellers and Buyer; or
(b) at any time after thirty (30) days following the date of execution
of this Agreement by Sellers, on the one hand acting jointly, or Buyer, on the
other hand, if through no fault of any party seeking termination the Closing has
not occurred on or prior to such date.
Section 8.2 Effect of Termination. There will be no liability or obligation
hereunder on the part of Sellers or Buyer or any of their respective directors,
officers, employees, affiliates, controlling persons, agents or representatives,
except that each of the Sellers, for his own actions, or Buyer, as the case may
be, may have liability, including under Article IX hereunder, to the other
Parties if the basis of termination is a willful, material breach by such Seller
or Buyer, as the case may be, of one or more of the provisions of this
Agreement, and except that the obligations provided for in Section 10.1 hereof
and the obligation to treat information in a confidential manner as set forth in
Section 5.2(b), will survive any such termination.
Section 8.3 Amendment, Modification and Waiver. This Agreement may be
amended, modified or supplemented at any
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time by written agreement of Sellers and Buyer. Any failure of Sellers, on the
one hand, or Buyer, on the other hand, to comply with any term or provision of
this Agreement may be waived, with respect to Buyer, by Sellers and, with
respect to Sellers, by Buyer, by an instrument in writing signed by or on behalf
of the appropriate party, but such waiver or failure to insist upon strict
compliance with such term or provision will not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure to comply.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
Section 9.1 Non-Survival of Representations, Warranties and Agreements.
Except for Section 3.19, which will survive until the expiration of the
applicable statute of limitations, the representations, warranties and
agreements of Sellers and Buyer made in this Agreement, will survive the Closing
for a period of three (3) years from the Closing, but, except as provided in
Section 8.2 hereof, will not survive any termination of this Agreement. The
parties intend to shorten the statute of limitations and agree that no claims or
causes of action may be brought against Sellers, Buyer or any of their
directors, officers, employees, affiliates, controlling persons, agents or
representatives based upon, directly or indirectly, any of the representations,
warranties or agreements contained in this Agreement after the fourth
anniversary of the Closing or, except as provided in Section 8.2 hereof, any
termination of this Agreement. This Section 9.1 will not limit any covenant or
agreement of the parties which contemplates performance after the Closing,
including, without limitation, the covenants and agreements set forth in
Sections 9.2, 9.3 and 10.1 and Article VI hereof, it being understood that the
provisions of Article VI hereof will survive until the expiration of the
applicable statute of limitations.
Section 9.2 Sellers' Agreement to Indemnify.
(a) Subject to the terms and conditions set forth herein, George
Johnston and Hayden Marcus ("Seller Indemnitors") will jointly and severally
indemnify and hold harmless Buyer and its directors, officers, employees,
affiliates, controlling persons, agents and representatives and their successors
and assigns (collectively, the "Buyer Indemnitees") from and against all
liability, demands, claims, actions or causes of action, assessments, losses,
damages, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) (collectively, "Buyer Damages") asserted against
or incurred by any Buyer Indemnitee as a result of or arising out of (i) a
breach of
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any representation, warranty or agreement contained in this Agreement when made
or at and as of the Closing as though such representations, warranties and
agreements were made at and as of the Closing and (ii) any liability or
obligation of any of the Amalgamated Companies.
(b) Seller Indemnitors' obligations to indemnify the Buyer Indemnitees
are subject to the following limitations:
(i) No indemnification will be made by Seller Indemnitors unless
the aggregate amount of Buyer Damages exceeds $25,000 and, in such event,
indemnification will be made by Seller Indemnitors only to the extent that the
aggregate amount of Buyer Damages exceeds $25,000;
(ii) In no event will Seller Indemnitors' aggregate obligation to
indemnify the Buyer Indemnitees exceed the Purchase Price;
(iii) Seller Indemnitors will be obligated to indemnify the Buyer
Indemnitees only for those Buyer Damages as to which the Buyer Indemnitees have
given Seller Indemnitors written notice thereof on or prior to the third (3rd)
anniversary of the Closing. Any written notice delivered by a Buyer Indemnitee
to Seller Indemnitors with respect to Buyer Damages will set forth, with as much
specificity as is reasonably practicable, the basis of the claim for Buyer
Damages and, to the extent reasonably practicable, a reasonable estimate of the
amount thereof; and
(iv) Subject to Seller's right to arbitrate under Section 10.10
hereunder, Buyer may, but is not required to, set off any amounts due from
Seller Indemnitors pursuant to this Section 9.2 against any remaining payments
of Purchase Price to be made, if any.
Section 9.3 Buyer's Agreement to Indemnify.
(a) Subject to the terms and conditions set forth herein, Buyer will
indemnify and hold harmless Sellers and their directors, officers, employees,
affiliates, controlling persons, agents and representatives and their successors
and assigns (collectively, the "Seller Indemnitees") from and against all
liability, demands, claims, actions or causes of action, assessments, losses,
damages, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) (collectively, "Seller Damages") asserted against
or incurred by any Seller Indemnitee as a result of or arising out of (i) a
breach of any representation, warranty or agreement contained in this Agreement
when made or at and as of the Closing as though such representations, warranties
and agreements were made at and as of the Closing, and (ii) any negligent act or
willful
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misconduct of Buyer's employees given access to the Company's premises pursuant
to Section 5.2.
(b) Buyer's obligations to indemnify the Seller Indemnitees are
subject to the following limitations:
(i) No indemnification will be made by Buyer unless the aggregate
amount of Seller Damages exceeds $25,000 and, in such event, indemnification
will be made by Buyer only to the extent that the aggregate amount of Seller
Damages exceeds $25,000;
(ii) In no event will Buyer's aggregate obligation to indemnify
the Seller Indemnitees exceed the Purchase Price; and
(iii) Buyer will be obligated to indemnify the Seller Indemnitees
only for those Seller Damages as to which the Seller Indemnitees have given
Buyer written notice thereof on or prior to the third (3rd) anniversary of the
Closing. Any written notice delivered by a Seller Indemnitee to Buyer with
respect to Seller Damages will set forth, with as much specificity as is
reasonably practicable, the basis of the claim for Seller Damages and to the
extent reasonably practicable, a reasonable estimate of the amount thereof.
Section 9.4 Third Party Indemnification. The obligations of Sellers to
indemnify the Buyer Indemnitees under Section 9.2 hereof with respect to Buyer
Damages, and the obligations of Buyer to indemnify the Seller Indemnitees under
Section 9.3 hereof with respect to Seller Damages, in either case resulting from
the assertion of liability by third parties (each, as the case may be, a
"Claim"), will be subject to the following terms and conditions:
(a) Any party against whom any Claim is asserted will give the party
required to provide indemnity hereunder written notice of any such Claim
promptly after learning of such Claim, and the indemnifying party may at its
option undertake the defense thereof by representatives of its own choosing.
Failure to give prompt notice of a Claim hereunder will not affect the
indemnifying party's obligations under this Section 9.4, except to the extent
the indemnifying party is materially prejudiced by such failure to give prompt
notice. If the indemnifying party, within 30 days after notice of any such
Claim, or such shorter period as is reasonably required, fails to assume the
defense of such Claim, the Buyer Indemnitee or Seller Indemnitee, as the case
may be (each, an "Indemnitee"), against whom such Claim has been made will (upon
further notice to the indemnifying party) have the right to undertake the
defense, compromise or settlement of such Claim on behalf of and for the account
and risk, and at the expense, of the indemnifying party, subject to the right of
the indemnifying
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party to assume the defense of such Claim at any time prior to settlement,
compromise or final determination thereof.
(b) Anything in this Section 9.4 to the contrary notwithstanding, the
indemnifying party will not enter into any settlement or compromise of any
action, suit or proceeding or consent to the entry of any judgment (i) which
does not include as an unconditional term thereof the delivery by the claimant
or plaintiff to the Indemnitee of a written release from all liability in
respect of such action, suit or proceeding, or (ii) which contains terms or
conditions other than or in addition to monetary damages without the prior
written consent of the Indemnitee, which consent will not be unreasonably
withheld.
ARTICLE X
MISCELLANEOUS
Section 10.1 Fees and Expenses. Whether or not the transactions
contemplated herein are consummated pursuant hereto, except as otherwise
provided herein, each of Sellers and Buyer will pay all fees and expenses
incurred by, or on behalf of, him or it in connection with, or in anticipation
of, this Agreement and the consummation of the transactions contemplated hereby.
Each of Sellers and Buyer, will indemnify and hold harmless the other party or
parties, as the case may be, from and against any and all claims or liabilities
for brokers', financial advisory and finders' fees incurred by reason of any
action taken by such party or otherwise arising out of the transactions
contemplated by this Agreement by any person claiming to have been engaged by
such party.
Section 10.2 Further Assurances. From time to time after the Closing Date,
at the request of another party hereto and at the expense of the party so
requesting, each of the parties hereto will execute and deliver to such
requesting party such documents and take such other action as such requesting
party may reasonably request in order to consummate more effectively the
transactions contemplated hereby.
Section 10.3 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement will be in
writing and may be given by any of the following methods: (a) personal delivery;
(b) facsimile transmission; (c) registered or certified mail, postage prepaid,
return receipt requested; or (d) overnight delivery service. Notices will be
sent to the appropriate party at its address or facsimile number given below (or
at such other address or facsimile number for such party as will be specified by
notice given hereunder):
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If to Buyer, to:
WilTel Communications (Canada), Inc.
2800 Post Oak Blvd.
Houston, Texas 77056
Attn: Vice President, Finance and Administration
Fax: (713) 307-4080
With a copy to:
David P. Batow, General Counsel
Williams Communications Group, Inc.
One Williams Center, Suite 4100
Tulsa, Oklahoma 74172
Fax: (918) 573-3005
If to Sellers, to:
George Johnston
45 Banting Way
Kanata, Ontario K2K 1P7
Hayden Marcus
1845 Montereau Avenue
Gloucester, Ontario K1C 5X2
Gary White
15 Parkglen Drive
Nepean, Ontario K2G 3H1
with a copy to:
Gregory Sanders
Soloway, Wright
Suite 900 - 427 Laurier Ave. West
Ottawa, Ontario K1R 7Y2
Fax: (613) 238-8507
All such notices, requests, demands, waivers and communications will be deemed
received upon (i) actual receipt thereof by the addressee, (ii) actual delivery
thereof to the appropriate address, or (iii) in the case of a facsimile
transmission, upon transmission thereof by the sender and issuance by the
transmitting machine of a confirmation slip that the number of pages
constituting the notice have been transmitted without error.
Section 10.4 Severability. Should any provision of this Agreement for any
reason be declared invalid or unenforceable, such decision will not affect the
validity or enforceability of any of the other provisions of this
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<PAGE> 32
Agreement, which remaining provisions will remain in full force and effect and
the application of such invalid or unenforceable provision to persons or
circumstances other than those as to which it is held invalid or unenforceable
will be valid and enforced to the fullest extent permitted by law.
Section 10.5 Binding Effect; Assignment. This Agreement and all of the
provisions hereof will be binding upon and will inure to the benefit of the
parties hereto and their respective personal representatives, successors and
permitted assigns. Neither this Agreement nor any of the rights, interests or
obligations hereunder will be assigned, directly or indirectly, including,
without limitation, by operation of law, by any party hereto without the prior
written consent of the other parties hereto.
Section 10.6 No Third Party Beneficiaries. This Agreement is solely for the
benefit of Sellers, and their respective personal representatives, successors
and permitted assigns, with respect to the obligations of Buyer under this
Agreement, and for the benefit of Buyer, and its successors and permitted
assigns, with respect to the obligations of Sellers. This Agreement will not be
deemed to confer upon or give to any third party any remedy, claim, liability,
reimbursement, cause of action or other right.
Section 10.7 Interpretation. (a) The article and section headings contained
in this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and will not in any way affect the meaning or
interpretation of this Agreement.
(b) As used in this Agreement, the term "person" will mean and include
an individual, a partnership, a joint venture, a corporation, a limited
liability company, a trust, an unincorporated organization and a government or
any department or agency thereof.
(c) As used in this Agreement, the term "affiliate" will have the
meaning set forth in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended.
(d) As used in this Agreement, the term "best efforts" with respect to
any party will mean the best efforts of a party without the requirement that
such party incur any nonanticipated (as of the date hereof), unreasonable,
out-of-pocket expenses or incur any other nonanticipated (as of the date
hereof), unreasonable burden or commence or pursue litigation in any action,
suit or proceeding, whether administrative, civil or criminal.
Section 10.8 Entire Agreement. This Agreement and the Schedules, Exhibits
and other documents referred to herein
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<PAGE> 33
or delivered pursuant hereto which form a part hereof constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all other prior agreements and understandings, both written and oral,
between the parties or any of them with respect to the subject matter hereof.
Section 10.9 Governing Law. This Agreement will be governed by and
construed in accordance with the laws of the Province of Ontario (regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof) as to all matters, including but not limited to matters of
validity, construction, effect, performance and remedies.
Section 10.10 Resolution of Disagreements Among Parties. If Buyer or any of
the Sellers disagree as to any matter arising hereunder, Buyer and such Seller
will promptly consult with each other in an effort to resolve such dispute. If
any such disagreement cannot be resolved within fifteen (15) days after either
party asserts in writing that such dispute cannot be resolved, Buyer and such
Seller will jointly select an arbitrator (the "Arbitrator") pursuant to the
Arbitration Act of Ontario to resolve the disagreement. Arbitrator's
determination will be binding and conclusive, and any fees and expenses relating
to the engagement of the Arbitrator will be shared one-half by the Sellers and
one-half by Buyer. Upon the resolution of such dispute either by the parties or
by the Arbitrator, any amounts payable by a party hereto will be made to a bank
account designated by the payee no later than five (5) business days after such
resolution, together with interest at the Citibank base rate as adjusted from
time to time from the date the Arbitrator's decision indicates the payment under
dispute should have been made.
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Section 10.11 Counterparts. This Agreement may be executed in counterparts,
each of which will be deemed to be an original, but all of which will constitute
one and the same agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first above written.
WILTEL COMMUNICATIONS (CANADA), INC.
By: /s/ LARRY JONES
-----------------------------------
Name: Larry Jones
Title: Vice President
WILLIAMS COMMUNICATIONS SOLUTIONS, LLC
By: /s/ LARRY JONES
-----------------------------------
Name: Larry Jones
Title: Vice President
1310038 ONTARIO INC.
By: /s/ GEORGE JOHNSTON
-----------------------------------
Name:George Johnston
Title:President
/s/ GEORGE JOHNSTON
-----------------------------------
GEORGE JOHNSTON
30
<PAGE> 35
H. MARCUS FAMILY TRUST
By: /s/ PATRICIA MARCUS
-----------------------------------
Name:Patricia Marcus
Title:Trustee
By: /s/ HAYDEN MARCUS
-----------------------------------
Name:Hayden Marcus
Title:Trustee
/s/ GEORGE JOHNSTON
-----------------------------------
HAYDEN MARCUS
/s/ GARY WHITE
-----------------------------------
GARY WHITE
31
<PAGE> 1
Redacted portions have been marked with asterisks (****). Confidential treatment
has been requested for the redacted portions. The confidential redacted portions
have been filed separately with the Securities and Exchange Commission.
EXHIBIT 10.22
CONFIDENTIAL TREATMENT
UNIDIAL HOLDINGS, INC.
PREFERRED STOCK PURCHASE AGREEMENT
THIS PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is entered
into as of October 2, 1998, by and among UNIDIAL HOLDINGS, INC., a Delaware
corporation (the "Company") and WILLIAMS COMMUNICATIONS, INC., a Delaware
corporation (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of
an aggregate of 27 shares of its Series C Convertible Preferred Stock (the
"Series C Shares");
WHEREAS, the Purchaser desires to purchase the Series C Shares on the
terms and conditions set forth herein and enter into the Collateral Agreements
(as hereinafter defined); and
WHEREAS, the Company desires to issue and sell the Series C
Shares to the Purchaser on the terms and conditions set forth herein and enter
into the Collateral Agreements (as hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE/COLLATERAL AGREEMENTS.
1.1 AUTHORIZATION OF SHARES. On or before the Closing (as defined
in Article 2 below), the Company shall have authorized the sale and issuance to
the Purchaser of the Series C Shares having the rights, preferences, privileges
and restrictions set forth in the Certificate of Designations to the Certificate
of Incorporation of the Company in the form attached hereto as Exhibit A (the
"Preferred Share Certificate"). The Company has, or prior to the Closing will
have, adopted and filed the Preferred Share Certificate with the Secretary of
State of the State of Delaware.
1.2 SALE AND PURCHASE OF PREFERRED SHARES. Subject to the terms
and conditions hereof, the Company hereby agrees to issue and sell to the
Purchaser, and the Purchaser agrees to purchase from the Company, 27 Series C
Shares at a purchase price of $1,000,000 per share.
1.3 COLLATERAL AGREEMENTS. The Collateral Agreements shall include
the Registration Rights Agreement, the Shareholders' Agreement, and the Services
Agreements (as hereinafter defined).
<PAGE> 2
2. CLOSING, DELIVERY AND PAYMENT.
The closing of the sale and purchase of the Series C Shares
under this Agreement (the "Closing") shall take place at 10:00 a.m., local time,
on October 2, 1998 at the offices of The Williams Companies, Inc., Legal
Department, One Williams Center, Suite 4100, Tulsa, Oklahoma 74172, or at such
other time or place as the Company and the Purchaser may mutually agree. At the
Closing, subject to the terms and conditions hereof, the Company will deliver to
the Purchaser certificates representing 27 Series C Shares, against payment in
cash by the Purchaser of the purchase price therefor.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
For the purposes of all the representations and warranties in
this Article 3, other than Section 3.2, when the term "Company" is used, it will
be deemed to include UniDial Communications, Inc. unless otherwise expressly
stated. Except as set forth on the Schedule of Exceptions attached hereto as
Exhibit B or as disclosed in the Financial Statements attached hereto as Exhibit
C, the Company hereby represents and warrants to the Purchaser as follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is
a corporation duly organized and validly existing under the laws of the State of
Delaware. The Company has full power and authority to own and operate its
properties and assets, and to carry on its business as presently conducted. The
Company is duly qualified and is authorized to do business and is in good
standing as a foreign corporation in all jurisdictions in the aggregate in which
the nature of its activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions, in the aggregate,
in which failure to do so would not have a material adverse effect on the
Company or its business.
3.2 CAPITALIZATION. The authorized capital stock of the Company,
immediately prior to the Closing, consists of 2,000 shares of Common Stock, 954
shares of which are issued and outstanding and 32 of which are reserved for
issuance pursuant to the exercise of outstanding stock options; 10 shares of
Series A Convertible Preferred Stock, 60 shares of Series B Convertible
Preferred Stocks, and 430 shares of Preferred Stock, none of which are issued
and outstanding. Immediately prior to the Closing, 246 shares of Common Stock
are reserved for future issuance upon the conversion of the Series C Shares. All
issued and outstanding shares of the Company's Common Stock have been duly
authorized and validly issued, are fully paid and nonassessable, and were issued
in compliance with all applicable state and federal laws concerning the issuance
of securities. The rights, preferences, privileges and restrictions of the
Series C Shares are as stated in the Preferred Share Certificate. The shares of
Common Stock issuable upon the conversion of the Series C Shares (the
"Conversion Shares") have been duly and validly reserved for issuance and, when
issued in accordance with the Preferred Share Certificate, will be validly
issued, fully paid and nonassessable. Except for the specific matters identified
on Exhibit B and the shares reserved for issuance pursuant to the exercise of
outstanding stock options, there are no outstanding options, warrants, rights
(including conversion or preemptive rights), proxy or shareholder agreements, or
agreements of any kind for the purchase issue, transfer, delivery, sale or
acquisition from the Company of any of its securities.
2
<PAGE> 3
3.3 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on
the part of the Company, its officers, directors and shareholders necessary for
the authorization, execution and delivery of this Agreement, the Collateral
Agreements in the form attached hereto, the Preferred Share Certificate, and the
sale and issuance of the Series C Shares and the Conversion Shares pursuant
hereto, and for the performance of the Company's obligations hereunder and under
the Collateral Agreements has been taken or will be taken prior to the Closing.
The Agreement and the Collateral Agreements when executed and delivered, will be
valid and binding obligations of UniDial Holdings, Inc. or UniDial
Communications, Inc., as appropriate, enforceable in accordance with their
terms.
The sale of the Series C Shares and the subsequent conversion of Series
C Shares into Conversion Shares are not and will not be subject to any
preemptive rights or rights of first refusal that have not been properly waived
or complied with. When issued, the Series C Shares and the Conversion Shares
will be validly issued, fully paid and nonassessable, and will be free of any
liens or encumbrances including, without limitation, call rights, warrants and
conversion rights except as expressly set forth in the Certificate of
Designation; provided, however, that the Series C Shares and the Conversion
Shares may be subject to restrictions on transfer under state and/or federal
securities laws as set forth herein or as otherwise required by such laws at the
time a transfer is proposed.
3.4 OBLIGATIONS TO RELATED PARTIES. No employee, officer, or
director of the Company or member of his or her immediate family is indebted to
the Company, nor is the Company indebted (or committed to make loans or extend
or guarantee credit) to any of them. To the best of the Company's knowledge,
none of such persons has any direct or indirect ownership interest in any firm
or corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation that competes with the
Company, except that employees, officers, or directors of the Company and
members of their immediate families may own stock in publicly traded companies
that may compete with the Company. No member of the immediate family of any
officer or director of the Company is directly or indirectly interested in any
contract with the Company with a value of more than $100,000.
3.5 FINANCIAL STATEMENTS. Attached hereto as Exhibit C are copies
of the unaudited balance sheet and income statement for the seven months ended
July 31, 1998 (the "Unaudited Financial Statements") and of the audited
financial statements for the twelve (12) months ended December 31, 1997 (the
"Financial Statements") of UniDial Communications, Inc., ("UniDial"), the
Company's wholly-owned subsidiary. The Financial Statements fairly present the
financial condition and operating results of UniDial as of the dates, and for
the periods, indicated therein and have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
throughout the period.
3.6 CHANGES. Except as disclosed in the Unaudited Financial
Statements and subject to the exceptions identified in Exhibit B, since the date
of the Financial Statements there has not been:
3
<PAGE> 4
(a) Any change in the assets, liabilities, financial
condition or operations of UniDial as shown on the balance sheet as of the date
of the Financial Statements, other than changes in the ordinary course of
business, none of which individually or in the aggregate has had or is expected
to have a material adverse effect on such assets, liabilities, financial
condition, or operations of the Company;
(b) Any change, except in the ordinary course of
business, in the contingent obligations of UniDial by way of guaranty,
endorsement, indemnity, warranty, or otherwise;
(c) Any damage, destruction, or loss, whether or not
covered by insurance, materially and adversely affecting the properties,
business, financial condition, operations or prospects of UniDial;
(d) Any waiver by UniDial of a material right or of a
material debt owed to it;
(e) Any direct or indirect loans made by UniDial to any
shareholder, employee, officer, or director of UniDial, other than advances made
in the ordinary course of business;
(f) Any declaration or payment of any dividend or other
distribution of the assets of UniDial;
(g) Any labor organization activity;
(h) Any debt, obligation, or liability incurred, assumed
or guaranteed by UniDial, except current liabilities incurred in the ordinary
course of business.
(i) Any adverse change in any material agreement to which
UniDial is a party or by which it or any of its assets are bound or subject,
including compensation agreements with UniDial's employees;
(j) To the best of the Company's knowledge, any other
event or condition of any character that, either individually or cumulatively,
has materially and adversely affected, or, so far as the Company may now
foresee, in the future may materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company;
(k) For the purposes of this Section 3.6, the terms
"material" or "materially" shall mean an affect on value of more than $100,000.
3.7 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has
good and marketable title to its properties and assets, and good title to its
leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance, or charge, other than (i) those resulting from taxes which have not
yet become delinquent, (ii) liens and encumbrances which do not exceed $100,000
4
<PAGE> 5
on any property or asset or materially impair the operations of the Company,
(iii) liens and encumbrances in favor of Star Bank, and (iv) liens and
encumbrances in favor of WorldCom, Inc.
3.8 PATENTS AND TRADEMARKS. (a) The Company has sufficient title
and ownership of all trade names, copyrights, trade secrets, proprietary
information, patents, trademarks, service marks, rights and processes necessary
for its business as now conducted and as proposed to be conducted without any
conflict with or infringement of the rights of others. There are no outstanding
options, licenses, or agreements of any kind relating to the foregoing, nor is
the Company bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity. The Company has not received any
communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity. The Company is not obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere materially with the Company's ability to pursue its
stated business objectives. Neither the execution nor delivery of this
Agreement, or the Collateral Agreements, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as proposed, will, to the Company's knowledge, conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any of such employees or
the Company is now obligated. The Company does not believe it is or will be
necessary to utilize any inventions of any of its employees (or people it
currently intends to hire) made prior to their employment by the Company.
(b) As part of the consideration for the Company entering this
Agreement, the Company shall license, or shall cause the necessary individuals
to license, the trademark known as "WillCall" on a non-exclusive, perpetual,
world-wide, non-recourse, basis to Purchaser.
3.9 The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his
best efforts to promote the interests of the Company or that would conflict with
the Company's business as proposed to be conducted.
3.10 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any term of its Certificate of Incorporation (as amended
by the Preferred Share Certificate) or Bylaws or in any material respect of any
provision of any mortgage, indenture, agreement, instrument or contract to which
it is a party or by which it or its property is bound or, to the best of its
knowledge, of any federal, state or local judgment, order, writ, decree,
statute, rule or regulation applicable to the Company where such violation or
default would; or could reasonably be expected to, materially and adversely
affect the Company. The execution, delivery, and performance of and compliance
with this Agreement and the Collateral Agreements and the issuance and sale of
the Series C Shares pursuant hereto and of the Conversion Shares pursuant to the
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<PAGE> 6
Preferred Share Certificate, will not result in any such violation, result in a
conflict with or constitute either a default under any such provision or an
event that results in the creation of any lien, charge, or encumbrance of more
than $100,000 upon any assets of the Company or the suspension, revocation,
impairment, forfeiture, or nonrenewal of any material permit, license,
authorization, or approval applicable to the Company, its business or
operations, or any of its assets or properties.
3.11 LITIGATION. There is no action, suit, proceeding or
investigation pending or currently threatened against the Company which (i)
questions the validity of this Agreement, the Collateral Agreements, or the
right of the Company to enter into them, or (ii) to consummate the transactions
contemplated hereby, or (iii) which might result, either individually or in the
aggregate, in any material adverse changes in the assets, condition, affairs or
prospects of the Company, financially or otherwise, or any change in the current
equity ownership of the Company, nor is the Company aware that there is any
basis for the foregoing. Without limiting the foregoing, there is no action,
suit, proceeding, or investigation with a potential exposure of $1,000,000 or
greater pending or currently threatened against the Company alleging that the
Company's sales agents program violates any federal or state securities laws.
The foregoing includes, without limitation, actions pending or threatened (or
any basis therefor known to the Company) involving the prior employment of any
of the Company's employees, their use in connection with the Company's business
of any information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
3.12 TAX RETURNS AND PAYMENTS. The Company has filed all tax
returns (federal, state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and all other
taxes due and payable by the Company on or before the Closing have been paid or
will be paid prior to the time they become delinquent, except where the failure
thereof would not have a material and adverse effect on the financial condition,
operations or prospects of the Company. The Company has not elected pursuant to
the Internal Revenue Code of 1986, as amended ("Code"), to be treated as a
collapsible corporation or a Subchapter S corporation pursuant to Section 341(f)
or Section 1362(a) of the Code, nor has it made any other elections pursuant to
the Code (other than elections which relate solely to methods of accounting,
depreciation or amortization) which would have a material effect on the Company,
its financial condition, its business as presently conducted or proposed to be
conducted or on any of its properties or material assets.
3.13 REGISTRATION RIGHTS. Except for the registration rights
granted WorldCom, Inc. by Registration Rights Agreement dated November 30, 1997
and expected to be granted to Metracom, Inc., and the registration rights
granted to Purchaser by the Registration Rights Agreement of even date herewith,
the Company is presently not under any obligation, and has not granted any
rights, to register any of the Company's presently outstanding securities or any
of its securities that may hereafter be issued.
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<PAGE> 7
3.14 COMPLIANCE WITH LAWS. The Company has complied in all material
respects with all applicable statutes, rules, regulations, orders and
restrictions of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business and ownership of its
properties including, without limitation, compliance with all applicable federal
and state securities laws with respect to Company's sales agents program. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement, the
Collateral Agreements, and the issuance of the Series C Shares or the Conversion
Shares, except such as have been duly and validly obtained or filed, or with
respect to any filings that must be made after the Closing, except such as will
be filed in a timely manner.
3.15 OFFERING VALID. Assuming the accuracy of the representations
and warranties of the Purchaser contained in Section 4.3 hereof, the offer, sale
and issuance of the Series C Shares and the Conversion Shares will be exempt
from the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act") and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws.
3.16 SECURITIES EXEMPTION. Neither the Company nor any agent on its
behalf has solicited or will solicit any offers to sell or has offered to sell
or will offer to sell all or any part of the Series C Shares to, or otherwise
approach or communicate in respect of all or any part of such Series C Shares
with, any person or persons so as to bring the sale of such Series C Shares by
the Company within the registration provisions of the Securities Act. The
Company shall seek and obtain all necessary permits and other authorizations or
orders of exemption as may be necessary or appropriate under the Kentucky
Securities Act and any other applicable state securities laws, with respect to
the Company's offer and sale of the Series C Shares and the Conversion Shares
3.17 COMPLIANCE WITH ERISA. No employee pension benefit plan
established or maintained by the Company or to which the Company is required to
make contributions (other, than a Multi-employer Plan), which is subject to Part
3 of Subtitle B of Title 1 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")", or Section 412 of' the Internal Revenue Code of
1986 (as amended from time to time, the "Code"), had an accumulated funding
deficiency (as such term is defined in Section 302 of ERISA or Section 412 of
the. Code) as of the last day of the most recent fiscal year of such plan
heretofore ended. No liability to the Pension Benefit Guaranty Corporation
(other than required insurance premiums, all of which, to the extent due and
payable, have been paid) has been incurred with respect to any such plan (other
than a Multi-employer Plan) and there has not been any reportable event within
the meaning of ERISA, or any other event or condition, which presents a material
risk of termination of any such. plan (other than a Multi-employer Plan) by the
Pension Benefit Guaranty Corporation. The Company has not incurred and is not
reasonably expected to incur, any withdrawal liability (as defined in Title IV
of ERISA) to any Multi-employer Plan. The Company not has received any
notification that any Multi-employer Plan is in reorganization (as defined in
Section 4241 of ERISA), is insolvent (as defined in Section 4241 of ERISA) or
has been terminated, within the meaning of Title IV of ERISA, and no
Multi-employer Plan is reasonably expected to be in reorganization, insolvent or
terminated. To
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<PAGE> 8
the knowledge of the Company, neither the Department of Labor, the Internal
Revenue Service nor any other governmental body has determined that any such
plan or any trust created thereunder, or any trustee or administrator thereof,
has engaged in a prohibited transaction with respect to any such plan, as such
term is defined in Section 4975 of the Code, that could subject any such plan,
trust, trustee, administrator, or the Company to any tax or penalty on
prohibited transactions imposed under said Section 4975 or ERISA, and the
Company is not aware of any facts that would constitute such a prohibited
transaction.
Except for COBRA continuation coverage and contingent obligations in
connection with the Company's health insurance program, the Company has no
extraordinary liabilities or other obligations, whether actual or contingent,
with respect to any employee benefit plan, including, without limitation,
liability for post-retirement medical benefits, post-retirement life insurance
benefits, or other similar benefits.
3.18 DISCLOSURE. This Agreement (including the schedules and
exhibits hereto), the Collateral Agreements, and any other documents,
certificates, instruments or other written materials or information furnished to
Purchaser by or on behalf of the Company in connection with the transactions
contemplated by this Agreement and the Collateral Agreements taken as a whole,
do not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances in which they were made, not misleading.
There is no fact known to the Company which is materially adverse, or in the
future could reasonably be expected to be materially adverse, to the business
operations or financial performance of Company which has not been furnished to
Purchaser or set forth or reflected in this Agreement, the Collateral Agreements
or the other documents, certificates, and instruments referred to herein and
delivered to Purchaser by or on behalf of the Company in connection with the
transactions contemplated by this Agreement.
3.19 COMPLIANCE: GOVERNMENTAL AUTHORIZATIONS AND REGULATIONS. The
Company has all material licenses, franchises, permits, certificates and other
authorizations from all federal, state, municipal and other governmental
authorities having jurisdiction over its business. All such licenses,
franchises, permits, certificates and other governmental authorizations held by
the Company, in respect of its business are valid and sufficient to permit the
Company to conduct its operations as currently used or conducted except where
the failure to have such licenses, franchises, permits, certificates or other
governmental authorizations would not have a material adverse effect, and there
are no violations of any such licenses, franchises, permits, certificates and
other governmental authorizations, nor are there any proceedings, to the
knowledge of the Company, pending or threatened against the Company to revoke or
limit any such license, franchise, permit, certificate or other governmental
authorization.
3.20 INFORMATION SYSTEMS. The Company has information systems
capable of providing on a timely basis, current and accurate operating and
financial information, consistent with industry standards, which (a) allows
management of the Company to make reasoned and fully informed business
decisions, (b) allows the preparation of financial statements in a timely
fashion,
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(c) allows the provision of billing and customer service information, and (d) is
capable of reading and processing data within and between the years 1999 and
2000.
3.21 SHAREHOLDERS. The following Shareholders beneficially own the
number of shares of the Company's Common Stock set forth next to its name:
<TABLE>
<S> <C>
J. Sherman Henderson III ****
John S. Henderson IV ****
Kelly H. Duggins ****
N-TEL, LLC ****
WorldCom, Inc. ****
Remaining Shareholders ****
----
Total ****
</TABLE>
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company as follows
(such representations and warranties do not lessen or obviate the
representations and warranties of the Company set forth in this Agreement):
4.1 REQUISITE POWER AND AUTHORITY. The Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement, the Collateral Agreements and to carry out their
provisions. All action on Purchaser's part required for the lawful execution and
delivery of this Agreement and the Collateral Agreements has been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Collateral Agreements will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights; (ii) general
principles of equity that restrict the availability of equitable remedies; and
(iii) to the extent that the enforceability of the indemnification provisions of
Section 1.9 of the Collateral Agreements may be limited by applicable laws.
4.2 CONSENTS. All consents, approvals, orders, authorizations,
registrations, qualifications, designations, declarations or filings with any
governmental authority on the part of the Purchaser required in connection with
the consummation of the transactions contemplated in the Agreement and the
Collateral Agreements have been or shall have been obtained prior to and be
effective as of the Closing.
4.3 INVESTMENT REPRESENTATIONS. The Purchaser understands that the
Series C Shares and Conversion Shares have not been registered under the
Securities Act. Purchaser also understands that the Series C Shares are being
offered and sold pursuant to an exemption from registration contained in the
Securities Act based in part upon Purchaser's representations contained in the
Agreement. The Purchaser hereby represents and warrants as follows:
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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(a) PURCHASER BEARS ECONOMIC RISK. The Purchaser must
bear the economic risk of this investment indefinitely unless the Series C
Shares or the Conversion Shares are registered pursuant to the Securities Act,
or an exemption from registration is available. Purchaser understands that the
Company has no present intention of registering the Series C Shares, the
Conversion Shares or any shares of its Common Stock and that certificates
representing capital stock issued to the Purchaser will bear a restrictive
legend. The Purchaser understands that it has no registration rights with
respect to the Series C Shares or the Conversion Shares except as provided in
the Collateral Agreements. The Purchaser also understands that there is no
assurance that any exemption from registration under the Securities Act will be
available and that, even if available, such exemption may not allow the
Purchaser to transfer all or any portion of the Series C Shares or the
Conversion Shares under the circumstances, in the amounts or at the times the
Purchaser might propose.
The Purchaser further represents that the Purchaser is an
Accredited Investor within the meaning of Rule 501(a) of Regulation D under the
Securities Act.
(b) ACQUISITION FOR OWN ACCOUNT. The Purchaser is
acquiring the Series C Shares and the Conversion Shares for the Purchaser's own
account for investment only, and not with a view towards their distribution.
(c) PURCHASER CAN PROTECT ITS INTEREST. The Purchaser
represents that by reason of its management's business or financial experience,
Purchaser has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement and the Collateral Agreements.
Further, the Purchaser is aware of no publication of any advertisement in
connection with the transactions contemplated in this Agreement. The Purchaser
is not a corporation, trust or partnership specifically formed for the purpose
of consummating these transactions.
(d) COMPANY INFORMATION. The Purchaser has had an
opportunity to discuss the Company's business, management and financial affairs
with directors, officers and management of the Company and has had the
opportunity to review the Company's operations and facilities. The Purchaser 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.
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO THE PURCHASER'S OBLIGATIONS AT THE CLOSING.
The Purchaser's obligations to purchase the Series C Shares at
the Closing are subject to the satisfaction, at or prior to the Closing, of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in Article 3
hereof shall be true and correct in all material respects as of the Closing with
the same force and effect as if they
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had been made as of the Closing, and the Company shall have performed all
obligations and conditions herein required to be performed or observed by it on
or prior to the Closing.
(b) CORPORATE DOCUMENTS. The Company shall have delivered
to the Purchaser or its counsel, copies of all corporate documents of the
Company as the Purchaser shall reasonably request.
(c) RESERVATION OF CONVERSION SHARES. The Conversion
Shares issuable upon conversion of the Series C Shares shall have been duly
authorized and reserved for issuance upon such exercise or conversion.
(d) FILING OF PREFERRED SHARE CERTIFICATE. The Preferred
Share Certificate shall have been filed with the Secretary of State of the State
of Delaware.
(e) COMPLIANCE CERTIFICATE. The Company shall have
delivered to the Purchaser a Compliance Certificate, executed by the President
and the Chief Financial Officer of the Company, dated the date of the Closing,
to the effect that the conditions specified in subparagraphs (a) through (d) of
this Section 5.1 have been satisfied.
(f) REGISTRATION RIGHTS AGREEMENT. The Registration
Rights Agreement shall have been executed and delivered by the parties thereto.
(g) SHAREHOLDER AGREEMENT. The Shareholder Agreement by
and among J. Sherman Henderson III (and members of his immediate family), N-TEL,
LLC and the Purchaser shall have been executed and delivered by the parties
thereto.
(h) SERVICES AGREEMENTS. The Company and the Purchaser
shall have executed and delivered (i) a carrier services agreement and (ii) a
software license agreement, (collectively, the "Services Agreements"). The
Company and Purchaser's affiliate, Williams Communications Solutions, LLC
("Solutions") have begun negotiations on a sales agency reseller and services
agreement, pursuant to which Solutions shall provide, in conjunction with
Purchaser, certain telecommunications services to customers of Solutions, for
which a Term Sheet has been prepared and is attached hereto as Exhibit D. The
parties agree to negotiate in good faith a definitive agreement incorporating
the terms and conditions contained in Exhibit D with a view toward executing one
or more definitive agreements; however, the parties are not obligated to enter
into any such definitive agreements.
(i) WORLDCOM AGREEMENT. The Purchaser and WorldCom, Inc.
shall have executed and delivered a switched services resale agreement upon such
terms and conditions satisfactory to the Purchaser in its sole discretion.
(j) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchaser and its counsel,
and
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the Purchaser and its counsel shall have received all such counterpart originals
or certified or other copies of such documents as they may reasonably request.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to issue and sell the Series C Shares at the Closing is subject to
the satisfaction, on or prior to the Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties made by the Purchaser in Article 4 hereof shall
be true and correct in all material respects at the date of the Closing, with
the same force and effect as if they had been made on and as of said date.
(b) PERFORMANCE OF OBLIGATIONS. The Purchaser shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by the Purchaser on or before the Closing.
(c) FILING OF PREFERRED SHARE CERTIFICATE. The Preferred
Share Certificate shall have been filed with the Secretary of State of the State
of Delaware. The Company agrees to use its best efforts to effect such action.
(d) REGISTRATION RIGHTS AGREEMENT. The Registration
Rights Agreement shall have been executed and delivered by the parties thereto.
The Company agrees to use its best efforts to effect such action.
(e) SERVICES AGREEMENTS. The Company and the Purchaser
shall have executed and delivered the Services Agreements.
6. COVENANTS OF THE COMPANY.
6.1 Until the earliest to occur of (i) the closing of a firm
commitment underwritten public offering (the "IPO") pursuant to an effective
registration statement under the Securities Act covering the offer and sale of
Common Stock for the account of the Company to the public with an aggregate
offering price to the public of not less than **** (before deduction of
underwriter commissions and offering expenses), (ii) the conversion of all of
the Series C Shares into shares of Common Stock, or (iii) the redemption of all
of the Series C Shares, the Company shall duly perform and observe each and all
of the following covenants and agreements:
(a) ATTENDANCE AT BOARD MEETINGS. The Purchaser shall
have the right to have a Purchaser designee attend and observe the proceedings
of meetings of the board of directors of the Company and the right to receive
any information furnished to said directors in connection with the meetings of
the board, except in cases where such attendance at the meetings or receipt of
information would cause the attorney-client privilege between the Company and
its counsel to be adversely affected or in cases in which the board of directors
is considering a contract or transaction between the Company and the Purchaser
or one of its affiliates or in which the
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 13
Purchaser or one of its affiliates has a financial interest. The Purchaser
designee shall maintain the confidentiality of all financial and other
proprietary information discussed at meetings of the board of directors of the
Company or made known to the designee in connection with such meetings.
(b) RIGHTS OF APPROVAL. Without the Purchaser's prior
written consent, which shall not be unreasonably withheld, delayed or
conditioned, the Company and UniDial will not (i) make material expenditures
even if in the normal and ordinary course of business, except with respect to
payments made to WorldCom, Inc. or its affiliates on account of the purchase of
telecommunications services from WorldCom (ii) enter into an agreement to sell
or otherwise transfer any material part of its assets or ownership interests in
subsidiaries, (iii) enter into an agreement to make or suffer to remain
outstanding any material loan or advance to, or enter into an agreement to
receive a material loan or other extension of material credit, or purchase or
acquire for a material amount or by assumption of a material liability any
stock, bonds, notes or securities of, or any partnership interest or limited
liability company interest in, or make any material capital contribution to, any
other person, partnership, company, or other entity, (iv) appoint a person other
than J. Sherman Henderson III as chief executive officer, (v) materially modify
its agent program as currently in effect, (vi) change the independent
accountants of the Company nor engage any additional independent accountants, it
being understood that the independent accountants of the Company must be an
international firm of recognized prestige, (vii) increase the compensation of
any officer or executive by more than fifteen (15%) percent in any year, or
enter into any employment agreement, any severance agreement, or any material
transaction or series or related transactions with any of the Shareholders (as
defined in the Shareholder's Agreement) or any of their Affiliates (as defined
in the Shareholder's Agreement) except on terms that are at least as favorable
to the Company as could be obtained in an arms-length transaction, or enter into
an employment agreement or severance agreement that involves more than $100,000,
or (viii) initiate any litigation, or consent to the settlement or admit
liability with respect to or fail to diligently contest any litigation against
it, which involves more than $250,000. For purposes of subsections (i) through
(iii) of this Section 6.2, "material" shall mean an amount in excess of
$5,000,000.
(c) USE OF PROCEEDS. The Company will use the proceeds of
the sale of the Series C Shares as follows: (i) up to **** will be used in
satisfaction of certain contingent obligations of the Company to its agents
pursuant to a program approved by the Purchaser or as repayment of indebtedness
incurred by the Company in connection with such a program, (ii) **** to fund
a portion of the Company's acquisition of Metracom Corporation, and (iii) the
remainder for general corporate purposes.
(d) IPO INVESTMENT. The Company shall, at the beginning
of preparation for an IPO, deliver a letter from a nationally recognized
investment banking firm establishing the percentage ownership to be sold to the
public and the market capitalization of the Company ("IMC"). The Purchaser
shall then have the right, but not the obligation, within fifteen (15) days of
receipt of the letter, ****. If Purchaser does not elect to exercise such
right, then the Company may proceed with the IPO but only at a price per share
equal to or greater than the IPO Price and only for the amount of IPO Shares not
less than eighty percent (80%) nor more than one hundred fifteen percent (115%)
of the amount offered to Purchaser; provided, (as defined in the ****
represented by the number of IPO Shares offered to the Purchaser has not
declined since the date of the letter from the nationally recognized investment
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 14
banking firm. The Company will provide the Purchaser with a copy of such
registration statement within two days following its filing with the SEC.
(e) FURTHER INVESTMENT. With respect to shares of the
Company (including securities convertible into shares of the Company) expected
to be issued to a third party, the Company will provide the Purchaser a fair and
reasonable opportunity to acquire all, but not less than all, such shares upon
the same terms and conditions as to be offered to the third party provided that
Purchaser continues to own the Series C Shares or at least 5% of the Company's
issued and outstanding common stock. The rights of the Purchaser pursuant to
this Section 6.1 shall not apply to any shares to be issued in the IPO, to any
shares issued pursuant an acquisition or merger that has been duly approved by
the Company's board of directors, or pursuant to employee or director or
consultant stock-based incentive plans duly adopted by the Company's board of
directors and shall expire upon the consummation of the IPO.
(f) MERGER RIGHT OF FIRST REFUSAL. If, before the
conversion of all shares of Series C Preferred Stock, the Corporation's Board of
Directors receives a bona fide offer from any entity other than the Purchaser
that it desires to accept (the "Offer to Purchase") to enter into a merger,
consolidation, exchange of shares, recapitalization, reorganization, or similar
event (a "Transaction") as a result of which shares of Common Stock of the
Corporation shall be changed into the same or a different number of shares of
the same or another class or classes of stock or securities of the Corporation
or another entity or the right to receive an amount in cash per share, or a
combination thereof, then the Board of Directors shall provide notice of the
proposed Transaction to the Purchaser and grant the Purchaser the exclusive
right to enter into a Transaction on substantially the same terms and conditions
as the Offer to Purchase. If the Purchaser declines to submit an offer within
fifteen (15) days of the date of the Board's notice of the proposed Transaction
to the Purchaser and the Corporation's Board of Directors affirmatively votes to
proceed with the Transaction, Purchaser shall have the right to convert all its
shares of Series C Preferred Stock into shares of Common Stock in accordance
with the terms of the Minimum Valuation formula of paragraph 4(A)(ii)(b) and
shall vote all of its shares of Series C Preferred Stock in favor of the
Transaction at any meeting of the shareholders held to consider the Transaction.
(g) FINANCIAL INFORMATION. So long as Purchaser owns the
Series C Shares, the Company will, and will cause each of its subsidiaries to,
maintain a system of accounting established and administered in accordance with
generally accepted accounting principles, and the Company will furnish to
Purchaser:
(i) Within 120 days after the close of each of its fiscal
years, an audit report certified by independent certified public accountants,
prepared in accordance with generally accepted accounting principles on a
consolidated basis for itself and its Subsidiaries, including balance sheets
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<PAGE> 15
as of the end of such period, related profit and loss and statements of
stockholders' equity, and a statement of cash flow, accompanied by any
management letter prepared by said accountants and by a certificate of said
accountants that, in the course of their examination necessary for their
certification of the foregoing, they have obtained no knowledge of any unmatured
default or event of default, or if, in the opinion of such accountants, any
unmatured default or event of default shall exist, stating the nature and status
thereof;
(ii) Within 50 days after the close of the first three
quarterly periods of each of its fiscal years, for itself and subsidiaries,
consolidated unaudited balance sheets as at the close of each such period and
consolidated profit and loss and reconciliation of surplus statements and a
statement of cash flow for the period from the beginning of such fiscal year to
the end of such quarter, all certified by its chief financial officer;
(iii) Together with a certificate from the chief financial
officer of Company, and attested by the Company's Secretary the financial
statements required under clauses (a) and (b) of this Section 6.3, and stating
that no unmatured default or event of default exists under any material
agreement, or if any unmatured default or event or default exists, stating the
nature and status thereof;
(iv) Promptly upon the furnishing thereof to the
shareholders of the Company, copies of all financial statements, reports and
proxy statements so furnished;
(v) Promptly upon the filing thereof, copies of all
registration statements and annual, quarterly or other periodic reports which
the Company or any its subsidiaries files with the Securities and Exchange
Commission and copies of all material statements and reports which the Company
or any of its subsidiaries files with the Federal Communications Commission or
any other regulating body which are intended to be publicly available;
(vi) Promptly upon receipt of demand therefor, such other
information (including non-financial information) as Purchaser may from time to
time reasonably request; and
(vii) Promptly upon becoming aware of an unmatured default
or an event of default in any material agreement, but in no event later than
five (5) days after becoming aware of such event or condition, the Company will
provide written notice to Purchaser specifying the nature of the unmatured
default or event of default, as the case may be, the period of existence thereof
and what action the Company is taking or proposed to take with respect thereto.
The foregoing obligation shall be limited, once the Company becomes a "reporting
company" under the United States securities laws, to the extent necessary to the
comport with such laws.
(h) OTHER BUSINESS. Neither the Company nor any of its
subsidiaries shall engage in any business unrelated to its current business that
could reasonably be expected to materially and adversely affect its ability to
perform its obligations under this Agreement or the Collateral Agreements.
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(i) INSPECTION. The Company will, and will cause each of
its subsidiaries to, permit Purchaser, by its respective agents or
representatives, upon reasonable notice, to inspect any of the properties,
corporate books and financial records of the Company and its subsidiaries, to
examine and make copies of the books of accounts and other financial records of
the Company and its subsidiaries, and to discuss the affairs, finances and
accounts of the Company and its subsidiaries with, and to be advised as to the
same by, their respective officers at such reasonable times and intervals during
normal business hours as Purchaser may designate. Each person making such an
inspection agrees to maintain in confidence any information so obtained (except
for disclosures (i) to any prospective or actual assignee of the Series C Shares
who shall agree to maintain such information in confidence and to indemnify the
Company and its subsidiaries, (ii) to its auditors, attorneys and professional
advisers, and (iii) if legally required to be so disclosed, (A) to any
governmental authority having jurisdiction over it, (B) pursuant to any order or
legal process of any court or governmental agency, or (C) in connection with any
legal action arising out of this agreement or the Collateral Agreements) and
indemnify the Company and its subsidiaries against any loss or claim arising
from a failure to maintain such confidence. The foregoing obligation shall be
limited, once the Company becomes a "reporting company" under the United States
securities laws, to the extent necessary to the comport with such laws.
(j) ANTI-DILUTION RIGHTS. Prior to all of the Series C
Shares having been converted or redeemed, the Company agrees not to amend the
anti-dilution rights of or grant any new such rights to WorldCom.
(k) SECURITIES. The Company shall not redeem, repurchase,
or otherwise acquire any shares of the outstanding Common Stock of the Company
including without limitation call rights, warrants, options, and contracts or
other commitments to issue shares or securities convertible into Common Stock
(other than the Series C Shares) except (i) ratably from all holders thereof, or
(ii) from an employee or former employee pursuant to an employee benefit plan
approved by the board of directors of the Company or in connection with the
termination of the employee's employment.
7. EVENTS OF DEFAULT; REMEDIES.
7.1 EVENTS OF DEFAULT. If any of the following conditions or
events ("Events of Default") shall occur (whether voluntary or involuntary or
arising by operation of law or otherwise):
(a) Any representation or warranty made by the Company or
UniDial herein to Purchaser which is untrue or misleading in any material
respect as of the time such statement was made in light of the circumstances
then existing; or
(b) The Company or any subsidiary breaches or causes the
breach of any covenant(s) made by the Company or a subsidiary hereunder or is in
breach of or causes a default to occur in the performance of any material
covenant or obligation in any other agreements with Purchaser or Purchaser's
subsidiaries, which breach or default remains uncured for ten (10) days after
written notice of such breach or default is received by the Company.
16
<PAGE> 17
7.2 REMEDIES ON DEFAULT. If any Event of Default shall have
occurred and be continuing, Purchaser shall have all remedies that may be
available at law or in equity.
7.3 PRESERVATION OF RIGHTS. No delay or omission of Purchaser to
exercise any right under this Agreement shall impair such right to be construed
to be a waiver of any Event of Default or an acquiescence therein. Any single or
partial exercise of any such right shall not preclude other or further exercise
thereof or the exercise of any other right, and no waiver, amendment or other
variations of the terms, conditions or provisions of this Agreement whatsoever
shall be valid unless in writing signed by Purchaser, and then only to the
extent in such writing specifically set forth. All remedies contained in this
Agreement or by law afforded shall be cumulative and all shall be available to
Purchaser until all obligations hereunder have been satisfied.
8. MISCELLANEOUS.
8.1 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the Commonwealth of Kentucky.
8.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
8.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Series C Shares from time to time; provided,
however, that prior to the receipt by the Company of adequate written notice of
the transfer of any Series C Shares specifying the full name and address of the
transferee, the Company may deem and treat the person listed as the holder of
such Series C Shares in its records as the absolute owner and holder of such
Series C Shares for all purposes, the payment of any dividends or any redemption
price. Any sale or transfer of the Series C Shares shall be for not less than
all of such shares. The rights of the Purchaser under this Agreement may not be
assigned except to a purchaser or transferee of all the Series C Shares.
8.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Collateral Agreements, and the other documents delivered pursuant
hereto constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and no party shall be liable or bound
to any other in any manner by any representations, warranties, covenants, and
agreements except as specifically set forth herein. Nothing in this Agreement or
the Collateral Agreements express or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
assigns, any rights, remedies, obligations, or liabilities under or by reason of
this Agreement or the Collateral Agreements, except as expressly provided
herein.
17
<PAGE> 18
8.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
8.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon
the written consent of the holders of not less than a majority in interest of
the Series C Shares (treated as if converted and including any Conversion Shares
into which the Series C Shares have been converted that have not been sold to
the public).
(b) The obligations of the Company and the rights of the
holders of the Series C Shares and the Conversion Shares under the Agreement may
be waived only as provided in the Preferred Share Certificate and in the
Shareholders' Agreement
(c) Except to the extent provided in this Section 8.6(c),
neither this Agreement nor any provision hereof may be changed, waived,
discharged, or terminated, except by a statement in writing signed by the party
against which enforcement of the change, waiver, discharge, or termination is
sought.
8.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to the Purchaser, upon any breach,
default or noncompliance of the Company under this Agreement, the Collateral
Agreements or the Preferred Share Certificate, shall impair any such right,
power, or remedy, nor shall it be construed to be a waiver of any such breach,
default or noncompliance, or any acquiescence therein, or of or in any similar
breach, default or noncompliance thereafter occurring. It is further agreed that
any waiver, permit, consent, or approval of any kind or character on the
Purchaser's part of any breach, default or noncompliance under this Agreement,
the Collateral Agreements or under the Preferred Share Certificate or any waiver
on the Purchaser's part of any provisions or conditions of the Agreement must be
in writing and shall be effective only to the extent specifically set forth in
such writing. All remedies, either under this Agreement, the Collateral
Agreements, the Preferred Share Certificate, by law, or otherwise afforded to
the Purchaser, shall be cumulative and not alternative.
8.8 NOTICES. All notices and other communications provided for or
permitted hereunder shall be made by hand delivery or registered first class
mail:
(a) If to the Purchaser:
Williams Communications, Inc.
One Williams Center, Suite 4100
Tulsa, Oklahoma 74172
Attention: S. Miller Williams, Sr. Vice President
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<PAGE> 19
(b) If to another Holder of Registrable Shares, at the
most current address or addresses provided to the Company by such Holder;
(c) If to the Company:
UniDial Holdings, Inc.
9931 Corporate Campus Drive, Suite 3000
Louisville, Kentucky 40223
Attention: S. Andrew McKay, Chief Operating Officer
8.9 EXPENSES. The Company shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
the Agreement, and the Purchaser shall pay all costs and expenses that it incurs
with respect to the negotiation, execution, delivery and performance of the
Agreement.
8.10 TITLES AND SUBTITLES. The titles of the paragraphs and
subparagraphs of the Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
8.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
8.12 BROKER'S FEES. Each party hereto represents and warrants that
no agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 8.12 being untrue.
19
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have executed the Agreement as
of the date set forth in the first paragraph hereof.
COMPANY:
UNIDIAL HOLDINGS, INC.
9931 Corporate Campus Drive, Suite 3000
Louisville, Kentucky 40223
By
----------------------------
S. Andrew McKay
Chief Operating Officer
PURCHASER:
WILLIAMS COMMUNICATIONS, INC.
One Williams Center
Suite 2600
Tulsa, Oklahoma 74172
By
----------------------------
S. Miller Williams
Senior Vice President
20
<PAGE> 21
UNIDIAL HOLDINGS, INC.
PREFERRED STOCK PURCHASE AGREEMENT
LIST OF EXHIBITS
Exhibit A PREFERRED SHARE CERTIFICATE OF DESIGNATIONS
Exhibit B SCHEDULE OF EXCEPTIONS
Exhibit C FINANCIAL STATEMENTS OF THE COMPANY
Exhibit D TERMS SHEET FOR WCS SERVICES AGREEMENT
21
<PAGE> 1
Redacted portions have been marked with asterisks (****). Confidential treatment
has been requested for the redacted portions. The confidential redacted portions
have been filed separately with the Securities and Exchange Commission.
CONFIDENTIAL TREATMENT
EXHIBIT 10.25
EXECUTION COPY
CAPACITY PURCHASE AGREEMENT
THIS CAPACITY PURCHASE AGREEMENT (as amended, supplemented or otherwise
modified from time to time, this "Agreement"), is entered into as of January 5,
1998, between WILLIAMS COMMUNICATIONS, INC., a corporation organized and
existing under the laws of the State of Delaware (the "Grantor") and INTERMEDIA
COMMUNICATIONS INC. a corporation organized and existing under the laws of the
State of Delaware (the "Purchaser").
WITNESSETH:
WHEREAS, the Grantor owns the System (as defined herein);
WHEREAS, additional construction of the System by the Grantor is planned
and will be completed pursuant to the Network Deployment Plan (as defined
herein and as agreed to by the Purchaser and the Grantor in accordance with the
terms hereof); and
WHEREAS, the Purchaser desires to acquire rights with respect to the
Adjusted Purchased Capacity (as defined herein) on a non-cancelable
indefeasible right of use basis in fiber ("IRU") on the System;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
convenants contained herein, covenant and agree with each other as follows:
Section 1. Attachments and Definitions
1.1 Attachments. (a) The following schedules are attached hereto and are
incorporated herein:
Schedule 1 Purchased Capacity, Associated Pricing, Service Intervals
and System Performance Standards;
Schedule 2 Network Deployment Plan;
Schedule 5 Management Fee.
(b) The parties hereto agree that, subject to each party's reasonable
agreement with the terms and contents of each of the following schedules and
exhibits, such schedules and exhibits shall, within thirty (30) days of the
Execution Date, be attached hereto and incorporated herein:
Schedule 3 Grantor Cities and Location of Grantor POPs;
Schedule 4 Collection Agreement and Collection Service Order;
Exhibit A Backbone Agreements (including each associated Assignment
and Assumption Agreements and Assigned Circuits;
Exhibit B Form of Service Order;
Exhibit C Form of Letter of Agency.
<PAGE> 2
2
1.2 Defined Terms. As used in this Agreement, the terms listed in this
Section 1.2 shall have the respective meanings set forth in this Section 1.2.
"Acknowledgment": as defined in Section 6.1(a) hereof.
"Actual Start Date": as defined in Section 6.1(b) hereof.
"Adjusted Purchased Capacity": the sum of Purchased Capacity and additional
Capacity purchased as Required Capacity on the System pursuant to the terms of
this Agreement.
"Affiliate": of any Person means any other Person which directly or
indirectly controls, or is controlled by, or is under common control with, such
Person. For purposes of this definition, the term "control" (including the
correlative meanings of the terms "controlled by" and "under common control
with"), as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise. With respect to the Grantor, "Affiliate" means any Person
which may be consolidated with the Grantor for financial reporting purposes.
"Agreement": as defined in the preamble hereof.
"Ancillary Services": as defined in Section 7.1(c) hereof.
"Annual Commitment": as defined in Section 2.3(b) hereof.
"Annual Period": as defined in Section 2.3(b) hereof.
"Appraisal Procedure": means a procedure, initiated at the election of the
Purchaser, whereby an independent appraiser is selected by the Purchaser (the
"Purchaser Appraiser") to determine the market rate for Material Capacity. Upon
the Purchaser Appraiser's determination of the market rate for Material
Capacity, the Purchaser shall give the Grantor written notice of the rate so
determined by the Purchaser Appraiser. In the event that the Grantor declines to
accept the Purchaser Appraiser's determination of the market rate for Material
Capacity and to recalculate the Rates in accordance with Section 3.3(b) on the
basis of such rate, the Grantor shall, within ten (10) days of its receipt of
the foregoing notes from the Purchaser, select its own independent appraiser
(the "Grantor Appraiser") to determine the market rate for Material Capacity.
The Grantor Appraiser shall have thirty (30) days to make its determination of
the market rate for Material Capacity. Upon the Grantor's receipt of the Grantor
Appraiser's determination of the market rate for Material Capacity, the Grantor
shall forward such determination to the Purchaser. In the event that there is a
discrepancy between the rates determined by each appraiser, the Purchaser and
the Grantor shall select a mutually agreeable licensed arbitrator with knowledge
of the telecommunications industry (the "Arbitrator") to make a third
determination of the market rate for Material Capacity. The Arbitrator shall
then, within thirty (30) days of his or her selection and without reference
<PAGE> 3
3
to the rates determined by the Purchaser Appraiser or the Grantor Appraiser,
independently determine the market rate for Material Capacity. Upon the
Arbitrator's determination of the market rate for Material Capacity, the
Arbitrator shall compare the rate that he or she determined with that of the
rates determined by each of the Purchaser Appraiser and the Grantor Appraiser.
The new market rate shall then be deemed to be the rate of either the Purchaser
Appraiser or the Grantor Appraiser depending on which such rate is closest to
that determined by the Arbitrator. The party whose appraiser's determination is
ultimately rejected by the Arbitrator shall be responsible for all of the cost
and expense of the Arbitrator and for up to $75,000 of the cost and expense of
the other party's appraiser.
"Assignment Agreement Effective Date": as defined in Section 8.1(c) hereof.
"Assignment Agreement Execution Date": as defined in Section 8.2 hereof.
"Assignment and Assumption Agreement": these certain Assignment and
Assumption Agreements, which agreements shall be on terms and conditions
satisfactory to the Purchaser and the Grantor, providing for the assignment and
assumption of the Backbone Agreements and which such agreements shall be
included in Exhibit A.
"Backbone Agreement": (i) the Purchaser's backbone agreements with the
Backbone Agreement Service Providers, which such agreements are, or shall be,
the subject of the Assignment and Assumption Agreement and (ii) the MCI
Backbone Agreement (which may be the subject of an Assignment and Assumption
Agreement), all of which agreements described in clauses (i) and (ii) shall be
identified in Exhibit A.
"Backbone Agreement Service Provider": each provider of telecommunications
services, other than the Purchaser, party to a Backbone Agreement (i.e. MCI,
WorldCom, IPN, IXC, Cable & Wireless, Sprint and IPN/TPL).
"Backbone Payments": the Non-Recurring and Monthly Recurring Charges and
the Management Fee.
"Business Day": a day other than a Saturday, Sunday or other day on which
commercial banks in Tulsa, Oklahoma or Tampa, Florida are authorized or
required by law to close.
"Capacity": capacity on the System, which may be provided, On-Net or
Off-Net, for telecommunications in DS-3, OC-3, OC-12, OC-48 and OC-192
interexchange carrier services but excluding Other Services and Sub-D8-3
Capacity.
"Catch-Up Period": the sixth (6th) year of the Term.
"Circuit": a dedicated communications path with a specified bandwidth.
<PAGE> 4
4
"Collocation Agreement": a collocation agreement, a form of which shall be
attached hereto as part of Schedule 4.
"Collocation Service Order": a collocation service order, a form of which
shall be attached hereto as part of Schedule 4.
"Collocation Services": as defined in Section 7.2 hereof.
"Communications Act": the Communications Act of 1934, as amended.
"Confidential Information": as defined in Section 17.4 hereof.
"Connecting Facilities Assignment": the particular assignment per Circuit
on facilities where one carrier meets another carrier.
"Cross-Connect": a physical connection between two pieces of equipment
located in the same facility.
"Designated Capacity": Capacity which is indicated in the Initial Network
Deployment Plan under the columns headed "On-Net PLs Now" and "On-Net ATM Now"
and which the Granter shall be required as of the Execution Date, to provision
at the Rates provided for pursuant to the terms of this Agreement.
"Designated Capacity Exceptions": Grantor POPs (identified as "Williams
City Plan" in the Initial Network Deployment Plan) which first become available
in accordance with the scheduled availability set forth in the Initial Network
Deployment Plan and for which Off-Net Rates apply until the date of such
scheduled availability.
"Designated Off-Net Capacity": Capacity which is indicated in the Initial
Network Deployment Plan under the column headed "On-Net PLs 12 Mo." and with
respect to which for up to twelve (12) months from the Execution Date the
Grantor shall be entitled to provision to the Purchaser Off-Net and at rates
which pass through to the Purchaser the rates charged by the Third-Party
Service Provider for such Capacity (the "Off-Net Rate"); provided that, after
the expiration of such twelve (12) month period, or, in the event that the
Grantor can provision such Capacity On-Net prior to the expiration of such
twelve (12) month period, such Capacity shall become subject to the Rates
provided for pursuant to the terms of this Agreement.
"Design Layout Record": a record containing the technical information that
describes the telecommunication facilities and termination points provided by a
telecommunications customer to a carrier in order to enable the carrier to
design the overall service to be provided by the carrier to that customer.
"Due Date": the fifteenth of the month following the month in which an
invoice is issued; provided that the Purchaser's payments of the Non-Recurring
and Monthly Recurring Charges shall be received by the Grantor in immediately
available funds and
<PAGE> 5
5
at least one billing cycle prior to the date that payment is due from the
Grantor to the Backbone Agreement Service Provider.
"Effective Date": as defined in Section 4.1 hereof.
"Excess": as defined in Section 3.2 hereof.
"Execution Date": March 31, 1998.
"Extension Period": as defined in Section 4.1 hereof.
"FCC": the Federal Communications Commission.
"Force Majeure Event": circumstances which give rise to a party hereto
being unable to perform its obligations with respect to any provision of this
Agreement (other than the obligations to make payments with respect to
liabilities which accrued prior to a Force Majeure Event) due to such party
being prevented, restricted, or interfered with by causes beyond its reasonable
control, such causes shall be deemed to include (i) acts of God, (ii) fire,
(iii) explosions, (iv) vandalism, (v) cuts in telecommunications cable (which
such cuts could not have been prevented by the exercise of reasonable care),
(vi) power outages, (vii) storms or other similar occurrences or other
atmospheric conditions, (viii) any change in law, order, regulation, directive,
action or request of the United States government or of a state or local
government or any instrumentality of any one or more of said governments, or of
any civil or military authority, (ix) national emergencies, (x) insurrections,
(xi) riots, (xii) wars, (xiii) acts of terrorism, (xiv) strikes, lockouts, work
stoppages or other labor difficulties, (xv) Third Party Service Provider or
supplier failures, breaches or delays (so long as any such Third-Party Service
Provider or supplier was selected with reasonable care) and (xvi) Third-Party
Service Provider or supplier shortages of materials provided, however, that the
Grantor's dispute with WorldCom (as reflected in the Grantor's filed lawsuit
against WorldCom) shall not be considered a force majeure event.
"Grantor": as defined in the preamble hereof.
"Grantor City": a city which shall be listed as a "Grantor City" on
Schedule 3.
"Grantor POP" or "Grantor Point of Presence": a facility on the System in
a Grantor City designated by the Grantor for the origination or termination of
Capacity, as shall be set forth on Schedule 3.
<PAGE> 6
6
"Grantor's Account": the bank account of the Grantor maintained with
**** of ****, at Tulsa, Oklahoma, (account number ****) or such other account
as the Grantor may designate to the Purchaser in writing. Wire instructions for
the above-referenced account are as follows:
Account Name: ****
Account Number: ****
Bank Name: ****
ABA No.: ****
Reference: ****
"Initial Network Deployment Plan": the Purchaser's initial Network
Deployment Plan which is attached hereto as Schedule 2.
"Initial Payment": $1,050,000.
"Initial Payment Date": the tenth (10th) Business Day after the Execution
Date.
"Interconnection Services": as defined in Section 7.1 hereof.
"Interconnection Cost": as defined in Section 7.1 hereof.
"Interexchange Service": long-distance telecommunications service between
local access transport areas.
"IRU": as defined in the recitals hereof.
"Link": as defined in Section 7.1 hereof.
"Local Access": as defined in Section 7.1 hereof.
"Management Fee": as defined in Section 8.4 hereof.
"Market Rate": the rate determined pursuant to the Appraisal Procedure.
"Material Capacity": (i) when used in connection with Most Favored Rate,
capacity provided by the Grantor to a customer other than capacity provided to a
customer which is being provided for (a) a longer period of time than the Term
and (b) the volume of which is greater than the Capacity being purchased by the
Purchaser hereunder and (ii) when used in connection with an Appraisal
Procedure, capacity with substantially similar technical and operational
specifications as the Capacity being purchased by the Purchaser hereunder
provided by a telecommunications service provider to a customer for a
comprehensive interexchange telecommunications network for a material length of
time and a material volume associated with the Capacity (it being understood
that a material length of time is for a term of (1) one year or more).
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 7
7
"MCI Backbone Agreement": as defined in Section 8.1(d) hereof.
"Minimum": as defined in Section 8.2 hereof.
****
"Network Deployment Plan": the Purchaser's use of Capacity plan attached
hereto as Schedule 2 (which such plan as of the Execution Date is the Initial
Network Deployment Plan), which may, pursuant to the provisions of Section
2.5, be amended as of each Plan Adjustment Date.
"Non-Recurring and Monthly Recurring Charges": as defined in Section 8.4
hereof.
"Off-Net": a Circuit which is not On-Net.
"Off-Net Rate": as defined in the definition of "Designated Off-Net
Capacity".
"On-Net": (i) a Circuit traversing the System both end points of which
originate or terminate at a Grantor POP in a Grantor City or (ii) a Circuit
which the Grantor has use of as result of a swap of a Circuit of the type
described in the preceding clause (i) for a Circuit on another capacity
provider's network to the extent such capacity is available.
"Other Services": Local Access, Interconnection Services, Ancillary
Services and Collocation Services.
"Person": any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Plan Adjustment Date": during the Term, each six (6) month anniversary of
the Execution Date, or such other date as the parties may mutually agree.
"Pricing Adjustment Date(s)": the fifth (5th), tenth (10th) and fifteenth
(15th) anniversaries of the Execution Date.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 8
8
"POP": a facility for the origination or termination of telecommunications
services.
"Purchase Price Payment": with respect to the IRU granted in respect of
the Capacity, each monthly amount payable on a Due Date by the Purchaser to the
Grantor in respect of the Capacity acquired.
"Purchased Capacity": the minimum Capacity (which shall include Capacity
provided pursuant to the Backbone Agreements in accordance with the provisions
of Section 8) in dollars to be acquired by the Purchaser on the Systems as set
forth on Schedule 1 hereto.
"Purchased Capacity Shortfall": as defined in Section 2.3.
"Purchaser": as defined in the preamble hereof.
"Purchaser Facilities": as defined in Section 17.2 hereof.
"Purchaser POP" or "Purchaser Point of Presence": a facility designated by
the Purchaser for the origination or termination of Capacity.
"Rates": the rates from which the Purchase Price Payments are derived
which rates, at the Execution Date and prior to any permitted or required
adjustments as provided for in this Agreement, are set forth in Schedule I
hereto.
"Renewal Term": as defined in Section 4.1 hereof.
"Representatives" as defined in Section 17.4 hereof.
"Requested Start Date": as defined in Section 6.1 hereof.
"Required Capacity": Capacity which the Grantor is required to provision
upon request by the Purchaser in accordance with the Network Deployment Plan
(and, if applicable, as reflected in specific Service Orders) at the Rates or,
in the case of that portion of Required Capacity which is also Designated
Off-Net Capacity, at the Off-Net Rate.
"Required Capacity Shortfall": as defined in Section 2.2 hereof.
"Second-in Party": as defined in Section 7.1 hereof.
"Service Affecting": a condition in the System which results in a loss or
degradation of service except for a loss or degradation of fifty (50)
milliseconds or less.
<PAGE> 9
9
"Service Intervals": the Grantor's time periods for responding to the
Purchaser's requests for Capacity as defined in Section 6.1 hereof.
"Service Intervals and System Performance Standards": the System
technical performance levels, specifications and service intervals as set
forth on Schedule 1.
"Service Orders": as defined in Section 6.1 hereof.
"Shortfall Carrier": as defined in Section 2.2 hereof.
"Sub-DS-3 Backbone Agreement": as defined in Section 9.1 hereof.
"Sub-DS-3 Capacity": as defined in Section 9.1 hereof.
"Sub-DS-3 Carrier": as defined in Section 9.1 hereof.
"System": the Grantor's existing multimedia backbone network and to
be constructed additional general use network facilities, including
optronics, digital encoders/decoders, telephone lines and microwave
facilities, and as described in Schedule 1. Except as expressly set forth
otherwise, the System shall be bounded in all cases at a Grantor POP. The
term "System" shall not be construed to include any Local Access.
"Taxes": as defined in Section 11.1 hereof.
"Term": as defined in Section 4.1 hereof.
"Third-Party Service Provider": a third-party provider of
telecommunications services which shall include all Backbone Agreement
Service Providers.
"Total Purchase Price": the sum of the Initial Payment and each
Purchase Price Payment payable by the Purchaser to the Grantor for the IRU
of the Capacity.
1.3 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in any schedule, exhibit or annex or any certificate or other
document made or delivered pursuant hereto or thereto.
(b) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms. The words
include, includes and including shall be deemed to be followed by the phrase
"without limitation."
<PAGE> 10
10
SECTION 2. IRU FOR CAPACITY
2.1 GRANT OF IRU. Effective on the Initial Payment Date, the Grantor
grants to the Purchaser, for the term of this Agreement, an IRU in the Adjusted
Purchased Capacity for which payment has been made and shall be made in
accordance with Sections 3.1 and 3.2 of this Agreement.
2.2 GRANTOR SHORTFALL IN CAPACITY. (a) In the event that the Grantor
gives notice (which such notice must be received by the Purchaser within ten
(10) Business Days of the relevant Service Order) to the Purchaser that it
cannot provide any portion of the Required Capacity (including Designated
Off-Net Capacity) either On-Net or Off-Net after exercising reasonable
commercial efforts to provision such Capacity (a "Required Capacity
Shortfall"), the Purchaser shall be entitled to attempt to locate a carrier
able to provision the Required Capacity Shortfall. In the event that (i) the
Purchaser is able to locate a carrier willing to provision the Required
Capacity Shortfall at commercially reasonable rates (the "Shortfall Carrier"),
the Purchaser shall notify the Grantor of the identity of such carrier and the
Grantor shall then be required to issue orders with respect of the Required
Capacity Shortfall at the Rates (or, in the case of Designated Off-Net
Capacity, at the Off-Net Rate), within two (2) days of the Purchaser's notice
to the Grantor; however, if, after notice from the Purchaser, the Grantor then
continues to fail to provision the Required Capacity Shortfall, the Purchaser
shall be entitled to provision the Required Capacity Shortfall with the
Shortfall Carrier **** or (ii) the Purchaser is unable to locate a carrier
willing to provision the Required Capacity Shortfall at commercially reasonable
rates, the Grantor shall not be obligated to provision the Required Capacity
Shortfall and the Purchaser shall not have any remedy for the Grantor's
failure to provision the Required Capacity Shortfall: provided that the Grantor
shall be obligated to continue to use commercially reasonable efforts to
provision the Required Capacity Shortfall (either On-Net or Off-Net) at the
earliest reasonable date that Capacity (either On-Net or Off-Net) becomes
available.
(b) Any Capacity that the Grantor provides Off-Net must at least meet
the minimum technical performance standards and service intervals that the
relevant Third-Party Service Provider regularly offers to its customers.
(c) Notwithstanding anything in this Agreement to the contrary, the
parties hereto agree that the Grantor shall only be obligated to provide
Capacity at the Rates at the times indicated by the Network Deployment Plan.
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Securities and Exchange Commission.
<PAGE> 11
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2.3 PURCHASER FAILURE TO USE PURCHASED CAPACITY. (a) Within ninety
(90) days after each of the first five (5) anniversaries of the Execution Date,
the Purchaser's actual use of Purchased Capacity shall be determined for each
such year by the Grantor and sent to the Purchaser for review and approval. In
the event that the Purchaser's use of Capacity in any such year is less than the
scheduled Purchased Capacity for such year (any such shortfall in use of
Purchased Capacity, a "Purchased Capacity Shortfall"), **** at the Rates
associated with the monthly period in which each portion of a Purchased Capacity
Shortfall occurred, **** the Purchaser shall be required to pay to the Grantor
**** an amount equal to the difference between the aggregate Purchase Price
Payments for such total Purchased Capacity Shortfall and the aggregate amount of
the Purchase Price Payments **** for the portion of the total Purchased Capacity
Shortfall.****
(b) As of and from the fifth (5th) anniversary of the Execution Date,
the Purchaser's Purchase Price Payments for each succeeding twelve (12) month
period (each, an "Annual Period") shall be at least equal to fifty-four million
dollars ($54,000,000) (the "Annual Commitment"). In the event that the Purchaser
fails to satisfy the Annual Commitment in any Annual Period on the date which is
forty-five (45) days after the expiration of any such Annual Period, the
Purchaser shall be required to pay to the Grantor an amount equal to the
difference between the Annual Commitment and the aggregate Purchase Price
Payments made during such Annual Period.
2.4 EARLY INCREASES IN USE OF CAPACITY. In any month that the
Purchaser's use of Capacity on the System reaches a month's Purchased Capacity
associated with a succeeding year, at the Purchaser's sole option and upon at
least five (5) days written notice to the Grantor, the Purchaser, commencing
with the next succeeding month, shall be subject to such future month's (and
each succeeding month's) Purchased Capacity and shall be entitled to the Rates
associated with such future time periods with respect to all subsequent
Purchased Capacity (including, if applicable, any Required Capacity that
exceeds the Purchased Capacity).
2.5 NETWORK DEPLOYMENT PLAN AMENDMENTS. (a) Generally. In conjunction
with each Plan Adjustment Date, the Purchaser shall have the right to propose
amendments to the Network Deployment Plan and the Grantor agrees to use
reasonable efforts to accommodate any amendments proposed by the Purchaser.
Proposed amendments to the Network Deployment Plan may relate to any of the
items described in the definition of Network Deployment Plan or included in the
Network Deployment Plan.
(b) Procedures for Amendments and Effectiveness. If the Purchaser
desires to amend the Network Deployment Plan, it shall, within ninety (90) days
prior to each Plan Adjustment Date, commence consultations with the Grantor
with respect to any proposed amendments to the Network Deployment Plan. If the
Grantor agrees to the proposed amendments, such amendments shall become
effective as of the Plan Adjustment Date and Schedule 2 shall be amended to
reflect the new Network Deployment Plan. Failure to agree to
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Securities and Exchange Commission.
<PAGE> 12
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any amendment to the Network Deployment Plan shall not in any way reduce the
Purchaser's obligations with respect to Purchased Capacity. Notwithstanding
anything in this Agreement to the contrary, the Purchaser may place a Service
Order with respect to a Circuit which is not associated with Designated
Capacity or Designated Off-Net Capacity subject to availability and such
Service Order shall not be deemed to be an amendment of the Network Deployment
Plan as it relates to Designated Capacity and Designated Off-Net Capacity.
(c) Initial Network Deployment Plan. Notwithstanding anything in this
Agreement to the contrary, the Initial Network Deployment Plan shall include
Designated Capacity, Designated Off-Net Capacity and Designated Capacity
Exceptions.
2.6 PREFERRED CAPACITY PROVIDER. Provided that neither the Grantor nor the
Purchaser is in default with respect to any provision of this Agreement and the
Purchaser has fulfilled its obligations with respect to the Purchased Capacity,
the parties agree as follows: with respect to Capacity associated with city
pairs indicated in the Initial Network Deployment Plan under the columns headed
"On-Net PLs Now" and "On-Net PLs 12 Mo." and any additional Capacity added to
the Network Deployment Plan in accordance with the provisions of Section 2.5,
the Purchaser shall have the right to solicit bids relating to such Capacity
from Third-Party Service Providers and, in the event that the Purchaser shall
receive a bona fide written offer from such Third-Party Service Provider
relating to the provisioning of such Capacity, the Purchaser shall be obligated
to take such bona fide written offer to the Grantor and the Grantor shall have
a right of first refusal to match the price and terms of such bona fide written
offer. In the event that the Grantor elects to match the price and terms of
such bona fide written offer, the Purchaser shall be obligated to provision
such Capacity with the Grantor. Except as set forth in this Section and as
otherwise provided for pursuant to this Agreement, the Purchaser shall not be
obligated to provision capacity with the Grantor.
SECTION 3. PAYMENT FOR CAPACITY
3.1 INITIAL PAYMENT. Upon the execution and delivery of this Agreement,
the Purchaser shall make the Initial Payment to the Grantor's Account, in
immediately available funds.
3.2 PURCHASE PRICE PAYMENTS. In exchange for the IRU interest in the
Capacity granted pursuant to this Agreement, the Purchaser shall, on or before
each Due Date, pay to the Grantor's Account, in immediately available funds,
the applicable Purchase Price Payment. Except as set forth in Section 2.3 and
as otherwise specifically set forth in this Agreement, the Purchaser shall not
be relieved of its obligation to make the Purchase Price Payments to the
Grantor. Notwithstanding anything contained in this Agreement to the contrary,
upon the payment to the Grantor's Account of the Initial Payment with respect
to the Capacity, the Purchaser shall be permitted to use such Capacity in
accordance with the terms of this Agreement, including the procedures for
ordering services set forth in Section 6.
3.3 ADJUSTMENTS TO RATES AND PURCHASE PRICE PAYMENTS. (a) **** In addition
to the adjustments to the Rates that may be made pursuant to Section 2.4, the
Grantor agrees that at all times during the Term for so long as the Purchaser's
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**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 13
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total payments for Capacity to the Grantor hereunder equal or exceed the
Purchased Capacity (it being understood that the Purchaser's use of the
provisions contained in Section 2.3(a) to adjust the timing of Purchase Price
Payments shall not be understood to be a failure on the Purchaser's part to make
payments at least equal to the Purchased Capacity), **** and the Grantor and the
Purchaser shall agree to adjust the Rates **** provided however, if the
Purchaser is in default with respect to any of its payment obligations hereunder
(including with respect to any Backbone Payment), the Grantor shall be relieved
of its obligations under this Section 3.3(a) for the duration of any such breach
of the Purchaser's payment obligations.
(b) **** Upon each Pricing Adjustment Date at the election of the
Purchaser, the **** shall be determined. In the event that the **** as of such
date is **** hereunder, the Rates shall be recalculated **** such adjusted
Rates shall be set forth on an amended Schedule 1 and such adjusted Rates shall
apply **** to the Pricing Adjustment Date in question. Nothing contained in
this paragraph (b) shall limit the agreements with respect to adjustments
contained or referred to in the preceding paragraph (a).
3.4 PAYMENTS FOR OTHER SERVICES. The Purchaser shall be required to
make, at the request of the Grantor, additional payments for Other Services
requested by the Purchaser in accordance with the terms of this Agreement.
3.5 PAYMENTS GENERALLY. All payments under this Agreement shall be
made in accordance with the provision of Section 11.
3.6 FILINGS. The Purchaser shall, at its expense, take all such
actions and make all such filings and recordings as are reasonably requested
by the Grantor to establish, perfect and protect the Grantor's interest in the
IRU and the Adjusted Purchased Capacity. The Purchaser hereby represents and
warrants that its chief executive office is located at the address indicated in
Section 17.5. The Purchaser agrees to promptly notify the Grantor of any change
in such location.
SECTION 4. DURATION OF AGREEMENT
4.1 TERM. This Agreement shall become effective on the day and year
set forth in the preamble hereof (the "Effective Date") and shall continue in
operation, unless suspended or terminated by either party in accordance with
Section 15, until the twentieth (20th) anniversary of the Execution Date (the
"Term") and shall, thereafter, be deemed to be renewed for successive one (1)
year periods (each, a "Renewal Term"), unless either party provides written
notice to the other party of its intent to terminate this Agreement not more
than ninety (90) or less than sixty (60) days prior to the beginning of any
Renewal Term. The suspension or termination of this Agreement (whether pursuant
to this Section or otherwise) shall not relieve the Purchaser or the Grantor
from any liabilities arising prior to such suspension or termination.
Notwithstanding the expiration of the Term pursuant to this Section 4.1, any
Circuit or Other Service being provided to the Purchaser pursuant to this
Agreement shall continue to be provided pursuant to the terms
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**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 14
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of this Agreement until the expiration date indicated in the relevant Service
Order (or service order relating to any Other Service) applicable to such
Circuit or Other Service (any such period, and "Extension Period"). The
Purchaser shall not be entitled to order any new Circuit or Other Service
during any such Extension Period.
SECTION 5. SYSTEM
OPERATION AND MAINTENANCE
5.1 SYSTEM OPERATION AND MAINTENANCE. (a) The Grantor shall use
commercially reasonable efforts to cause the System to be maintained in
efficient working order and in accordance with industry standards and the
standards set forth in Schedule 1 hereto; provided that the parties hereto
agree that the specifications set forth in Schedule 1 shall not apply to Local
Access or any service provided Off-Net. The Grantor represents that it will
provide routine, preventive and corrective maintenance for the System in a
manner at least in accordance with prudent industry standards.
(b) The Grantor shall have sole responsibility for negotiating, executing
and administering contracts and all other aspects related to the construction,
operation, maintenance and repair of the System.
(c) The Grantor shall initiate and coordinate planned maintenance (or
shall cause such action to occur), on the System (which may include the
deactivation of the affected part of the System). The Grantor shall advise the
Purchaser in writing at least twenty (20) days (or such shorter period as may be
agreed) prior to initiating a planned maintenance operation via E-Mail (or via
the Grantor's electronic trouble ticket system when implemented), of the timing
and scope of such planned maintenance operation. Within five (5) days of such
notice, the Purchaser shall respond to the Grantor with regard to such planned
maintenance operation and, in the event the Purchaser has objections to such
planned maintenance operation, within five (5) days of the Purchaser's response,
the parties shall mutually agree to a satisfactory approach to address the
Purchaser's concerns and to permit the planned maintenance operation to be
accomplished. The Grantor shall not be obligated to give notice of any planned
or unplanned service outage that is not Service Affecting.
(d) In the event of an emergency condition, as defined by the Grantor's
internal fiber maintenance procedures, the Grantor shall be entitled to take
whatever action it deems necessary to repair the cause of any such emergency
condition with or without advance notice to the Purchaser; provided, however,
that the Grantor (i) shall share, on a confidential basis, its definition of an
emergency condition under its internal fiber maintenance procedures (as such
definition may be amended from time to time), (ii) shall provide notice to the
Purchaser of such emergency condition as soon as possible and (iii) shall keep
the Purchaser apprised of the status of such emergency condition.
(e) In the event of disruption of service due to a Force Majeure Event or
other emergency, the Grantor shall use commercially reasonable efforts to cause
service to be restored as quickly as reasonably possible, and the Grantor shall
take such measures as are reasonably necessary to obtain such objective.
<PAGE> 15
(f) In no event shall the Grantor be liable to the Purchaser for any
credits or damages resulting from outage or degradation of service during a
planned maintenance operation.
SECTION 6. NOTIFICATION
OF USE OF CAPACITY
6.1 REQUESTS FOR CAPACITY AND SERVICE INTERVALS. (a) Orders for any
Circuits to be provided hereunder or increases in the Purchaser's use of
Capacity in accordance with Required Capacity (or otherwise) shall be requested
by the Purchaser hereunder on the Grantor's form of Service Order in effect from
time to time (the current form of which is attached hereto as Exhibit B) or on
the Purchaser's forms, in either case accepted in writing by the Grantor
("Service Orders"). Each Service Order shall reference this Agreement and will
indicate a requested start date (the "Requested Start Date") for the Circuit,
the desired term of the Circuit specific city pairs, applicable bandwidth,
whether the Circuit(s) are to be expedited or provided in normal intervals and
any other parameters required to be included in the Service Order. The Grantor
shall acknowledge receipt of the Service Order within twenty-four (24) hours (an
"Acknowledgement"). Within forty-eight (48) hours of Acknowledgement, the
Grantor shall advise the Purchaser as to availability of the Circuit and the
associated Capacity and if the Circuit and the associated Capacity and if the
Circuit and the associated Capacity is not to be provided On-Net, the carrier
providing the Circuit and the associated Capacity. Within three (3) days of
Acknowledgment, the Grantor shall advise as to the need for any Letter of Agency
or Connecting Facilities Assignment. Within seven (7) days of Acknowledgement,
the Grantor will provide a Design Layout Record. The Grantor shall be obligated
to meet the foregoing time frames and any additional time frames provided for in
Schedule 1 or be subject to the Purchaser's remedies as set forth in Schedule 1.
The parties agree that the inclusion of any Circuit on the Initial Network
Deployment Plan or subsequent Network Deployment Plans shall be deemed to be a
Service Order; provided that the preceding clause shall not (i) relieve the
Purchaser and the Grantor of their obligations to act in accordance with the
other agreements of this Section and (ii) limit the Purchaser's ability to order
Capacity in excess of that indicated in a Network Deployment Plan (orders for
Capacity in excess of that indicated in a Network Deployment Plan are subject to
availability).
(b) The Grantor shall make reasonable efforts to provide the requested
Circuit and the associated Capacity on the System on the Requested Start Date.
Service with respect to such Circuit and the associated Capacity shall be
deemed to begin on the date that (i) the Grantor provides the Purchaser with
written confirmation that the Grantor has tested the Circuit and that the
Circuit meets the Systems technical performance levels and specifications as
set forth in Schedule 1 and (ii) the Purchaser accepts the Circuit, such
acceptance not to be unreasonably withheld (the "Actual Start Date").
(c) The Purchaser may request one (1) or more delays in the Actual Start
Date of an individual Circuit provided that (i) it provides the Grantor a
written delay request no later than five (5) Business Days prior to the
Requested Start Date or the delayed Requested Start Date, as the case may be,
and (ii) the aggregate number of the days requested by such delay request or
requests do not exceed thirty (30) days from the Service Order's original
Requested Start Date. At the expiration of such thirty (30) day period, if the
Grantor has complied with the provisions of the preceding paragraph, the
Purchaser may no longer delay the Actual Start Date
<PAGE> 16
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of such individual Curcuit and Purchase Price Payments with respect to such
Circuit shall commence accruing.
(d) Any conflicting, different or additional terms and conditions
contained in the Purchaser's acknowledgment or Service Order or elsewhere and
not contemplated by the terms of this Agreement are objected to by the Grantor
and shall not constitute a part of this Agreement. No action by the Grantor
(including provision of Capacity or Other Services to the Purchaser pursuant to
such Service Order) shall be construed as binding or estopping the Grantor with
respect to such term or condition, unless the Service Order containing said
specific term or condition has been signed by an authorized headquarters
representative of the Grantor.
SECTION 7. ADDITIONAL
SERVICES AND RELATED FEES
7.1 INTERCONNECTION, LOCAL ACCESS AND ANCILLARY SERVICES. (a)
Interconnection. (i) The Grantor shall, on behalf of and upon the request of the
Purchaser, obtain telecommunications facilities in a particular city to which
Capacity is to be provided pursuant to the Network Deployment Plan connecting a
Purchaser POP to a Grantor POP in a different location in the same city or
metropolitan area ("Interconnection") which interconnection shall be
substantially dedicated to origination or termination of Capacity provided to
the Purchaser pursuant to this Agreement. As applicable, the Purchaser will
execute a Letter of Agency (as shall be set forth in Exhibit C hereto)
authorizing the Grantor to interact directly with the provider or providers of
such Interconnection. **** Nothing herein shall prevent the Purchaser from
arranging for its own Interconnection at its sole cost and expense; provided
that the Grantor shall have the right to test such Interconnection for
conformance to its interconnection specifications and the Grantor shall not be
obligated to accept independently arranged Interconnection unless it meets the
Grantor's interconnection specifications.
(ii) If the Purchaser requests Interconnection to be provided by the
Grantor, the Grantor shall be responsible for the provisioning and the initial
testing of any such Interconnection, and any provisioning and initial testing
shall be reasonably coordinated with the applicable Requested Start Date.
(b) Local Access. (i) The Grantor shall, on behalf of and upon the
request of the Purchaser, obtain telecommunications facilities connecting a
Grantor POP to a designated customer of the Purchaser or other third-party
("Local Access"). As applicable, the Purchaser will execute a Letter of Agency
authorizing the Grantor to interact directly with the provider or providers of
such Local Access. The Purchaser shall be responsible for all fees and costs
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**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 17
incurred by the Grantor for any such Local Access. Nothing herein shall prevent
the Purchaser from arranging for its own Local Access at its sole cost and
expense.
(ii) If the Purchaser requests Local Access to be provided by the
Grantor, the Grantor shall be responsible for the provisioning and the initial
testing of any such Local Access, and any provisioning and the initial testing
shall be reasonably coordinated with the applicable Requested Start Date.
(iii) The Grantor agrees that nay and all charges associated with
Local Access shall not exceed the sum of the costs that the Purchaser would
otherwise pay the same Third-Party Service Provider for the relevant Local
Access.
(c) Interconnection and Local Access Delays. In connection with
the provision of Interconnection and Local Access, the Purchaser acknowledges
that the timely provisioning of such services may be dependent on the
performance of a Third-Party Service Provider. The Grantor agrees that it shall
have a duty to exercise reasonable judgement in (i) the selection of all
Third-Party Service Providers and (ii) the monitoring and oversight of the
performance of any service provided by a Third-Party Provider. The Purchaser
agrees that, other than as set forth in the preceding sentence, the Grantor
shall have no liability whatsoever for delays occasioned by Third-Party Service
Providers.
(d) Ancillary Services and Fees. The parties acknowledge that the
Purchaser may also request certain other ancillary services ("Ancillary
Services") from the Grantor and the Grantor shall make reasonable efforts to
provide such service, which such Ancillary Services may consist of (i) requests
by the Purchaser to the Grantor to expedite the availability of Capacity to a
date earlier than in accordance with the Network Development Plan, (ii) a
request for a redesign of Capacity occasioned by the receipt of inaccurate
information from the Purchaser and (iii) a request by the Purchaser for the
Grantor to use routes or facilities other than those indicated by the Network
Development Plan.
(e) Establishment of Costs and Adjustments. Any recurring and
non-recurring charges related to either Interconnection, Local Access or
Ancillary Services shall be established as of the Grantor's acceptance of the
Service Order related thereto; provided that, in the case of Interconnection,
such charges shall also be subject to the provisions of Section 7.1(a). The
Grantor shall be entitled to pass through to the Purchaser fifty percent (50%)
of any increase in recurring costs related to Interconnection, and/or one
hundred percent (100%) of any increase in recurring costs related to Local
Access and/or Ancillary Services to the extent of any increases in such costs.
7.2 COLLOCATION SERVICES. In the event the parties should desire
to collocate facilities with one another ("Collocation Services"), the parties
will execute a Collocation Agreement and a Collocation Service Order
substantially in the form of the Collocation Agreement and Collocation Service
Order to be included in Schedule 4, upon the terms and at the prices set forth
in such Collocation Agreement and Collocation Service Order.
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SECTION 8. THE BACKBONE AGREEMENTS
8.1 THE BACKBONE AGREEMENTS. (a) Generally. In accordance with the terms
of this Section 8, the Grantor may provision Capacity to the Purchaser pursuant
the Backbone Agreements. Capacity provided to the Purchaser pursuant to the
Backbone Agreements shall be on the terms and conditions of each respective
Backbone Agreement and on the terms and conditions of this Agreement. In the
event of any conflict between the terms and conditions of a Backbone Agreement
and this Agreement, the terms and conditions of such Backbone Agreement shall
prevail (it being understood that this includes all technical standards and
service provisioning intervals included in each Backbone Agreement).
(b) Assignment and Assumption. Pursuant to the Assignment and Assumption
Agreements, the Purchaser shall assign to the Grantor, and the Grantor shall
assume, such of the Purchaser's right, title and interest in the Backbone
Agreements as is set forth in each Assignment and Assumption Agreement.
Notwithstanding the Assignment Agreement Execution Date, the Purchaser
covenants that each assignment and assumption of a Backbone Agreement shall
result in an assignment by the Purchaser and an assumption by the Grantor of a
Backbone Agreement which contains terms at least as favorable to the Grantor
on such date as the terms that the Purchaser was subject to as of December 31,
1997. The Grantor agrees that, upon the request of the Purchaser, it shall use
commercially reasonable efforts to assist the Purchaser in causing the
Third-Party Service Providers party to the Backbone Agreements to enter into
and execute the Assignment and Assumption Agreements.
(c) Liabilities Pre-Dating the Effectiveness of Assignment and
Assumption. The Purchaser shall retain any and all claims and/or liabilities
under each of the Backbone Agreements which accrued prior to the effective date
(an "Assignment Agreement Effective Date") of the relevant Assignment and
Assumption Agreement (regardless of the date on which such liability is
discovered). The Purchaser agrees that such liabilities may include, in each
case as of the Assignment Agreement Effective Date of the relevant Assignment
and Assumption Agreement, currently due and unpaid balances, any and all
delinquent payments and associated penalties and any and all back-billing
disputes. Without in any way limiting the effect of the preceding sentence, the
Grantor agrees to endeavor to resolve, on behalf of the Purchaser and at
Purchaser's expense, any back-billing dispute which accrued prior to any
relevant Assignment Agreement Effective Date relating to an affected Backbone
Agreement (provided that notice of any such dispute is received after any such
Assignment Agreement Effective Date) and the Purchaser agrees that it will
cooperate fully in any such effort.
(d) Arrangement with MCI. The parties hereto agree that with respect to
the Purchaser's existing contract with MCI (the "MCI Backbone Agreement"), the
Grantor and the Purchaser shall work together in good faith to enable either
(i) the Purchaser, the Grantor and MCI to enter into an Assignment and
Assumption Agreement with respect to the "private lines" portion of the MCI
Backbone Agreement or (ii) the Grantor and MCI to enter into a "private lines"
backbone service agreement upon terms and conditions satisfactory to the
Grantor and the Purchaser and such agreement shall be deemed to replace the MCI
Backbone Agreement.
<PAGE> 19
(e) Exhibit A. With respect to each Backbone Agreement, the parties
hereto agree to identify on Exhibit A and periodically update such exhibit in
order to ensure that it at all times reflects (i) all Circuits being provisioned
pursuant to each Backbone Agreement and (ii) the Minimum, if any, pursuant to
each Backbone Agreement. The Purchaser agrees that it shall, as of any
Assignment Agreement Execution Date, represent and warrant to the Grantor that
Exhibit A is materially accurate and complete; provided, however, that no
failure on the part of the Purchaser to identify a Circuit shall in any way
relieve the Purchaser of its responsibility to make payments with respect to
such Circuit.
(f) Access to Information and Continuing Cooperation. After the Initial
Payment Date, the Purchaser agrees to (i) provide the Grantor reasonable access
to its all of its records, books and all other documents and data associated
with each Backbone Agreement and (ii) cooperate, to the extent reasonably
requested by and at no cost to the Grantor, with the Grantor in the
administration of the Backbone Agreements, it being understood and agreed that
such cooperation may include the generation of certain information relating to
the Backbone Agreements required by the Grantor.
8.2 OTHER AGREEMENTS RELATING TO THE BACKBONE AGREEMENTS. Until such
time as the term of each of the Backbone Agreements (as of the date hereof)
shall expire, notwithstanding anything in this Agreement to the contrary, (i)
the Grantor shall be entitled to provide Capacity to the Purchaser pursuant to
this Agreement via the Backbone Agreements and the Purchaser shall pay for such
capacity at the rates stated in each relevant Backbone Agreement and shall use
(or pay for) at least the Minimum, if any, associated with each Backbone
Agreement, (ii) provided that the Purchaser is not in breach of any of its
payment obligations under this Agreement, the Grantor shall not be permitted to
disconnect any Capacity provided to the Purchaser pursuant to the Backbone
Agreements unless and until the Grantor can and does provision such Capacity
onto the System and will, in any event, ensure that all Purchased Capacity (and,
if necessary, Required Capacity) shall at least make use of the Minimums, (iii)
the Grantor shall be required to migrate any Capacity currently being provided
pursuant to each Backbone Agreement above the minimum commitment (the "Excess")
provided for therein onto the System prior to or upon the one (1) year
anniversary of the date on which the Assignment and Assumption Agreement
relating to each such Backbone Agreement is executed (an "Assignment Agreement
Execution Date") and, whether or not such migration is accomplished, as of such
date the Management Fee shall no longer apply to such Excess, and the Rates
shall apply to such Excess, (iv) subject to the provisions of the preceding
clause (ii) of this paragraph, the Grantor shall be required to migrate any
Capacity currently being provided pursuant to the Backbone Agreements
constituting the minimum commitments (the "Minimum") provided for therein onto
the System upon the two (2) year anniversary of each Assignment Agreement
Execution Date and, whether or not such migration is accomplished, as of such
date the Management Fee shall terminate, and the Rates shall apply to such
Minimum. In the event that the Grantor migrates Circuits which constitute the
Excess onto the System prior to the date referred to in the receding clause
(iii), the Capacity used in connection with such Circuit shall no longer be
subject to the Non-Recurring and Monthly Recurring Charges and shall be subject
to the Rates.
<PAGE> 20
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8.3 EXPIRATION OF BACKBONE AGREEMENTS. Upon expiration of each of the
Backbone Agreements, the Capacity governed thereby shall be provisioned onto
the System or be provided Off-Net as provided for under this Agreement.
8.4 PAYMENTS RELATING TO THE BACKBONE AGREEMENTS. Subject to the
provisions of Section 8.2, the Purchaser agrees to pay to the Grantor (i) the
monthly recurring charges, non-recurring and other related charges, relating to
the use of Circuits and the associated capacity pursuant to each Backbone
Agreement (the "Non-Recurring and Monthly Recurring Charges") and (ii) a
management fee (the "Management Fee"). The Management Fee is set forth on
Schedule 5.
8.5 CHANGES IN THE GRANTOR'S CONTRACTUAL RELATIONS WITH BACKBONE AGREEMENT
SERVICE PROVIDERS. In the event that the Grantor (i) enters into any amendment
with a Backbone Agreement Service Provider to amend the terms of any Backbone
Agreement and such amendment results in more competitive pricing of the capacity
provided for pursuant to such Backbone Agreement or (ii) enters into an
additional contract or contracts with any Backbone Agreement Service Provider
for the provisioning of capacity and the effect of any such new agreement is to
lower the Grantor's overall cost of the total amount of capacity provided by
such Backbone Agreement Service Provider to the Grantor, the Grantor agrees that
it shall inform the Purchaser of any such circumstance described in either of
the preceding clauses (i) or (ii) and shall enter into discussions with the
Purchaser in order to renegotiate the Backbone Payments to a level that will
pass through to the Purchaser the benefit of such cost savings; provided,
however, that the Grantor shall not be obligated, as a result of one of the
circumstances described in the preceding clause (i) or (ii), to offer to the
Purchaser any cost savings that would result in rates lower than the Rates.
SECTION 9. SUB-DS-3 CAPACITY
9.1 CAPACITY BELOW DS-3 LEVEL. Notwithstanding anything in this Agreement
to the contrary, for at least as long as the current term of each Backbone
Agreement which provides for the provisioning of capacity below the DS-3 Level
(each such Backbone Agreement, a "Sub-DS-3 Backbone Agreement") is still in
effect, the Purchaser shall have the right to request the Grantor to order from
and negotiate with the carriers party to such Sub-DS-3 Backbone Agreements (each
such carrier, a "Sub-DS-3 Capacity"). Circuits and the associated capacity at a
level below DS-3 ("Sub-DS-3 Capacity"). Notwithstanding anything in this
Agreement to the contrary, (i) the Grantor shall not be permitted to disconnect
any Sub-DS-3 Capacity except in accordance with the provisions of the relevant
Sub-DS-3 Backbone Agreement, (ii) Sub-DS-3 Capacity shall not be subject to the
provisions of Section 8.2(iii) and (iv), (iii) the Purchaser's use of Sub-DS-3
Capacity shall be included when determining whether the Purchaser has (A) used
the Minimums provided for in a Sub-DS-3 Backbone Agreement and (B) fulfilled its
obligations to use the Purchased Capacity and (iv) Sub-DS-3 Capacity used by the
Purchaser shall not be considered Capacity and shall not be accorded the Rates
provided for pursuant to this Agreement and, accordingly, all pricing and rates
with respect to any such Sub-DS-3 Capacity shall consist solely of the charges
made to the Sub-DS-3 Carrier by the Grantor pursuant to the terms of the
relevant Sub-DS-3 Backbone Agreement plus the Management Fee. After the
expiration of the Sub-DS-3 Backbone Agreements, the Purchaser may provision
Sub-DS-3
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Capacity in any manner that it may choose and the capacity used under any such
arrangements shall no longer be included in the Purchaser's use of Capacity
when determining whether the Purchaser has used the Purchased Capacity.
SECTION 10. SERVICE
ORDER CANCELLATION
10.1 SERVICE ORDER CANCELLATION AND DISCONNECTION OF SERVICE. (a)
Service Order Cancellation. The Purchaser may cancel any Service Order for which
service has not yet been established by providing written notification to the
Grantor thereof five (5) days prior to the applicable Requested Start Date. In
the event of such cancellation, (i) if the Service Order relates to a Circuit
and associated Capacity to be provided On-Net, the Purchaser shall pay to the
Grantor a cancellation charge in an amount equal to the previously waived
installation fees as set forth in Schedule 1 and (ii) if the Service Order
relates to a Circuit and associated Capacity to be provided Off-Net, the
Purchaser shall pay any amounts due to any Third-Party Service Provider that
are contractually provided for in the Grantor's contracts with any such
Third-Party Service Provider relating to the Service Order so cancelled.
(b) Service Disconnection. Once service has been established pursuant
to any Service Order, the Purchaser may, with respect to any Off-Net service or
Other Services provided by a Third-Party Service Provider, disconnect any such
service by providing the notice described in the preceding paragraph (a) and
paying any and all amounts due to any affected Third-Party Service Provider that
are contractually provided for in the Grantor's contracts with any such
Third-Party Service Provider relating to the affected Service Order. Following
an Actual Start Date, the Purchaser may, with respect to any On-Net service,
disconnect or reconfigure any such Circuit or service by providing sixty (60)
days' prior written notice to the Grantor. If any such disconnected or
reconfigured Circuit is a DS-3, OC-3 or OC-12 Circuit, the Purchaser shall have
no liability with respect to such disconnection or reconfiguration. If any such
disconnected or reconfigured Circuit is an OC-48 or OC-192 Circuit, the Grantor
shall be obligated to use reasonable efforts to redeploy such disconnected or
reconfigured Circuit in such a manner that will enable it not to recognize any
loss due to the Purchaser's disconnection or reconfiguration: provided that,
after the expiration of sixty (60) days from the date on which the Purchaser
gave notice to the Grantor of its intent to disconnect or reconfigure such
Circuit, if the Grantor has been unable to mitigate its loss in manner described
in the preceding clause, the Purchaser shall reimburse the Grantor for its costs
associated with the disconnection or reconfiguration of any such Circuit.
(c) Excusable Cancellation. Notwithstanding the foregoing, and upon
thirty (30) day's prior written notice to the other party, either the Purchaser
or the Grantor shall have the right, without cancellation charge or other
liability to the other party, to cancel the affected Service Order, if the
Grantor is prohibited by governmental authority from furnishing or the Purchaser
is prohibited from using such portion, or if any material rate or term contained
herein and relevant to the affected portion of any Service Order is
substantially changed by order of a court of competent jurisdiction to
adjudicate the matter so long as all appeals have been exhausted, the FCC, or
other local, state or federal government authority. Nothing contained in
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this Section 10.1(c) shall in any way be construed to reduce or limit the
Purchaser's obligations pursuant to Sections 2.3 and 3.2 hereof.
SECTION 11. PAYMENT TERMS
11.1 DUE DATE, INVOICES AND TAXES. All amounts stated on each monthly
invoice are due on the Due Date and the Purchaser agrees to remit payment to
the Grantor's Account by the applicable Due Date, except with respect to any
amounts disputed in good faith pursuant to Section 11.2 hereof. In the event
the Purchaser fails to make full payment to the Grantor's Account by the Due
Date, the Purchaser shall also pay a late fee in the amount of the lesser of
one and one half percent (1 1/2%) of the unpaid balance per month or the
maximum lawful rate under applicable state law which shall accrue from the Due
Date, except with respect to any amounts disputed in good faith pursuant to
Section 11.2 hereof. The Purchaser acknowledges and understands that all
charges are computed exclusive of any applicable federal (if any), state or
local sales, use, excise, value added, gross receipts, or privilege taxes,
duties, fees or similar liabilities (other than general income, real or
personal property taxes or duties imposed on the Grantor)("Taxes"). Any taxes
shall be paid by the Purchaser in addition to all other charges provided for
herein. Payment for all prorated monthly recurring charges (charges for
Capacity or Other Services provided for less than a calendar month), shall be
billed following the receipt of any such Capacity or Other Service unless
and/or until a tax exemption certificate is provided to the Grantor by the
Purchaser. Monthly recurring charges for full months of service will be
invoiced in advance.
11.2 INVOICE ADJUSTMENTS. Either party hereto may, in good faith,
request a billing adjustment for a period of two (2) years after the Due Date of
an invoice, or two (2) years after the date a service is rendered, whichever is
later. Any notice of a billing dispute by a party hereto must be in writing and
must include documentation substantiating the dispute. The parties will make a
good faith effort to resolve billing disputes as expeditiously as possible. The
successful party in any billing dispute shall be entitled to interest at a rate
of 1.5% per month from the date the relevant dispute is raised on any amounts
withheld by the other party during the pendency of any dispute.
11.3 AFTER IMPOSED TAXES OR CHARGES. If any sales taxes, valued added
taxes or charges or impositions are asserted against the Grantor after, or as a
result of, the Purchaser's use of services or any Other Service by any local,
state, national, international, public or quasi-public governmental entity or
foreign government or its political subdivision, including, any tax or charge
levied to support the Universal Service Fund contemplated by the
Telecommunications Act of 1996, the Purchaser shall be solely responsible for
such taxes, charges or impositions and the Purchaser agrees to pay any such
taxes, charges or impositions and hold the Grantor harmless from any liability
or expense associated with such taxes, charges or impositions unless and/or
until a tax exemption certificate is provided to the Grantor by the Purchaser.
SECTION 12.
12.1 [this section has intentionally been left blank]
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SECTION 13. REPRESENTATIONS AND INDEMNITY
13.1 REPRESENTATIONS. (a) Representations of the Grantor. To induce
the Purchaser to enter into this Agreement, the Grantor hereby represents and
warrants to the Purchaser that:
(i) it is a corporation duly organized, validly existing and in good
standing under the laws of Delaware;
(ii) it has the corporate power and authority, and the legal right,
to own and operate its property, to lease the property it operates as
lessee and to conduct the business in which it is currently engaged;
(iii) it has the corporate power and authority, and the legal right,
to make, deliver and perform this Agreement and the Assignment and
Assumption Agreements and has taken all necessary corporate action to
authorize the transactions contemplated hereunder and under the Assignment
and Assumption Agreements on the terms and conditions of this Agreement
and the Assignment and Assumption Agreements and to authorize the
execution, delivery and performance of this Agreement and the Assignment
and Assumption Agreements;
(iv) no consent or authorization of, filing with, notice to or other
act by or in respect of, any governmental authority or any other Person is
required in connection with the transactions contemplated by this
Agreement or the Assignment and Assumption Agreements or with the
execution, delivery, performance, validity or enforceability of this
Agreement and the Assignment and Assumption Agreements;
(v) it is in compliance with all requirements of law except to the
extent that the failure to comply therewith could not, in the aggregate,
reasonably be expected to have a material adverse effect on the Grantor's
ability to perform its obligations hereunder and under the Assignment and
Assumption Agreements;
(vi) this Agreement and any Assignment and Assumption Agreement
entered into prior to or on the Execution Date has been duly executed and
delivered on behalf of the Grantor;
(vii) this Agreement and any Assignment and Assumption Agreement
entered into prior to or on the Execution Date constitute the legal, valid
and binding obligations of the Grantor enforceable against the Grantor in
accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in proceeding in equity or at
law) and an implied covenant of good faith and fair dealing;
(viii) the execution, delivery and performance of this Agreement and
any Assignment and Assumption Agreement entered into prior to or on the
Execution Date
<PAGE> 24
and the transactions contemplated hereunder and under the Assignment and
Assumption Agreements will not violate any requirement of law or
contractual obligation of the Grantor:
(ix) no litigation, investigation or proceeding of or before any
arbitrator or governmental authority is pending or, to the knowledge of the
Grantor, threatened by or against the Grantor or against any of its
respective properties or revenue (a) with respect to this Agreement or the
Assignment and Assumption Agreements or any of the transactions
contemplated hereby or thereby, or (b) which could reasonably be expected
to have a material adverse effect on the Grantor's ability to perform its
obligations hereunder and under the Assignment and Assumption Agreements;
(x) the Grantor is not in default and, to the best of its knowledge
after reasonable inquiry, knows of no existing circumstances that with the
passage of time or with notice would create a default under or with respect
to any of its contractual obligations in any respect which could reasonably
be expected to have a material adverse effect on the Grantor's ability to
perform its obligations hereunder and under the Assignment and Assumption
Agreements;
(xi) no requirement of law or contractual obligation of the Grantor
could reasonably be expected to have a material adverse effect on the
business, operations, property or condition (financial or otherwise) of the
Grantor; and
(xii) the Grantor or, pursuant to Section 16, its permitted assignee,
(A) is and, to the best of the Grantor's knowledge (or the knowledge of its
permitted assignee), shall remain the Person through which The Williams
Companies, Inc. engages in the telecommunications business, (B) owns all or
substantially all (whether directly or indirectly) of The Williams
Companies, Inc. telecommunications assets and (C) will inform the Purchaser
within a reasonable period of time of its knowledge of any proposed change
in The Williams Companies, Inc.'s corporate plans or strategy that would
impact the Grantor's ability (or its permitted assignee's ability, as the
case may be) to make the representations contained in the preceding clauses
(A) and/or (B).
(b) Representatives of the Purchaser. To induce the Grantor to enter
into this Agreement, the Purchaser hereby represents and warrants to the
Grantor that:
(i) it is a corporation duly organized, validly existing and in good
standing under the laws of Delaware;
(ii) it has the corporate power and authority, and the legal right,
to own and operate its property, to lease the property it operates as
lessee and to conduct the business in which it is currently engaged;
(iii) it has the corporate power and authority, and the legal right,
to make, deliver and perform this Agreement and the Assignment and
Assumption Agreements and has taken all necessary corporate action to
authorize the transactions contemplated hereunder
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and under the Assignment and Assumption Agreements on the terms and
conditions of this Agreement and the Assignment and Assumption Agreements
and to authorize the execution, delivery and performance of this Agreement
and the Assignment and Assumption Agreements;
(iv) no consent or authorization of, filing with, notice to or other
act by or in respect of, any governmental authority or any other Person is
required in connection with the transactions contemplated by this Agreement
or the Assignment and Assumption Agreements or with the execution,
delivery, performance, validity or enforceability of this Agreement and
the Assignment and Assumption Agreements;
(v) it is in compliance with all requirements of law except to the
extent that the failure to comply therewith could not, in the aggregate,
reasonably be expected to have a material adverse effect on the
Purchaser's ability to perform its obligations hereunder and under the
Assignment and Assumption Agreements;
(vi) this Agreement and any Assignment and Assumption Agreement
entered into prior to or on the Execution Date has been duly executed and
delivered on behalf of the Purchaser;
(vii) this Agreement and any Assignment and Assumption Agreement
entered into prior to or on the Execution Date constitute the legal, valid
and binding obligations of the Purchaser enforceable against the Purchaser
in accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at
law) and an implied covenant of good faith and fair dealing;
(viii) the execution, delivery and performance of this Agreement and
any Assignment and Assumption Agreement entered into prior to or on the
Execution Date and the transactions contemplated hereunder and under the
Assignment and Assumption Agreements will not violate any requirement of
law or contractual obligation of the Purchaser;
(ix) no litigation, investigation or proceeding of or before any
arbitrator or governmental authority is pending or, to the knowledge of
the Purchaser, threatened by or against the Purchaser or against any of
its respective properties or revenue (a) with respect to this Agreement or
the Assignment and Assumption Agreements or any of the transactions
contemplated hereby or thereby, or (b) which could reasonably be expected
to have a material adverse effect on the Purchaser's ability to perform
its obligations hereunder and under the Assignment and Assumption
Agreements;
(x) the Purchaser is not in default and, to the best of its knowledge
after reasonable inquiry, knows of no existing circumstances that with the
passage of time or with notice would create a default under or with
respect to any of its contractual obligations in any respect which could
reasonably be expected to have a material adverse
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26
effect on the Purchaser's ability to perform its obligations hereunder and
under the Assignment and Assumption Agreements;
(xi) no requirement of law or contractual obligation of the Purchaser
could reasonably be expected to have a material adverse effect on the
business, operations, property or condition (financial or otherwise) of
the Purchaser;
(xii) to the extent that the Purchaser is subject to regulation by
the FCC, this Agreement is an inter-carrier agreement not subject to the
filing requirements of Section 211(a) of the Communications Act; and
(xiii) the Purchaser, to its knowledge after reasonable inquiry, knows
of no event or basis which would prevent the Purchaser from meeting the
Minimums under the Backbone Agreements and, to its knowledge after
reasonable inquiry, knows of no dispute, claim or threatened action in
connection with the Backbone Agreements.
(c) Survival of Representations. The foregoing representations and
warranties shall survive the execution and delivery of this Agreement.
(d) Representations as of Each Plan Adjustment Date. As of each Plan
Adjustment Date, (i) the representations of the Grantor contained in clauses
(i), (ii), (v), (ix), (x), (xi) and (xii) of Section 13.1(a) shall be true and
correct in all material respects on and as of such date as if made on and as of
such date and (ii) the representations of the Purchaser contained in clauses
(i), (ii), (v), (ix), (x), (xi) and (xii) of Section 13.1(b) shall be true and
correct in all material respects on and as of such date as if made on and as of
such date.
13.2 INDEMNITIES. (a) Indemnification of the Grantor by the
Purchaser. Subject to Section 14, the Purchaser agrees to indemnify and hold
harmless the Grantor and its respective officers, directors, employees, agents
and representatives from and against any loss, damage, expense or cost arising
out of or in connection with: (i) any breach or violation by the Purchaser of
applicable law or governmental regulation, (ii) any claims of whatever nature
by third parties (including the Purchaser's customers) with respect to the
services provided by the Purchaser to such third parties, even if such services
incorporate the services of the Grantor and (iii) any breach or violation by
the Purchaser of its representations contained herein.
(b) Indemnification of the Purchaser by the Grantor. Subject to
Section 14, the Grantor agrees to indemnify and hold harmless the Purchaser and
its officers, directors, employees, agents and representatives from and
against any loss, damage, expense or cost arising out of or in connection with:
(i) any breach or violation by the Grantor of applicable law or governmental
regulation, (ii) any claims of whatever nature by third parties (including the
Grantor's customers) with respect to the services provided by the Grantors to
such third parties even if such service incorporate the services of the
Purchaser and (iii) any breach or violation by the Grantor of its
representations contained herein.
(c) Notification of Claim. In the event an indemnified party under
paragraph (a) or (b) above is notified of any action as to which it may seek to
be indemnified under such
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paragraph, it will promptly notify the party from which indemnification will be
sought and seek to consult with such party prior to taking any material action
with respect thereto.
SECTION 14. LIMITATIONS OF LIABILITY
14.1 LIMITATIONS OF LIABILITY. (a) Except as specifically provided for
otherwise in this Agreement, in no event shall the Purchaser or the Grantor be
liable to or through the other for consequential, incidental, indirect or
special damages, including loss of revenue, loss of business opportunity or the
costs associated with the use of external (outside the System) restoration
facilities including for any loss or damage sustained by reason of any failure
in or breakdown of the System or the facilities associated with the System or
for any interruption of service, whatever the cause and however long it shall
last.
(b) The Grantor shall not be liable to the Purchaser for any loss or
damage which may be suffered by the Purchaser as a result of, related to, or in
connection with, the Purchaser's compliance or non-compliance with any
applicable state or federal or other law related to the transfer of the IRU in,
or the use of, the Capacity.
(c) The Purchaser shall not be liable to the Grantor for any loss or
damage which may be suffered by the Grantor as a result of, related to, or in
connection with, the Grantor's non-compliance with any applicable state or
federal or other law related to the transfer by the Grantor of the IRU to the
Purchaser in, or the Grantor's operation, ownership or use of, the System.
(d) Neither the Purchaser nor the Grantor shall be liable to the other
for any loss or damage which may be suffered by such party by reason of any
Force Majeure Event. In the event of an occurrence of a Force Majeure Event, the
party claiming to be affected by a Force Majeure Event shall give prompt written
notice thereof to the other party, which such notice shall include a brief
description of the Force Majeure Event and shall, if possible, estimate the
duration of said Force Majeure Event. If the party affected by a Force Majeure
Event has complied with the provisions of the preceding sentence, such party
shall be excused from the performance of its obligations hereunder on a
day-to-day basis to the extent that the Force Majeure Event prevents, restricts
or interferes with such party's performance hereunder. The party affected by a
Force Majeure Event shall use commercially reasonable efforts under the
circumstances to avoid, rectify or remove the cause of such Force Majeure Event
and shall re-commence any prevented performance hereunder at the soonest
possible date.
(e) In no event shall the Grantor be liable to the Purchaser for any
credits or damages resulting from outage or degradation of service during a
planned maintenance operation.
SECTION 15. DEFAULT
15.1 PURCHASER DEFAULT. If the Purchaser fails to make any payment
(including any Backbone Payment) required by this Agreement on the applicable
Due Date, or if the Purchaser is otherwise in material breach of this Agreement,
and such payment default continues unremedied for a period of at least fifteen
(15) days or such other breach continues for a period
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of at least thirty (30) days, the Grantor may notify the Purchaser in writing of
such payment default or other breach and if full payment is not received or such
other breach is not fully remedied within ten (10) days of such notification,
the Grantor: (i) may suspend or terminate all or any portion of the Capacity or
Other Services provided to Purchaser hereunder, until such payment default or
other breach has been cured (including payment of default interest, if any) and
(ii) shall be entitled to pursue any and all rights and legal and equitable
remedies (including its rights and remedies to enforce the Purchaser's
obligations under this Agreement). The suspension or termination of this
Agreement shall not relieve the Purchaser of its obligation to make full payment
of all amounts incurred under this Agreement up to and including the date of
suspension. Following a suspension of service unless this Agreement has been
terminated, upon the Purchaser's payment in full of all amounts due hereunder in
accordance with the terms hereof, the Grantor shall be required to reinstitute
the Capacity or Other Services.
15.2 GRANTOR DEFAULT. (a) If the Grantor is in material breach of
this Agreement and such breach continues for a period of at least (30) days,
the Purchaser may notify the Grantor in writing of such breach and if such
breach is not fully remedied with fifteen (15) days of such notification, the
Purchaser shall, for so long as such breach continues, be entitled to pursue
any and all rights and legal and equitable remedies, including its rights and
remedies to enforce Grantor's obligations under this Agreement.
(b) Without in any way limiting the effect of the preceding
paragraph (a), the Grantor agrees that any breach of its representation or
change in circumstance which makes it impossible for its representations
contained in clause (xii) of Section 13.1(a) to be true and correct in all
material respects shall be deemed to be a default by the Grantor under this
Agreement.
SECTION 16. ASSIGNMENT AND
MERGER OR CONSOLIDATION
16.1 ASSIGNMENT. (a) This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns; provided that, except for the
assignment of the Purchaser's or the Grantor's rights under this Agreement to
one or more of the Purchaser's or the Grantor's lenders as security and except
as provided in paragraph (b) of this Section, neither this Agreement nor any of
the rights or interests hereunder shall be assigned, transferred or otherwise
disposed of or the obligations hereunder delegated by either party hereto
without the prior written consent of the other party, which consent shall not be
unreasonably withheld, conditioned or delayed. The filing of a bankruptcy
proceeding, voluntary or involuntary, shall constitute a notice of intent to
transfer under this Section.
(b) Each party hereto shall be permitted to assign, transfer or
otherwise dispose of any or all of their rights hereunder and delegate any or
all of their obligations hereunder to any entity controlled by, under the same
control as, or controlling, such party: provided, that any such assignment,
transfer or other disposition shall not release such party from its obligations
hereunder, unless the other party consents otherwise in writing, which consent
shall not be unreasonably withheld, conditioned or delayed (it being understood
that it is not unreasonable to
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withhold consent if the assignee or transferee is not as creditworthy as the
assignor). Each party shall give the party notice of any such assignment,
transfer or other disposition or any such delegation.
(c) Any transfer by a party to this Agreement of such party's
obligations or its rights hereunder which is in violation of this Section shall
be void and of no force and effect.
16.2 MERGER OR CONSOLIDATION. (a) Each of the Grantor and the
Purchaser covenants that it shall not consolidate or merge with or into any
Person, nor sell, transfer, convey or lease all or substantially all its
properties or assets as an entirety to any Person (any party the subject of such
a transaction, an "Affected Party"), unless: (i) the successor entity (the
"Successor Entity") formed by such consolidation or with or into which the
Affected Party is merged, or the Successor Entity that acquires by conveyance,
transfer or lease all or substantially all the Affected Party's assets as an
entirety, (A) shall be authorized under all applicable laws to perform the
obligations of the Affected Party under this Agreement to the same extent as the
Affected Party prior to such transaction, (B) shall not be financially insolvent
immediately after giving effect to such transaction, and (C) shall execute and
deliver to the other party hereto an agreement in form and substance reasonably
satisfactory to the other party hereto, containing an assumption by such
Successor Entity of the due and punctual performance of each provision of this
Agreement to be performed or observed by the Affected Party (which agreement
shall be deemed to be reasonably satisfactory to the other party hereto if such
party has not notified the Affected Party to the contrary within (30) days of
receipt thereof); and (ii) immediately prior to and immediately after giving
effect to such transaction, no default under this Agreement shall have occurred
and be continuing.
(b) Upon any such consolidation or merger, or any sale,
conveyance, transfer or lease of substantially all the assets of the Affected
Party in accordance with this Section 16.2, the Successor Entity formed by such
consolidation or with or into which the Affected Party shall be merged, or to
which such sale, conveyance, transfer or lease shall be made, shall succeed
to, and be substituted for, and may exercise every right and power and shall be
subject to each and every obligation of, the Affected Party under this
Agreement with same effect as if such Successor Entity had been a party to this
Agreement. No such sale, conveyance, transfer or lease of all or substantially
all the assets of the Affected Party shall have the effect of releasing the
Affected Party or any Successor Entity that shall theretofore have become such
in the manner prescribed in this Section 16.2 from its liability under this
Agreement.
SECTION 17. MISCELLANEOUS
17.1 CONTENT AND CERTAIN PARAMETERS REGARDING USE OF CAPACITY. The
Purchaser agrees (i) not to use the Capacity (or any Other Service) for any
unlawful purpose, including any use which constitutes or may constitute a
violation of any local, state or federal obscenity law and (ii) that, during
the Term, at least ten percent (10%) of its total use of Capacity shall
constitute interstate transmissions. The parties hereto acknowledge that from
time to time a portion or portions of the Purchaser's use of Capacity may be
intended for transmission upon a portion of the System that is a multimedia
fiber with respect to which the Grantor is contractually limited to use for
multimedia transmissions (i.e. video and radio transmission
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services and/or related applications, including, graphic, visual, imaging,
interactive and multimedia transmissions). In such event, the Purchaser agrees,
upon request from the Grantor , to identify the nature of its proposed use of
Capacity. Nothing in the preceding two sentences shall be construed in such a
manner as would relieve the Grantor of its obligation to provision Capacity on
the System pursuant to the terms of this Agreement.
17.2 PURCHASER FACILITIES. The Purchaser has sole responsibility
for installation, testing and operation of facilities, services and equipment
("Purchaser Facilities") other than those specifically provided by the Grantor
as part of the Capacity or Other Services as described in this Agreement or in
a Service Order. In no event will the untimely installation or non-operation of
the Purchaser Facilities relieve the Purchaser of its obligation to pay charges
for the Capacity or Other Services after the Actual Start Date.
17.3 TITLE TO EQUIPMENT. This Agreement shall not, and shall not
be deemed to, convey to the Purchaser title of any kind to any of the
transmission facilities, including all optronics, digital encoder/decoders,
telephone lines, microwave facilities or other facilities utilized in
connection with the Capacity; provided however that the Grantor acknowledges
that the Purchaser's IRU in the Capacity on the System entails the use of such
transmission facilities. Any equipment provided by the Purchaser must be
itemized on a schedule listing all such the Purchaser-provided equipment and
appended to the Service Order to which use of that equipment relates and the
Grantor shall not be obligated to provide any Ancillary Service for the
Purchaser if the Purchaser will be providing any of its own equipment unless
and until such equipment is itemized in accordance with this sentence.
17.4 PUBLICITY AND CONFIDENTIALITY. (a) Confidentiality. The
provisions of this Agreement and any non-public information, written or oral,
with respect to this Agreement ("Confidential Information") will be kept
confidential and shall not be disclosed, in whole or in part, to any Person
other than Affiliates, officers, directors, employees, agents or
representatives of a party (collectively, "Representatives") who need to know
such Confidential Information for the purpose of negotiating, executing and
implementing this Agreement. Each party agrees to inform each of its
Representatives of the non-public nature of the Confidential Information and to
direct such Persons to treat such Confidential Information in accordance with
the terms of this Section 17.4. Nothing herein shall prevent a party from
disclosing Confidential Information (i) upon the order of any court or
administrative agency, (ii) upon the request or demand of, or pursuant to
any law, regulation of any regulatory agency or authority (including any filing
that a party hereto may have to make with the Securities and Exchange
Commission of the United States), (iii) to the extent reasonably required in
connection with the exercise of any remedy hereunder, (iv) to a party's legal
counsel or independent auditors, (v) to prospective lenders to the Grantor or
the Purchaser, and (vi) to any actual or proposed assignee, transferee or
lessee of all or part of its rights hereunder provided that such actual or
proposed assignee agrees in writing to be bound by the provisions of this
Section 17.4; provided, however, that if a receiving party is ordered or
required to disclose Confidential Information pursuant to either of the
preceding clauses (i) or (ii), such party shall promptly notify the other party
of the order or request and permit the disclosing party (at its expense) to
seek an appropriate protective order. Notwithstanding anything herein to the
contrary, each of the following shall be deemed to be excluded from provisions
hereof: any Confidential Information that is (A) already in the
<PAGE> 31
31
possession of, is known to, or is independently developed by the receiving
party, (B) or becomes publicly available through no fault of the receiving
party, (C) obtained by the receiving party from a third-party without breach by
such third-party of an obligation of confidence with respect to the
Confidential Information disclosed. The parties acknowledge that the Purchaser
will need to and will be permitted to disclose Confidential Information
(including, specifically, the System's performance standards) to potential
customers of the Purchaser subject to the prior written consent of the Grantor.
The Purchaser may seek such consent, including consent to disclose a redacted
version of this Agreement to multiple customers, which consent shall not be
unreasonably withheld, conditioned or delayed by the Grantor.
(b) Effect of Termination. Upon termination or expiration of this
Agreement for any reason, or upon request of the disclosing party, all
Confidential Information, together with any copies thereof, shall be returned
to the disclosing party or certified destroyed by the receiving party.
(c) Equitable Relief. The parties acknowledge that in the event
of a breach or threatened breach of the provisions of this Section 17.4,
remedies at law will be inadequate and that either party shall be entitled to
an injunction or other specific performance to enforce this provision,
provided, however, that nothing herein shall be construed as precluding the
injured party from pursuing further remedies.
(d) Publicity. The foregoing shall not restrict either party from
publicly announcing that it has entered into this Agreement with the parties
hereto, but without including any details contained in this Agreement.
Notwithstanding the foregoing, however, neither party shall issue a press
release concerning the execution of this Agreement without the prior written
consent of the other party.
17.5 NOTICE. Each notice, demand, certification or other
communication given or made under this Agreement shall be in writing and shall
be delivered by hand or by a recognized overnight delivery service or sent by
registered mail or by facsimile transmission to the address of the respective
party as shown below (or such other address as may be designated in writing to
the other party hereto in accordance with the terms of this Section):
If to the Purchaser: 3625 Queen Palm Drive
Sabal VII Building
Tampa, Florida 33619
Attn: Divisional Vice President, Network Planning
Fax No.:
Telephone:
With a copy to: 3625 Queen Palm Drive
Sabal VII Building
Tampa, Florida 33619
Attn: General Counsel
<PAGE> 32
32
If to the Grantor: One Williams Center, 26th Floor
Tulsa, Oklahoma 74172
Attn: Contract Administration
Fax No.: (918) 561-6578
Telephone: (918) 588-5760
With a copy to: One Williams Center, Suite 4100
Tulsa, Oklahoma 74172
Attn: General Counsel
Any change to the name, address and facsimile numbers may be made at any time
by giving fifteen (15) days prior written notice in accordance with this
Section. Any such notice, demand or other communication shall be deemed to have
been received, if delivered by hand, at the time of delivery or, if sent by
overnight delivery service the date when delivered or, if posted, at the
expiration of seven (7) days after the envelope containing the same shall have
been deposited in the post maintained for such purpose, postage prepaid, or, if
sent by facsimile, at the date of transmission with written or telephone
confirmation of receipt.
17.6 INTEGRATION. This Agreement (including the attachments
hereto) represents the agreement of the parties hereto with respect to the
subject matter hereof, and there are no promises, undertakings, representations
or warranties by the parties hereto relative to the subject matter hereof not
expressly set forth or referred to herein or in the attachments hereto.
17.7 WRITTEN AMENDMENT. This Agreement shall not be modified or
amended except by a writing signed by authorized representatives of the parties
hereto.
17.8 RELATIONSHIP OF PARTIES. This Agreement shall not form a
joint venture or partnership or similar business arrangement among the Grantor
and the Purchaser and nothing contained herein shall be deemed to constitute a
partnership or joint venture or similar business arrangement nor shall any party
be deemed to be the agent or partner of any other party. No party shall have the
right to bind any other party.
17.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA.
17.10 NO THIRD PARTY BENEFICIARIES. This Agreement does not
provide and is not intended to provide third parties (including customers of the
Purchaser, any permitted transferee of the Capacity (other than a permitted
transferee of all the Purchaser's rights and obligations under this Agreement)
or any other permitted user of the Capacity) with any remedy, claim, liability,
reimbursement, cause of action, or any other right. Furthermore, the Purchaser
acknowledges that, except as set forth in any Service Order, it is not a third
party beneficiary of any agreement entered into by the Grantor.
17.11 ATTORNEYS' FEES. If a proceeding is brought for the
enforcement of this Agreement, the prevailing party shall be entitled to recover
reasonable attorneys' fees and other
<PAGE> 33
33
costs and expenses incurred in such action or proceeding in addition to any
other relief to which such party may be entitled.
17.12 SEVERABILITY. If any provision of this Agreement is found by an
arbitral, judicial or regulatory authority having jurisdiction to be void or
unenforceable, such provision shall be deemed to be deleted from this Agreement
and the remaining provisions shall continue in full force and effect.
17.13 NO WAIVER. The failure of either party to enforce any provision
hereof shall not constitute the permanent waiver of such provision.
17.14 SETTLEMENT OF DISPUTES. The parties hereto shall endeavor to settle
amicably by mutual discussions any disputes, differences, or claims whatsoever
related to this Agreement within sixty (60) days. The disputing party shall
give the other party written notice of the dispute in accordance with the
notice provision of this Agreement. The other party shall submit a response
within twenty (20) days after receiving said notice. The notice and response
shall include (a) a summary of the party's position and a summary of the
evidence and arguments supporting its position, and (b) the name of the
executive who will represent the party. The executives shall meet at a mutually
acceptable time and place within thirty (30) days of the disputing party's
notice and thereafter as often as they deem reasonably necessary to resolve the
dispute. If the matter has not been resolved within sixty (60) days of the
disputing party's notice, either party may pursue its rights and remedies
within a court of competent jurisdiction. All negotiations conducted pursuant
to this clause are confidential and shall be treated as compromise and
settlement negotiations for purposes of the Federal Rules of Evidence and state
rules of evidence.
17.15 RIGHT TO AUDIT. No more than two (2) times in any twelve (12) month
period, the Purchaser shall have the right, at its sole expense, to appoint a
third-party consultant to audit the books and records of the Grantor to ensure
the Grantor's compliance with Section 3.3 hereof and the accuracy of any pass
through pricing. Any consultant appointed pursuant to the preceding sentence
must agree to treat the Grantor's records and books as confidential pursuant to
the Grantor's standard confidentiality agreement and may only disclose to the
Purchaser the fact that the applicable costs charged to the Purchaser do not
correspond to the Grantor's records (such permissible disclosure shall include
the precise amount of any such variance).
17.16 INTRASTATE INTEREXCHANGE SERVICE. Notwithstanding anything in this
Agreement to the contrary, the Purchaser may use any Interexchange Service
provided under this Agreement only if such Interexchange Service is used for
carrying interstate telecommunications traffic subject to the jurisdiction of
the FCC. The Grantor and its Affiliates shall not be obligated to make
available Interexchange Service on a Circuit with end points within a single
state unless the Purchaser represents in writing to the Grantor that such
Interexchange Service shall be used to carry interstate telecommunications
traffic. If it is determined at any time that any Interexchange Service is
subject to applicable state laws, regulations and/or tariffs, the Grantor or
its Affiliates may (i) provide such Interexchange Service pursuant to such
applicable state laws, regulations and/or tariffs or (ii) discontinue provision
of the affected Interexchange Service.
<PAGE> 34
34
17.17 Conflict of Law. Notwithstanding anything in this Agreement to the
contrary, the Grantor may immediately suspend the provision of Capacity or any
Other Service to the Purchaser, in whole or in part, if (i) the Grantor
determines that the provision of such Capacity or Other Service violates the
Communications Act (including the Telecommunications Act of 1996) in any
material manner or (ii) a change in federal or state law or promulgation of any
rule, regulation or order of the FCC or other governmental instrumentality
makes the Grantor's performance hereunder commercially impracticable in any
material manner.
17.18 No Conflicting Tariffs. The Grantor does not intend to file any
tariff in any jurisdiction that would materially change the Rates and the terms
and conditions of this Agreement. If such tariff is filed, and if such tariff
has the effect of increasing the rates and charges that the Purchaser pays
under this Agreement, the Grantor will remit to the Purchaser the difference
between the Rates and charges in this Agreement, and any increased rates and
charges that the Purchaser pays as a result of the tariff filing, on a
month-to-month basis, thirty (30) days after the Purchaser pays the higher
rates or charges.
17.19 Compliance with Law. Each party hereto shall use reasonable efforts
to comply with all laws, orders, regulations, directories, actions or requests
of the United States government or of a state or local government or any
instrumentality thereof in order to enable it to comply with its obligations
hereunder.
[rest of page intentionally left blank]
<PAGE> 35
35
IN WITNESS WHEREOF, the parties have executed this Agreement
effective on the date first written above.
WILLIAMS COMMUNICATIONS, INC., as
Grantor
By: /s/
------------------------------
Name:
Title:
INTERMEDIA COMMUNICATIONS INC.,
as Purchaser
By: /s/ BOB ROUSE
------------------------------
Name: Bob Rouse
Title: EVP
<PAGE> 36
SCHEDULE 1
TO THE
CAPACITY PURCHASE AGREEMENT
DATED JANUARY 5, 1998
Grantor's Private Line and ATM Service
SERVICES & PRICING
This Private Line Service and ATM Services Schedule ("PLSS") is made as of this
5th day of January ___, 1998, and is subject to that Capacity Purchase
Agreement No. __________ (the "Capacity Agreement") by and between Williams
Communications, Inc. d/b/a Williams Network, a Delaware corporation
("Grantor"), and Intermedia Communications, Inc. a Delaware corporation
("Purchaser").
1. DESCRIPTION OF PRIVATE LINE SERVICE: With respect to On-Net Service,
Grantor's Private Line Service (in this Schedule, the "Private Line
Service" or "Service") provides domestic DS-3 and optical SONET (OC-N)
circuits which are specifically dedicated to Purchaser's use between two
(2) points specified by the Parties in a Service Order, accepted by
Grantor in accordance with the Capacity Agreement, and meeting the
technical requirements defined in the "Technical Specifications for
Private Line Service" attached hereto.
DESCRIPTION OF ATM SERVICE: Williams Network Asynchronous Transfer Mode
(ATM) is multi-service technology that provides integration of disparate
networks onto a single communications infrastructure provided in
accordance with the attached "Technical Specifications for Private Line
Service". ATM technology takes voice, data and video packets and divides
them into equally sized, 53-byte cells and transmits them over the
Williams Network ATM network.
2 RATES & CHARGES: Private Line Service has three basic rate elements; IXC
Charges, Local Access Charges, and Non-recurring Charges. Williams Network
ATM service has three basic rate elements; Access, Port Connections, and
either Committed Bit Rate (CBR), or Variable Bit Rate (VBR) Permanent
Virtual Circuits (PVCs) and Virtual Paths (VPs).
2.1 IXC. Monthly recurring IXC Charges for Private Line Service are determined
by multiplying the unit price, representing the charge for one Voice Grade
Equivalent Circuit over one vertical and horizontal mile or route mile, by
the number of Voice Grade Equivalent Circuits constituting the Circuit
ordered, as such appear in the pricing matrix attached to this Schedule 1.
ATM. Permanent virtual circuit (PVC) and Virtual Path (VP) bandwidth
charges. PVC and VP charges are based on the class of service (CoS) and
bandwidth selected. Bandwidth charges are stated in Committed Information
Rates (CIR) or Megabit per second (Mbps) increments for one-way, or
Simplex PVCs. CIR increments are available in 1Meg increments up to 40Mbps
for DS3 ports, 5 Meg increments up to 150 Mpbs for OC3 ports and 25 Meg
increments up to 600 Mbps for OC12 ports. Two Classes of Service are
offered; Constant Bit Rate (CBR) and Variable Bit Rate (non real time)
(VBRnrt). Monthly recurring charges for port, PVCs and VPs are as reflected
on the Attached pricing matrix.
2.2 Local Access Charges. Local Access Charges are based on the cost of
transmission capacity provided by Purchaser or a third party supplier to
extend the Services provided by Grantor from a Grantor Point of Presence to
any other location and are provided as set forth in the Capacity Agreement.
2.4 Non-Recurring Charges: Non-recurring charges for On-Net Service are as set
forth in the attached pricing matrix. Non-recurring charges for any
Service provided by a third-party, whether Off-Net Service, Local Access,
or other, are as established by the third-party providing such Service.
Installation charges shall apply to the normal installation of equipment
necessary to provide the requested service to the point of demarcation at
the Purchaser's premises. Additional Installation charges shall apply when
Grantor is required to install equipment other than that normally required
to provide the service or when Purchaser requests special equipment. The
non-recurring charges are subject to change, upon thirty (30) days prior
written notice from Grantor to Purchaser.
3. TERMS OF SERVICES:
<PAGE> 37
3.1 Upon acceptance of a Service Order, Grantor shall confirm Purchaser's
requested Start Date, or inform Purchaser of the estimated date for the
delivery of each service. Grantor shall use commercially reasonable efforts
to install each such service on or before the Start Date, but the inability
of Grantor to deliver a facility by such date shall not be a Default under
this Agreement provided that Grantor has coordinated closely with Purchaser
regarding the inability to deliver a facility or requested service. If
Grantor fails to make any facility available within thirty (30) days after
the Start Date, Purchaser's remedy shall include, but not be limited to,
cancellation of the Service Order which pertains to such Service by ten
(10) calendar days prior written notice to Grantor.
3.2 The effective date of each service (the "Service Effective Date") shall
begin as indicated in the Capacity Agreement.
4. CHANGE OF SERVICES:
4.1 Change of Service Date. If Purchaser desires to change the date on which
Purchaser has requested that Service be available, Purchaser will
coordinate such changes during the normal Network Deployment Plan update
process described in the Capacity Purchase Agreement. Purchaser may be
charged a Change of Service Date Charge only in the event that such prior
coordination has not occurred. Purchaser will also be charged for any
charges incurred by Grantor from third party providers as a result of
Purchaser's request for Change of Service Date.
4.2 Change of Service Order. If Purchaser requests a modification to the
information contained in a Service Order (other than a Change of Service
Date) prior to completion of installation of the Service, Purchaser will
incur a Change of Service Order Charge. No charge will be incurred if the
change is to the IXC part of the Service Order and is administrative in
nature (i.e. billing address, contact information, etc.). A charge will be
incurred if the administrative change relates to Local Access for which
Grantor is acting as agent.
Change of Service Order charges will be lower if the Purchaser requests
such change within five (5) business days after a Service Order has been
accepted by Grantor ("pre-engineering") and will be higher if such change
is received after that time ("post-engineering"). Any expedited order will
be considered to be in the post-engineering stage two (2) business days
after the Service Order is accepted by Grantor.
4.3 Change of Service Charges. If Purchaser requests a change to Services after
such Services have been installed, Purchaser will incur a Change of Service
Charge. If such Change of Service is administrative in nature, Purchaser
will not incur a charge, unless such administrative change applies to Local
Access services which have been ordered by Grantor as agent for Purchaser.
In addition to the Change of Service Charge, Purchaser will be responsible
for any charges due to re-engineering which is required as a result of
Purchaser's request for Change of Service.
5. OUTAGE CREDITS:
5.1 Purchaser acknowledges the possibility of an unscheduled, continuous and/or
interrupted period of time when a Service or Services are "UNAVAILABLE" (as
defined in the Specifications) for a continuous period of two (2) hours
(hereafter an "OUTAGE"). An Outage shall begin upon recognition by Grantor
or notice from Purchaser that the Service is interrupted. In the event of
an Outage, Purchaser shall be entitled to a credit (the "OUTAGE CREDIT") at
the rate of 1/720 of the monthly recurring charge for the IXC portion of
the circuit for each hour in excess of the first two (2) consecutive hours
that the affected service fails to conform to the Specifications.
5.2 Purchaser shall not receive an Outage Credit if the interruptions are (a)
of a duration of less than two (2) consecutive hours, (b) caused by the
negligence or willful misconduct of Purchaser or others authorized by
Purchaser to use the services under this Agreement, (c) due to the failure
of power, facilities, equipment, systems or connection not provided by
Seller, (d) caused by the failure of access to Seller's fiber optic
network, (e) resultant from scheduled maintenance where Purchaser has been
notified of scheduled maintenance in advance, (f) due to a Force Majeure
event as defined in Section 8.4 of the CAPACITY AGREEMENT.
5.3 All Outage Credits shall be credited on the next monthly invoice for the
affected Service.
5.4 The Outage Credit described in this Section 5 of this PLSS shall be the
sole and exclusive remedy of Purchaser in the event of any Outage, and
under no circumstance shall an outage be deemed a Default under this
Agreement.
6.0 Service Parameters
6.1 General: The service intervals and system performance standards
defined in this schedule apply to both existing circuits transferred
to the Grantor under terms of the IRU and to all new circuits ordered
from the
<PAGE> 38
Grantor subsequent to the execution of the IRU.
6.2 Service Intervals
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Ordering Timelines
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Order Acknowledgment 24 hours
- ------------------------------------------------------------------------------------------------------------
Advanced Scheduled Maintenance Notification 20 calendar days
- ------------------------------------------------------------------------------------------------------------
Advanced Emergency Maintenance ASAP
Notification
- ------------------------------------------------------------------------------------------------------------
FOC, including carrier selection and containing 10 business days after submission to Grantor
due date confirmation
- ------------------------------------------------------------------------------------------------------------
LOA 3 business days
- ------------------------------------------------------------------------------------------------------------
Pop-to-Pop DLR (See paragraph 6, below) 5-7 after initial request
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Installation Timelines From Date Order Accepted
- ------------------------------------------------------------------------------------------------------------
<S> <C>
DS-0 To be negotiated
- ------------------------------------------------------------------------------------------------------------
DS-1 To be negotiated
- ------------------------------------------------------------------------------------------------------------
DS-3 21 Business Days
- ------------------------------------------------------------------------------------------------------------
OC-3 (but not OC-3c) 90 Business Days
- ------------------------------------------------------------------------------------------------------------
OC-12 (but not OC-12c) 90 Business Days
- ------------------------------------------------------------------------------------------------------------
OC-48 90 Business Days
- ------------------------------------------------------------------------------------------------------------
OC-192 To be negotiated
- ------------------------------------------------------------------------------------------------------------
</TABLE>
6.3 Technical Specifications:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Transmission Rates
- -------------------------------------------------------------------------
Device Private Line (On-net)
- -------------------------------------------------------------------------
<S> <C>
DS-3 44.736 Mbps
- -------------------------------------------------------------------------
OC-3/3c 155.520 Mbps
- -------------------------------------------------------------------------
OC-12/12c 622.080 Mbps
- -------------------------------------------------------------------------
OC-48 9953.280 Mbps
- -------------------------------------------------------------------------
</TABLE>
6.4 Network Availability: 99.95% in calendar year 1998, and 99.995% thereafter.
Both percentages may be identified as "Network Availability". All Network
Availability is measured on a calendar year basis from POP to POP. The
Network Availability applies only to On-Net Service. Availability of
Off-Net Service, Local Access, or Interconnection is only as provided by
the applicable third-party carrier. Force Majeure Events will not be
included in the calculation of Network Availability.
6.5 Mean Time to Repair
a. Equipment - 2 hours.
b. Cable - 4 hours on site, 6 hours repairing first fiber.
6.6 Performance (% Error Free Seconds): 99.5% from POP to POP measured over a
calendar year (the "EFS"). The EFS will only apply to On-net Service. The
EFS of Off-Net Service, Local Access, or Interconnection is only as
provided by the applicable third-party carrier. Force Majeure Events will
not be included in the calculation of the EFS.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Systems Availability Threshold Bit Error Rate Error Free Seconds
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Structurally Diverse Route 99.995% 10 * 99.95% 99.50%
- -------------------------------------------------------------------------------------------------------------
Non-Structurally Diverse Route 99.95% 10 * 99.95% 99.50%
- -------------------------------------------------------------------------------------------------------------
Structurally Diverse Spur 99.995% 10 * 99.95% 99.50%
- -------------------------------------------------------------------------------------------------------------
Non-Structurally Diverse Spur 99.95% 10 * 99.95% 99.50%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 39
6.7 Moves/Adds/Changes.
a. In addition to new service orders, Williams Communications shall issue a
POP-to-POP circuit design layout record when circuits are moved, added,
changed, rehomed, regroomed, 5-7 business days after initial request for
move, add, change, rehome, regroom, etc. is submitted Williams will submit
copies of LEC-issued circuit design layout records immediately upon
receipt from the LEC.
b. Grantor will provide a monthly DLR report summarizing all
moves/adds/changes to DLRs occurring in the previous month.
6.8 Grantor agrees to provide the following:
a. Priority Restoral Status for On-Net Service when electronic restoration
becomes available and structurally diverse paths and OSS restoration
applications are implemented.
a. An electronic view into that portion of the Grantor's Network utilized by
the purchaser under this agreement - including but not limited to trouble
tickets, alerts, and alarms, when such functionality is implemented by
the Grantor.
b. Proactive notice on all outages and expedited escalation thereof and
escalation pursuant to the Grantor's escalation procedures executed
through an assigned contact person for Purchaser.
c. Identification of underlying carriers as requested on circuit.
e. Circuit diversity, including proof of diversity, when ordered, by circuit,
and including verification of diversity following any moves, adds,
changes, regrooming, rehoming, etc. Purchaser will provide DLR for
circuits for which diversity is requested at the rates indicated in the
relevant Service Order set in accordance with the terms of the Capacity
Agreement. A diverse circuit is subject to On-Net or Off-Net Rates
additional to the original circuit.
d. Escalation lists up to and including the Vice-President of Operations and
Engineering of Grantor.
e. Regularly scheduled service review meetings with the Purchaser.
f. 30 minute callbacks with status notices or a similarly agreed upon update
mechanism during outages as required by the Purchaser.
g. Hotline call-in number to monitor restoral status.
g. Fully functional and tested disaster recovery NOC site in Tulsa and in
Houston backup center when implemented (Houston's planned implementation
in 1999).
j. Assigned service manager.
h. Regular performance reports on MTTR, % availability, distribution of
resolution codes, failure rates on particular equipment components
specific to Purchaser's network.
m. Assigned circuit provisioner.
n. Coordination of restoral procedures.
6.9 Failures and Response Times. Purchaser defines the classes of service
failures and response times as follows:
Type Failure Definition Response Time
MAJOR A major failure is defined as a service 4 Hours on site
affecting outage (e.g., a cut cable or major
equipment breakdown) or the loss of an entire
site, i.e., any failure affecting one or more
circuits.
<PAGE> 40
MINOR Any failure which has no effect on existing service. 24 hours
Such a failure includes a failed or loose termination.
Redundant system equipment or alternate path cabling
maintains service.
6.10 Remedies of Purchaser for Grantor Failure to Comply with Applicable
Standards. In the event that the Grantor fails to comply with applicable
Service Intervals, System Performance Standards and in any thirty (30) day
period with respect to On-Net Service, only, as stated in this schedule,
the following remedies shall apply:
a) Failure to Comply. Failure to comply is defined as the inability to
meet the agreed upon standards for Service Intervals and System
Performance Standards in any thirty (30) day period.
b) Remedy. In the event of a Failure to Comply, Grantor shall be
obligated to Purchaser as follows:
1) Failure to Comply with Service Intervals - Grantor shall waive
Williams installation fees and provide one month free service charged
by Williams on the affected customer order(s). Any fees charged to
Grantor by third party providers will not be waived.
2) Failure to Comply with System Performance Standards - Grantor
shall provide a credit of 15% of the monthly recurring charge
exclusive of local access to Purchaser's next bill on the affected
customer order(s).
<PAGE> 41
TECHNICAL SPECIFICATIONS FOR PRIVATE LINE SERVICE
-------------------------------------------------
1.0 Interconnection Specifications
1.1 DS-3. DS-3 service is provided in accordance with ANSI Standard T1.102
(formerly AT&T Compatibility Bullentin 119) and Technical Reference
54014'4. DS-3 Service operates at 44.736 Mbps.
1.2 Optical SONET Services (OC-N). Optical SONET Services are provided in
accordance with ANSI Standard T1.105. OC-3 Service operates at 155.520 Mbps
and is configured with 3 separate STS-1 signaling paths. OC-12 Service
operates at 622.080 Mbps with 12 separate STS-1 signaling paths. OC-12C
Service operates at 622.080 Mbps with 1 STS-12C signaling path (or 4
separate STS-3C signaling paths). OC-48 Service operates at 9953.280 Mbps
and is configured with 48 separate STS-1 signaling paths.
2.0 Quality Standards
2.1 General. DS-3 and Optical SONET Service standards apply on a one-way basis
between the Purchaser Premises Network Interface Points ("CPNIP") which are
connected to Local Access between which DS-3 and Optical SONET
Interexchange Service is provided (CPNIP to CPNIP or End-to-End) and
exclude nonperformance due to force majeure or planned interruptions for
necessary maintenance purposes. The actual end-to-end availability and
performance of DS-3 and Optical SONET Service may be affected by the
Purchaser provided equipment, dependent upon the type and quality of
Purchaser equipment used. (Purchaser provided Local Access may not meet
these specifications.)
2.2 Availability. Availability is a measurement of the percent of total time
that service is operative when measured over a calendar year period. DS-3
and Optical SONET Service is considered inoperative when there has been a
loss of signal or when two consecutive 15 second loop-back tests confirm
the observation of any severely errored seconds or a bit error rate equal
to or worse than 1 x (10 raised to -3). The Local Access availability
standards for DS-3 and Optical SONET Services or any Off-Net Service are
established by the Local Access Provider or Off-Net Service provider.
2.3 Performance (% Error Free Seconds, while Available). Performance is noted
in Error Free Seconds (EFS) which are a measure of the percentage of total
seconds when measured over a consecutive 24 hour period that do not contain
bit errors. Performance shall be measured on a one-way basis using a Pseudo
Random Bit Sequence test pattern as defined in CCITT Recommendation 0.151.
The Error Free Seconds standards for the Local Access for DS-3 and Optical
SONET Service or for Off-Net Service is established by the Local Access
Provider or Off-Net Service provider.
<PAGE> 42
- ------------------------------------------------------------------------------
Williams Network Asynchronous Transfer Mode Service
TECHNICAL SPECIFICATIONS
1.0 Definition. Williams Network technical specifications are stated as an
objective that the ATM network will perform in accordance with prevailing
telecommunications industry standards. Williams Network will use reasonable
efforts to remedy delays, interruptions, omissions or mistakes within the
ATM network.
1.1 Performance Objectives. All service provided under the Williams Network
Asynchronous Transfer Mode Service are measured using two variables:
Network availability and Mean-time-to-repair.
1.2 Network Availability is a measurement of actual service time to stated
service time. Network Availability objective: -99.99%
1.3 MTTR is the average time required to restore service and resume
availability and is stated in terms of equipment and cable outages. The
time is measured from the moment the outage is reported until the service
is available and applies specifically to equipment outages or failures.
MTTR objective: - 2 Hours (Equipment)
- 4 Hours (Cable)
1.4 Calculation. Williams Network calculates network availability on customer
action requests. The customer must notify Williams Network and initiate an
action request to determine if service level variables 1.2 & 1.3 were met.
Page 8 of 8
<PAGE> 43
Rates
<TABLE>
<CAPTION>
Private Line Pricing ($/VGE V&H mi) unless otherwise specified
- --------------------------------------------------------------------------------------------------------
New Commitment DS3 OC3 OC12 OC48 OC192*
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
**** **** **** **** **** **** ****
**** **** **** **** **** **** ****
**** **** **** **** **** **** ****
**** **** **** **** **** **** ****
**** **** **** **** **** **** ****
- --------------------------------------------------------------------------------------------------------
</TABLE>
*OC192 pricing is $/VGE route mile
<TABLE>
<CAPTION>
OS-3 Non-Recurring/Ancillary
- --------------------------------------------------------------------------------------------------------
IXC Cross-Connect Local Loop Admin
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Installation $ 2,000.00 N/C $ 100.00
- --------------------------------------------------------------------------------------------------------
Chng of Req. Svc Date-Initial N/C N/C $ 100.00
- --------------------------------------------------------------------------------------------------------
Chng of Req. Svc Date-Subsequent $ 500.00 $ 250.00 $ 100.00
- --------------------------------------------------------------------------------------------------------
Chng of Order - Administration N/C N/C $ 100.00
- --------------------------------------------------------------------------------------------------------
Chng of Order - Pre-Engineering $ 500.00 $ 250.00 $ 100.00
- --------------------------------------------------------------------------------------------------------
Chng of Order - Post-Engineering $ 2,000.00 $ 500.00 $ 100.00
- --------------------------------------------------------------------------------------------------------
Order Cancellation - Pre-Engineering $ 500.00 $ 250.00 $ 100.00
- --------------------------------------------------------------------------------------------------------
Order Cancellation - Post-Engineering $ 2,000.00 $ 500.00 $ 100.00
- --------------------------------------------------------------------------------------------------------
Change of Service - Admin N/C N/C $ 100.00
- --------------------------------------------------------------------------------------------------------
Change of Service - Re-Engineering $ 2,000.00 $ 500.00 $ 100.00
- --------------------------------------------------------------------------------------------------------
Off-Net Ancillary - Recurring Passthrough
- --------------------------------------------------------------------------------------------------------
Off-Net Ancillary - Non-Recurring Passthrough
- --------------------------------------------------------------------------------------------------------
Contract Termination 100% of remain contract life
- --------------------------------------------------------------------------------------------------------
Additional Install/Maint/Eng/Tech Chngs $100.00/Hr, $125.00/Hr After hours
- --------------------------------------------------------------------------------------------------------
Local Loop Billing Admin $ 150.00
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OC-3 Non-Recurring/Ancillary
- --------------------------------------------------------------------------------------------------------
IXC Cross-Connect Local Loop Admin
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Installation $ 5,000.00 N/C $ 300.00
- --------------------------------------------------------------------------------------------------------
Chng of Req. Svc Date-Initial N/C N/C $ 300.00
- --------------------------------------------------------------------------------------------------------
Chng of Req. Svc Date-Subsequent $ 1,250.00 $ 500.00 $ 300.00
- --------------------------------------------------------------------------------------------------------
Chng of Order - Administration N/C N/C $ 300.00
- --------------------------------------------------------------------------------------------------------
Chng of Order - Pre-Engineering $ 1,250.00 $ 500.00 $ 300.00
- --------------------------------------------------------------------------------------------------------
Chng of Order - Post-Engineering $ 5,000.00 $ 1,250.00 $ 300.00
- --------------------------------------------------------------------------------------------------------
Order Cancellation - Pre-Engineering $ 1,250.00 $ 500.00 $ 300.00
- --------------------------------------------------------------------------------------------------------
Order Cancellation - Post-Engineering $ 5,000.00 $ 1,250.00 $ 300.00
- --------------------------------------------------------------------------------------------------------
Change of Service - Admin N/C N/C $ 300.00
- --------------------------------------------------------------------------------------------------------
Change of Service - Re-Engineering $ 5,000.00 $ 1,250.00 $ 300.00
- --------------------------------------------------------------------------------------------------------
Off-Net Ancillary - Recurring Passthrough
- --------------------------------------------------------------------------------------------------------
Off-Net Ancillary - Non-Recurring Passthrough
- --------------------------------------------------------------------------------------------------------
Contract Termination 100% of remain contract life
- --------------------------------------------------------------------------------------------------------
Additional Install/Maint/Eng/Tech Chngs $100.00/Hr, $125.00/Hr After hours
- --------------------------------------------------------------------------------------------------------
Local Loop Billing Admin $ 150.00
- --------------------------------------------------------------------------------------------------------
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 44
Rates
<TABLE>
<CAPTION>
OC-12 Non-recurring/Ancillary
- --------------------------------------------------------------------------------------------------------
IXC CROSS-CONNECT LOCAL LONG ADMIN
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Installation $ 18,000.00 N/C $ 1,000.00
- --------------------------------------------------------------------------------------------------------
Chng of Req. Svc Date - Initial N/C N/C $ 1,000.00
- --------------------------------------------------------------------------------------------------------
Chng of Req. Svc Date - Subsequent $ 3,500.00 $ 1,500.00 $ 1,000.00
- --------------------------------------------------------------------------------------------------------
Chng of Order - Administration N/C N/C $ 1,000.00
- --------------------------------------------------------------------------------------------------------
Chng of Order - Pre-Engineering $ 3,500.00 $ 1,500.00 $ 1,000.00
- --------------------------------------------------------------------------------------------------------
Chng of Order - Post-Engineering $ 18,000.00 $ 3,500.00 $ 1,000.00
- --------------------------------------------------------------------------------------------------------
Order Cancellation - Pre-Engineering $ 3,500.00 $ 1,500.00 $ 1,000.00
- --------------------------------------------------------------------------------------------------------
Order Cancellation - Post-Engineering $ 18,000.00 $ 3,500.00 $ 1,000.00
- --------------------------------------------------------------------------------------------------------
Change of Service - Admin N/C N/C $ 1,000.00
- --------------------------------------------------------------------------------------------------------
Change of Service - Re-Engineering $ 18,000.00 $ 3,500.00 $ 1,000.00
- --------------------------------------------------------------------------------------------------------
Off-Net Ancillary - Recurring Passthrough
- --------------------------------------------------------------------------------------------------------
Off-Net Ancillary - Non-Recurring Passthrough
- --------------------------------------------------------------------------------------------------------
Contract Termination 100% of remain contract life
- --------------------------------------------------------------------------------------------------------
Additional Install/Maint/Eng/Tech Chgs $100.00/Hr, $125.00/Hr After hours
- --------------------------------------------------------------------------------------------------------
Local Loop Billing Admin $ 150.00
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OC-42 Non-recurring/Ancillary
- --------------------------------------------------------------------------------------------------------
IXC CROSS-CONNECT LOCAL LONG ADMIN
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Installation $ 48,000.00 N/C $ 3,500.00
- --------------------------------------------------------------------------------------------------------
Chng of Req. Svc Date - Initial N/C N/C $ 3,500.00
- --------------------------------------------------------------------------------------------------------
Chng of Req. Svc Date - Subsequent $ 12,000.00 $ 5,000.00 $ 3,500.00
- --------------------------------------------------------------------------------------------------------
Chng of Order - Administration N/C N/C $ 3,500.00
- --------------------------------------------------------------------------------------------------------
Chng of Order - Pre-Engineering $ 12,000.00 $ 5,000.00 $ 3,500.00
- --------------------------------------------------------------------------------------------------------
Chng of Order - Post-Engineering $ 48,000.00 $ 12,000.00 $ 3,500.00
- --------------------------------------------------------------------------------------------------------
Order Cancellation - Pre-Engineering $ 12,000.00 $ 5,000.00 $ 3,500.00
- --------------------------------------------------------------------------------------------------------
Order Cancellation - Post-Engineering $ 48,000.00 $ 12,000.00 $ 3,500.00
- --------------------------------------------------------------------------------------------------------
Change of Service - Admin N/C N/C $ 3,500.00
- --------------------------------------------------------------------------------------------------------
Change of Service - Re-Engineering $ 48,000.00 $ 12,000.00 $ 3,500.00
- --------------------------------------------------------------------------------------------------------
Off-Net Ancillary - Recurring Passthrough
- --------------------------------------------------------------------------------------------------------
Off-Net Ancillary - Non-Recurring Passthrough
- --------------------------------------------------------------------------------------------------------
Contract Termination 100% of remain contract life
- --------------------------------------------------------------------------------------------------------
Additional Install/Maint/Eng/Tech Chgs $100.00/Hr, $125.00/Hr After hours
- --------------------------------------------------------------------------------------------------------
Local Loop Billing Admin $ 150.00
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 45
ATM PRICING
ATM VBR PRICING MONTHLY RECURRING CHARGES
<TABLE>
<CAPTION>
Port CIR(Mbps CIR HIGH Port CoS Price Per Meg
<S> <C> <C> <C> <C> <C>
DS3 1 9 $ 6,000 VBRnrt $325
10 19 $ 6,000 VBRnrt $312
20 29 $ 6,000 VBRnrt $306
30 40 $ 6,000 VBRnrt $299
OC3 5 25 $15,000 VBRnrt $312
25 35 $15,000 VBRnrt $306
40 55 $15,000 VBRnrt $299
60 75 $15,000 VBRnrt $293
80 95 $15,000 VBRnrt $286
100 120 $15,000 VBRnrt $280
125 150 $15,000 VBRnrt $273
OC12 ICB
</TABLE>
NON RECURRING CHARGES
Non-recurring charges include installation, configuration changes,
cancellation, order change that may be incurred for the Port or PVC.
Non Recurring Charges
Description of Charge Charges
Installation
<TABLE>
<S> <C>
45Mb Port $ 1,500
155Mb Port $ 4,000
622Mb Port $15,000
per VC $ 40
Ancillary
Configuration Change $ 50
Cancellation $ 250
PVC Order Change $ 50
Port Order Change $ 100
DS3 Cross Connect $ 500
OC3 Cross Connect $ 1,250
</TABLE>
DISCOUNT STRUCTURE
Contributing Williams network ATM Service charges include recurring port and
PVC charges. The discount structure is based on the monthly revenue commitment
(contributing charges) and the stated length of the contract established.
****
Term 2: ATM Service is limited to 18 months from execution date or otherwise
extended by mutual agreement by Intermedia and Williams
Term 3: CBR Pricing is subject to availability at the Rates
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 46
SCHEDULE 2
TO THE CAPACITY PURCHASE AGREEMENT DATED JANUARY 5, 1998
- --------------------------------------------------------------------------------
INITIAL NETWORK DEPLOYMENT PLAN
Capacity requested by Purchaser shall be provided by Grantor to Purchaser at
either On-Net or Off-Net rates as indicated below. Column C ("On-Net Private
Lines Now") and Column D ("On-Net ATM Now") city pairs shall be available
immediately at the Rates provided for pursuant to the terms of this Agreement.
Column E ("On-Net Private Lines 12 Mo.") city pairs shall be available
immediately at a pass-through of Off-Net rates, and shall be subject to the
Rates provided for pursuant to the terms of this Agreement upon the earlier of
twelve (12) months or the date the city pairs become available On-Net. Column F
("Off-Net New Schedule in 30 Days") city pairs shall be immediately available at
pass-through of Off-Net rates. City pairs available under the Backbone
Agreements are by this reference deemed a part of Column F/the "Off-Net New
Schedule in 30 Days," subject to payment of the Management Fee and other
requirements of Section 8 of the Agreement.
City Pairs specifically identified in Schedule F will be included in a schedule
of SUSA overbuilds for On-Net rates within 30 days of execution of this
Agreement.
SUSA capacity is subject to availability.
<TABLE>
<CAPTION>
=======================================================================================================================
A B C D E F G H
On-Net On-Net On-Net Off-Net Minimum SUSA Availibity
Line PLs ATM PLs (New Schedule Facility ---------------
No. A Location Z Location Now Now 12 Mo. in 30 Days) Size Date Date Cap.
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Atlanta Birmingham 1 DS3 Nov
- -----------------------------------------------------------------------------------------------------------------------
2 Atlanta Chicago 1 OC3C Mar-99
- -----------------------------------------------------------------------------------------------------------------------
3 Atlanta Dallas 1 OC3C Sep
- -----------------------------------------------------------------------------------------------------------------------
4 Atlanta Los Angeles 1 DS3 Oct
- -----------------------------------------------------------------------------------------------------------------------
5 Atlanta Miami 1 x OC3C Dec Mar-98 3-DS3
- -----------------------------------------------------------------------------------------------------------------------
6 Atlanta New Orleans 1 x DS3 Oct Mar-98 1-DS3
- -----------------------------------------------------------------------------------------------------------------------
7 Atlanta New York 1 DS3 Dec
- -----------------------------------------------------------------------------------------------------------------------
8 Atlanta Orlando 1 OC12C Apr-99
- -----------------------------------------------------------------------------------------------------------------------
9 Atlanta Raleigh 1 OC12C Sep
- -----------------------------------------------------------------------------------------------------------------------
10 Atlanta Tallahassee x a OC3C Aug-99
- -----------------------------------------------------------------------------------------------------------------------
11 Atlanta Washington DC 1 x OC3C Dec Mar-98 2-OC3C
- -----------------------------------------------------------------------------------------------------------------------
12 Baltimore Washington DC 1 DS3 May-99 Mar-98 1-DS3
- -----------------------------------------------------------------------------------------------------------------------
13 Birmingham Dallas 1 DS3 Dec-98
- -----------------------------------------------------------------------------------------------------------------------
14 Boston Albany a DS3 Aug-99
- -----------------------------------------------------------------------------------------------------------------------
15 Boston Chicago a DS3 Aug-99
- -----------------------------------------------------------------------------------------------------------------------
16 Boston New York a 2-DS3 Aug-99
- -----------------------------------------------------------------------------------------------------------------------
17 Buffalo Cleveland a OC3C Oct
- -----------------------------------------------------------------------------------------------------------------------
18 Chicago Cincinnati 1 OC3C May-99
- -----------------------------------------------------------------------------------------------------------------------
19 Chicago Cleveland 1 x OC3C Oct Mar-98 2-DS3a
- -----------------------------------------------------------------------------------------------------------------------
20 Chicago Dallas 1 x OC3C Sep Mar-98 1-OC3C
- -----------------------------------------------------------------------------------------------------------------------
21 Chicago Detroit 1 DS3 Aug-99 Mar-98 1-DS3a
- -----------------------------------------------------------------------------------------------------------------------
22 Chicago Indianapolis 1 DS3 Sep
- -----------------------------------------------------------------------------------------------------------------------
23 Chicago Los Angeles 1 x DS3 Nov Mar-98 1-DS3
- -----------------------------------------------------------------------------------------------------------------------
24 Chicago Milwaukee a DS3 Aug-99
- -----------------------------------------------------------------------------------------------------------------------
25 Chicago Minneapolis 1 DS3 Apr-99
- -----------------------------------------------------------------------------------------------------------------------
26 Chicago New York 1 x a OC3C Sep Mar-98 13OCBR
- -----------------------------------------------------------------------------------------------------------------------
27 Chicago Pittsburgh 1 DS3 yr2000
- -----------------------------------------------------------------------------------------------------------------------
28 Chicago San Francisco 1 OC3C yr2000 Mar-98 1-OC3
- -----------------------------------------------------------------------------------------------------------------------
29 Chicago St Louis 1 OC3C Oct
- -----------------------------------------------------------------------------------------------------------------------
30 Chicago Washington DC 1 x a OC3C Apr-99
- -----------------------------------------------------------------------------------------------------------------------
31 Cincinnati Indianapolis 1 DS3 Apr-99
- -----------------------------------------------------------------------------------------------------------------------
32 Cincinnati Washington DC 1 OC3C Apr-99
- -----------------------------------------------------------------------------------------------------------------------
33 Cleveland New York 1 x DS3 Nov
- -----------------------------------------------------------------------------------------------------------------------
34 Cleveland Pittsburgh a DS3 yr2000
- -----------------------------------------------------------------------------------------------------------------------
35 Dallas Houston 1 OC3C Dec
- -----------------------------------------------------------------------------------------------------------------------
36 Dallas Los Angeles 1 DS3 Nov
- -----------------------------------------------------------------------------------------------------------------------
37 Dallas Minneapolis 1 DS3 Apr-99
- -----------------------------------------------------------------------------------------------------------------------
38 Dallas New Orleans 1 DS3 Dec
- -----------------------------------------------------------------------------------------------------------------------
39 Dallas New York 1 DS3 Dec
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 1
<PAGE> 47
SCHEDULE 2
TO THE CAPACITY PURCHASE AGREEMENT DATED JANUARY 5, 1998
<TABLE>
<CAPTION>
A B C D E F G H
On-Net On-Net On-Net Off-Net Minimum SUSA Availability
Line PLs ATM PLs (New Schedule Facility -----------------
No. A Location Z Location Now Now 12 Mo. in 30 Days) Size Date Date Cap.
- --- ---------- ------------- ------ ------ ------- ------------- -------- --------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
40 Dallas Oklahoma City 1 x 2-DS3 Dec Mar-98 2-DS3
41 Dallas Phoenix 1 DS3 Apr-99
42 Dallas San Francisco 1 a OC3C yr2000 Mar-98 LA/SF
43 Dallas Shreveport x a 1-DS3 Not Sched
44 Dallas Tulsa 1 x DS3 Aug Mar-98 1-DS3
45 Dallas Washington DC 1 0C3C Dec
46 Dayton Detroit 1 DS3 Mar-99
47 Denver Kansas City a OC3C Aug-99
48 Denver Minneapolis a DS3 Aug-99
49 Denver Salt Lake City 1 DS3 Aug-99 Mar-98 2-DS3
50 Hartford New York a DS3 Aug-99
51 Hartford Providence a DS3 Aug-99
52 Hayward Sacramento a DS3 yr2000
53 Houston New Orleans 1 DS3 Nov
54 Houston Tallahassee a OC3C Aug-99
55 Kansas City St Louis 1 OC3C Dec
56 Las Vegas Los Angeles 1 x DS3 Nov Mar-98 1-DS3
57 Las Vegas Salt Lake City 1 x OC3C Apr-99 Mar-98 1-DS3
58 Las Vegas San Francisco a OC3C yr2000
59 Los Angeles New York 1 DS3 Dec
60 Los Angeles Phoenix 1 DS3 Apr-99
61 Los Angeles San Francisco 1 OC3C Not Sched Mar-98 1-OC3C
62 Memphis Nashville a DS3 Not Sched
63 Memphis New Orleans a DS3 Not Sched
64 Miami Orlando 1 OC12C Apr-99
65 Miami Tampa 1 OC12C Apr-99
66 Milwaukee Minneapolis a DS3 Not Sched
67 New York Pittsburgh a DS3 Not Sched
68 New York Washington DC 1 x OC3C Apr-99
69 Orlando Tampa 1 OC12C Apr-99
70 Philadelphia New York 1 DS3 Apr-99
71 Philadelphia Washington DC 1 DS3 Apr-99
72 Pittsburgh Dayton/Waynsville a DS3 Not Sched
73 Pittsburgh Washington DC a DS3 yr2000
74 Portland San Francisco a DS3 Not Sched
75 Portland Seattle a DS3 Not Sched
76 Raleigh Washington DC 1 OC12C Dec
77 Sacramento Salt Lake City a DS3 Not Sched
78 Salt Lake City Seattle a DS3 Not Sched
79 San Francisco Washington DC 1 a OC3C Not Sched
80 Tallahassee Tampa 1 OC3C Aug-99
81 Sacramento San Francisco a DS3 Not Sched
TOTAL 17 5 33 0
</TABLE>
1 - Orders for capacity available now or within 12 months from execution.
x - Capacity available in 12 months or sooner; does not represent an order.
a - Subject to review for availability; not circuit orders.
Intermedia will issue ASR's in 3 weeks for all circuit orders
<PAGE> 48
SCHEDULE 2
WILLIAMS CITY PLAN
<TABLE>
<CAPTION>
No. City Locations Firm
In Service Dates
----------------------------------------------------------
<S> <C> <C>
1 Akron 10/01/99
------- ------------------------- -----------------
2 Albany, NY 12/20/98
------- ------------------------- -----------------
3 Atlanta 09/03/98
------- ------------------------- -----------------
4 Baltimore 05/22/99
------- ------------------------- -----------------
5 Baton Rouge 11/03/98
------- ------------------------- -----------------
6 Birmingham 11/10/98
------- ------------------------- -----------------
7 Boise 05/22/99
------- ------------------------- -----------------
8 Boston 08/01/99
------- ------------------------- -----------------
9 Buffalo 12/20/98
------- ------------------------- -----------------
10 Charlotte 10/20/98
------- ------------------------- -----------------
11 Chicago 08/17/98
------- ------------------------- -----------------
12 Cincinnati 04/22/99
------- ------------------------- -----------------
13 Cleveland 10/04/98
------- ------------------------- -----------------
14 Colorado Springs 08/01/99
------- ------------------------- -----------------
15 Columbus 03/22/99
------- ------------------------- -----------------
16 Dallas 08/17/98
------- ------------------------- -----------------
17 Dayton 02/20/99
------- ------------------------- -----------------
18 Daytona Beach 05/22/99
------- ------------------------- -----------------
19 Denver 08/01/99
------- ------------------------- -----------------
20 Des Moines 05/22/99
------- ------------------------- -----------------
21 Ft Meyers 05/06/99
------- ------------------------- -----------------
22 Ft. Lauderdale 05/23/99
------- ------------------------- -----------------
23 Greensboro 09/20/98
------- ------------------------- -----------------
24 Houston 11/05/98
------- ------------------------- -----------------
25 Indianapolis 08/17/98
------- ------------------------- -----------------
26 Jackson, MS 10/20/98
------- ------------------------- -----------------
27 Jacksonville 04/22/99
------- ------------------------- -----------------
28 Kansas City 11/03/98
------- ------------------------- -----------------
29 Las Vegas 10/01/98
------- ------------------------- -----------------
30 Los Angeles 11/03/98
------- ------------------------- -----------------
31 Melbourne 04/22/99
------- ------------------------- -----------------
32 Miami 05/22/99
------- ------------------------- -----------------
33 Minneapolis 07/01/99
------- ------------------------- -----------------
34 Mobile 05/22/99
------- ------------------------- -----------------
35 New Orleans 10/20/98
------- ------------------------- -----------------
36 New York 11/05/98
------- ------------------------- -----------------
37 Newark 05/22/99
------- ------------------------- -----------------
38 Oklahoma City 11/10/98
------- ------------------------- -----------------
39 Orlando 05/22/99
------- ------------------------- -----------------
40 Pensacola 05/06/99
----------------------------------------------------------
</TABLE>
Page 1 of 3
<PAGE> 49
SCHEDULE 2
WILLIAMS CITY PLAN
<TABLE>
<CAPTION>
Firm
NO. City Locations In Service Dates
----- --------------- ----------------
<S> <C> <C>
41 Philadelphia 05/23/98
----- --------------- ----------------
42 Phoenix 01/20/99
----- --------------- ----------------
43 Portland 04/01/99
----- --------------- ----------------
44 Raleigh 09/18/98
----- --------------- ----------------
45 Richmond 10/20/98
----- --------------- ----------------
46 Rochester 12/20/98
----- --------------- ----------------
47 Salt Lake City 08/01/99
----- --------------- ----------------
48 San Diego 12/01/00
----- --------------- ----------------
49 San Francisco 04/01/00
----- --------------- ----------------
50 San Jose 04/01/00
----- --------------- ----------------
51 Seattle 07/01/00
----- --------------- ----------------
52 Spartanburg 08/29/98
----- --------------- ----------------
53 St Louis 09/15/98
----- --------------- ----------------
54 Syracuse 02/20/99
----- --------------- ----------------
55 Tallahassee 05/22/99
----- --------------- ----------------
56 Tampa 05/22/99
----- --------------- ----------------
57 Tucson 03/22/99
----- --------------- ----------------
58 Tulsa 1 Oak 08/17/98
----- --------------- ----------------
59 Washington, DC 07/28/98
----- --------------- ----------------
60 West Palm Beach 04/22/99
----- --------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
Estimated
In Service Dates
---- ----------------- ----------------
<S> <C> <C>
61 Albuquerque, NM 3Q01
---- ----------------- ----------------
62 Austin, TX 3Q01
---- ----------------- ----------------
63 Bakersfield, CA 1Q00
---- ----------------- ----------------
64 Detroit, MI 2Q00
---- ----------------- ----------------
65 El Paso, TX 2Q99
---- ----------------- ----------------
66 Fresno, CA 1Q00
---- ----------------- ----------------
67 Grand Rapids, MI 2Q00
---- ----------------- ----------------
68 Harrisburg, PA 3Q01
---- ----------------- ----------------
69 Hartford, CT 2Q99
---- ----------------- ----------------
70 Johnson City, TN 3Q01
---- ----------------- ----------------
71 Knoxville, TN 3Q01
---- ----------------- ----------------
72 Lansing, MI 2Q00
---- ----------------- ----------------
73 Little Rock, AR 3Q01
---- ----------------- ----------------
74 Louisville, KY 3Q01
---- ----------------- ----------------
75 Macon, GA 1Q99
---- ----------------- ----------------
76 Memphis, TN 3Q01
---- ----------------- ----------------
</TABLE>
Page 2 of 3
<PAGE> 50
SCHEDULE 2
WILLIAMS CITY PLAN
<TABLE>
<CAPTION>
NO. City Locations Firm
In Service Dates
<S> <C> <C>
--------------------------------------------------
77 Milwaukee, WI 3Q99
--------------------------------------------------
78 Montreal, Can 3Q00
--------------------------------------------------
79 Nashville, TN 3Q01
--------------------------------------------------
80 Norfolk, VA 3Q01
--------------------------------------------------
81 Oakland,CA 2Q00
--------------------------------------------------
82 Omaha, NE 3Q01
--------------------------------------------------
83 Ottawa, Can 3Q00
--------------------------------------------------
84 Pittsburg, PA 3Q01
--------------------------------------------------
85 Providence, RI 2Q99
--------------------------------------------------
86 Reno, NV 3Q00
--------------------------------------------------
87 Sacramento, CA 1Q00
--------------------------------------------------
88 San Antonio 3Q01
--------------------------------------------------
89 Sante Fe, NM 3Q01
--------------------------------------------------
90 Southbend, IN 3Q01
--------------------------------------------------
91 Springfield, MA 2Q01
--------------------------------------------------
92 Stockton, CA 1Q00
--------------------------------------------------
93 Toledo, OH 2Q01
--------------------------------------------------
94 Topeka, KS 2Q99
--------------------------------------------------
95 Toronto, Can 3Q00
--------------------------------------------------
96 Youngstown, OH 3Q01
--------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Other Estimated
Potential Cities In Service Dates
<S> <C> <C>
--------------------------------------------------
97 Asheville, NC 3Q01
--------------------------------------------------
98 Billings, MT 3Q01
--------------------------------------------------
99 Biloxi, MS 2Q99
--------------------------------------------------
100 Chattanooga, TN 3Q01
--------------------------------------------------
101 Chico, CA 3Q00
--------------------------------------------------
102 Coeur D'Alene 3Q01
--------------------------------------------------
103 Eau Claire, WI 3Q99
--------------------------------------------------
104 Eugene, OR 3Q00
--------------------------------------------------
105 Gainsville, FL 2Q99
--------------------------------------------------
106 Great Falls, MT 3Q01
--------------------------------------------------
107 Madison, WI 3Q99
--------------------------------------------------
108 Panama City, FL 2Q99
--------------------------------------------------
109 Sioux Falls, SD 3Q01
--------------------------------------------------
110 Spokane, WA 3Q01
--------------------------------------------------
111 St. Cloud, MI 3Q01
--------------------------------------------------
112 Waco, TX 3Q01
--------------------------------------------------
</TABLE>
Page 3 of 3
<PAGE> 51
Schedule 5
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MONTHLY
EQUIVALENT
POSITION SALARY RANGE MIDPOINT RATE MULTIPLIER YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
PJT MGR/SR. NET PLANNER **** **** **** 1.7 **** **** **** **** ****
SR. NETWORK PLANNER **** **** **** 1.7 **** **** **** **** ****
NETWORK CIRCUIT DESIGNE **** **** **** 1.7 **** **** **** **** ****
NETWORK PROVIS **** **** **** 1.7 **** **** **** **** ****
SYSTEM ENGINEER **** **** **** 1.7 **** **** **** **** ****
ACCOUNTING MANAGER **** **** **** 1.7 **** **** **** **** ****
ACCOUNTING CLERK **** **** **** 1.7 **** **** **** **** ****
ACCOUNTING CLERK **** **** **** 1.7 **** **** **** **** ****
ACCOUNTING CLERK **** **** **** 1.7 **** **** **** **** ****
AVERAGE MULTIPLIER RATE 1.7 $58,817 $52,708 $58,548 $50,270 $50,118
</TABLE>
Note 1 Table reflects budgetary model only. Resources will be billed at
Actual Salary rate multiplied by multiplier rate.
Note 2 Multiplier rate includes benefits, payroll taxes, administrative costs
and profit margin.
Note 3 Resources listed represent minimum staffing levels and may be adjusted
upward upon consent of Grantor and purchaser.
Note 4 Relocation Costs will be invoiced as ACTUAL plus a 10 percent
administrative fee and will be capped at 25% of the leaded annual
employee cost.
Note 5 Relocation expenses will fall in accordance with Williams
Communication, INC. employee relocation policy.
Note 6 Expenses (travel & capital) will invoiced as ACTUAL.
Note 7 In years 2 through 5 merit increases are calculated at a rate equal
to 5%.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 52
[INTERMEDIA COMMUNICATIONS LETTERHEAD]
March 31, 1999
Mr. Frank Semple
President, Williams Network
Williams Communications, Inc.
One Williams Center
Tulsa, OK 74172
Re: Capacity Purchase Agreement
Binding Interim Letter Amendment
Dear Frank:
This letter amendment ("Amendment"), effective March 31, 1999, shall constitute
a legally binding agreement between Intermedia Communications Inc.
("Intermedia") and Williams Communications, Inc. ("Williams") amending the
Capacity Purchase Agreement (the "CPA") between Intermedia and Williams entered
into as of January 5, 1998. It is the intent of the parties to negotiate and
execute a more comprehensive formal amendment to the CPA which, if and when it
is executed, shall thereafter supersede this Amendment and render this Amendment
of no legal force or effect.
Therefore, in consideration of the mutual terms and covenants set forth herein,
and for other good and valuable consideration, the adequacy and receipt of which
are hereby acknowledged, Intermedia and Williams agreeing to be legally bound
thereby, hereby amend the CPA as follows:
1. Any terms used in this Amendment which are defined terms in the CPA shall
have the same meaning herein as in the CPA.
2. To the extent of any conflict between any provisions of this Amendment and
the CPA, the provisions of this Amendment shall govern and control. Without
limiting the foregoing, the parties specifically agree that the following
provisions of the CPA are no longer in effect because they have been superseded
by this Amendment:
The following definitions in Section 1.2 of the CPA: "Adjusted Purchased
Capacity," "Capacity," "Most Favored Rate," "Network Deployment Plan,"
"On-Net," "Plan Adjustment Date," "Pricing Adjustment Date(s)," "Purchased
Capacity," "Purchased Capacity Shortfall," "Rates," "Required Capacity,"
"Shortfall Carrier," "Sub-DS-3 Backbone Agreement," "Sub-DS-3 Capacity" and
"Sub-DS-3 Carrier."
Sections 2.2, 2.3, 2.4, 2.5, 2.6, 3.3, 8 and 9.
<PAGE> 53
Letter Amendment
Page 2
3. Except as otherwise provided herein, all words used in this Amendment shall
have the meanings commonly understood and ascribed to them within the
telecommunications industry.
Nature of Capacity Purchase Agreement
4. The CPA shall remain a purchase by Intermedia of an indefeasible right to
use specified levels of capacity on the Williams network.
Parties' Ordering Rights and Obligations
5. Williams' rights as Preferred Capacity Provider pursuant to the CPA are
hereby deleted and replaced with the preferred provider rights set forth in
paragraph 6, below.
6. Williams and Intermedia shall retain a strategic relationship throughout
the term of the CPA. As described in paragraph 19, below, Intermedia will share
with Williams, on a quarterly basis, its forward plans for the leased Intermedia
backbone network (i.e., excluding fiber purchases and/or other Intermedia-owned
network). Williams will thereby have an opportunity to offer Intermedia the
required capacity to meet all such plans on the Williams network (Tier A cities
as described in paragraphs 9 and 10, below). Therefore, on a prospective basis,
beginning May 1, 1999, Intermedia will place at least **** of its new orders for
leased backbone network Tier A city capacity with Williams ****. The **** will
be measured in terms of DS-0 equivalent miles for orders placed each calendar
year (with calendar year 1999 being assessed from May 1st to December 31st). At
the quarterly planning reviews, Intermedia and Williams will review Intermedia's
"new orders" to determine the status of Intermedia's progress toward
satisfaction of the ****, and Intermedia will provide Williams with
sufficient information regarding Intermedia's new orders to allow a meaningful
review. Notwithstanding the foregoing, the **** shall automatically be deemed
satisfied in any calendar year in which Intermedia achieves **** of its
Minimum Commitment (as described in paragraph 14, below). Intermedia's
achievement of **** of its Minimum Commitment shall in no way constitute a
limitation on the nature or volume of the business that may be transacted
between Williams and Intermedia, nor shall it limit the scope of the parties'
strategic relationship.
7. ****
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 54
Letter Amendment
Page 3
****
Rates and Commitments
8. The Most Favored Rate obligations of Williams pursuant to the CPA are
hereby deleted.
9. Attached and hereby made a part hereof as Annexes 1 and 2 are the rate
tables for on-net capacity (On-Net Rate Tables) and off-net capacity (Off-Net
Rate Tables), respectively. The On-Net Rate Tables are effective retroactively
to January 1, 1999. The Off-Net Rate Tables are effective April 1, 1999. Once
effective, these rates shall supersede those in the CPA, the rates shall apply
to all circuits in the relevant category, and all circuits shall be re-rated
each time the rates are reduced.
10. For pricing purposes, the new rate tables define three tiers of cities as
follows: Tier A cities are those cities on the Williams network; Tier B cities
are those cities not on the Williams network which are set forth in Annex 2,
Table 2 (the "Tier B City List"); and all other cities are Tier C cities. All
circuits assigned to Williams pursuant to the Backbone Agreements shall be
deemed within Tier B cities and subject to the rates in Annex 2, Table 1 until
such time as they are groomed onto the Williams network regardless of whether or
not they are listed in the Tier B City List. Any Tier B or Tier C city circuits
shall be subject to the Tier A city On-Net Rate Tables effective immediately
upon the grooming of such circuits onto the Williams network.
11. The On-Net Rate Tables have rates that are determined by the monthly volume
of on-net capacity used by Intermedia, as measured in DS-0 equivalent miles.
Intermedia's rates for on-net capacity each year will be "**** DSO Equivalent
On-net Mileage per month" rates. ****
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 55
Letter Amendment
Page 4
**** Williams shall be entitled to invoice Intermedia for an additional charge.
To calculate such additional charge, Williams will compute **** entire calendar
year by month and then divide by twelve (12) months to determine **** throughout
the applicable calendar year. The **** so calculated will determine the **** .
Williams will create an invoice listing, by circuit, a credit for all of the
charges **** and a debit amount for all of the charges ****. Intermedia will be
responsible for paying the incremental difference between these amounts. The
additional charge invoice will have a single credit/debit entry for each circuit
for the entire **** for all affected months. For example, if a circuit was
turned up on **** and billed through **** for that circuit the invoice would
list a credit for all services billed **** . This backbill will not be separated
by individual months. Williams shall invoice Intermedia for this additional
charge, if applicable, and Intermedia shall pay the invoice within thirty (30)
days after receipt.
****
12. The rates set forth in Annexes 1 and 2 are fixed for the calendar years
1999, 2000 and 2001, and will only be revisited during those years if Intermedia
has a good faith basis to assert that the overall market price for
telecommunications capacity in the United States has fallen by more than ****
below these rates. The parties will attempt to resolve any disagreement
regarding the overall market price and any adjustments to be made to the rates.
If the parties are unable to resolve any disagreement, determination of such a
change in the overall market prices will be initiated by Intermedia using an
independent, third-party consultant (the "Appraiser") reasonably acceptable to
both parties. Once the Appraiser is accepted by both parties, the Appraiser
shall determine whether overall market prices have declined by **** or more. If
the Appraiser determines that such a reduction has not occurred, the rates will
remain unchanged, and Intermedia shall bear the entire cost of the Appraiser. If
the Appraiser determines that such a reduction has occurred, the rates will
decreased in a percentage equal to the percentage amount of the reduction,
effective on a prospective basis, but in no event more than three (3) months
from the date Intermedia initiated retention of the Appraiser, and Williams
shall bear the entire cost of the appraiser. This process of using an Appraiser
shall be used no more than once in any calendar year. For purposes of this
paragraph 12, "overall market price" shall be determined with reference to
pricing that is available on a nationwide basis, disregarding segment-specific
pricing and promotional pricing.
13. Further reductions of the rates set forth in Annexes 1 and 2 for calendar
year 2002 and subsequent years under the CPA will be established by mutual
agreement during the 3rd Quarter of calendar year 2001. The objective of any
reduction in rates will be to ensure that Intermedia continues to receive
favorable pricing relative to the prevailing market. If no agreement can be
reached to reduce the rates, Intermedia shall have the right to either accept
the then-current rates or initiate the retention of an Appraiser, reasonably
acceptable to both parties, to resolve the parties' differences. Once the
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 56
Letter Amendment
Page 5
Appraiser is accepted by both parties, the Appraiser shall determine whether
overall market prices have declined below the current rates being charged to
Intermedia. If the Appraiser determines that such a reduction has not occurred,
the rates will remain unchanged, and Intermedia shall bear the entire cost of
the Appraiser. If the Appraiser determines that such a reduction has occurred,
the rates will be decreased in a percentage equal to the percentage amount of
the reduction, effective from the first day of the applicable calendar year, and
Williams shall bear the entire cost of the Appraiser. This process of using an
Appraiser shall be used no more than once in any calendar year. For purposes of
this paragraph 13, "overall market price" and "prevailing market" shall be
determined with reference to pricing that is available on a nationwide basis,
disregarding segment-specific pricing and promotional pricing.
14. Intermedia agrees to maintain minimum revenue commitments (the "Minimum
Commitments") to Williams on a calendar year basis as follows: **** from January
1, 1999 to December 31, 1999; **** from January 1, 2000 to December 31, 2000;
**** from January 1, 2001 to December 31, 2001; **** from January 1, 2002 to
December 31, 2002; **** for each of the succeeding five (5) calendar years
beginning January 1, 2003 and ending December 31, 2007; **** for each of the
next succeeding five (5) calendar years beginning January 1, 2008 and ending
December 31, 2012; **** for each of the next succeeding five (5) calendar years
beginning January 1, 2013 and ending December 31, 2017. Payments by Intermedia
to Williams for the period January 1, 2018 to March 31, 2018, shall be applied
to the Minimum Commitment for the 2017 calendar year. **** If Intermedia fails
to achieve the Minimum Commitment in any calendar year, upon the later of
forty-five (45) days after the due date for any re-rate payment under paragraph
11, above, if applicable, or forty-five (45) days after the end of the calendar
year, Intermedia shall pay to Williams an amount equal to the difference between
the Minimum Commitment and the payments made by Intermedia for that year (the
"Shortfall Payment"). **** The Minimum Commitments shall supersede the Purchased
Capacity requirements set forth in the CPA,
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 57
Letter Amendment
Page 6
and the right of Intermedia to apply the Excess to immediately succeeding
calendar years and Intermedia's Shortfall Payment obligations shall supersede
the Purchased Capacity Shortfall provisions set forth in the CPA.
Dark and Dim Fiber
15. Williams shall offer to Intermedia the opportunity to purchase dark or dim
fiber capacity from Williams. Such purchases, if any, shall be subject to
separate contracts; provided, however that:
****
Portability
16. Any on-net circuit purchased by Intermedia from Williams under the CPA may
be terminated and/or replaced by Intermedia with other circuits after six (6)
months with no termination charges. Termination or replacement of on-net
circuits within six (6) months of provision will be addressed on an individual
case basis. Any new off-net circuit of DS-3 level or lesser capacity purchased
by Intermedia as of March 1, 1999 shall have a minimum term commitment of one
(1) year unless otherwise ordered by Intermedia or agreed to by the parties on
an individual case basis. Termination of any such DS-3 level or lesser capacity
off-net circuit after one (1) year shall not result in any termination charges.
Any Local Access circuit purchased by Intermedia from Williams under the CPA may
be terminated and/or replaced by Intermedia with other circuits with no
termination charges provided that Williams would not be subject to termination
charges as set forth in Annex 6 (Portability) which is attached hereto and
hereby made a part hereof.
Performance Obligations and Credits
17. Performance credits due Intermedia, to the extent applicable, for Williams'
failure to meet On Time Delivery and Mean Time To Repair requirements will be
calculated on a quarterly basis as part of quarterly formal operational reviews.
Williams performance obligations and remedies for Williams' failure to meet such
obligations, to the extent applicable, are set forth in Annex 3 (Service
Ordering and Provisioning Metrics and Remedies) which is attached hereto and
hereby made a part hereof.
Operational Procedures
18. Intermedia and Williams will jointly develop an Operations Manual by May
15, 1999 or as soon as possible thereafter. The Operations Manual, which will be
jointly maintained, will contain all procedures to be used for circuit ordering,
provisioning, testing, acceptance, billing, customer care, fault reporting and
repair. The Operations
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 58
Letter Amendment
Page 7
Manual also will include standard provisioning intervals, which the parties
intend to continually improve and periodically adjust accordingly.
Intermedia shall have the right to place orders with alternative providers
pursuant to Annex 2 (Off-Net Rate Tables), by either: (a) instructing Williams
to directly place the orders; or (b) on Williams' behalf under a Letter of
Agency from Williams, placing the orders through a third party provider mutually
agreeable to Williams and Intermedia, with all orders having a minimum term of
one (1) year unless otherwise agreed to by the parties on an individual case
basis.
Quarterly Planning Reviews
19. Formal quarterly planning reviews will be established. At these reviews,
Intermedia will provide Williams with its latest capacity forecast, and Williams
will provide Intermedia with its latest build program forecast.
Grooming Procedures
20. Intermedia and Williams will jointly develop and implement a grooming
program for calendar year 1999 with the objective of moving off-net circuits
onto the Williams network as quickly as possible. The requirements and timing of
the grooming program will be based on availability of on-net capacity and
interconnects between Intermedia's Points of Presence ("POP's") and Williams'
POP's. Under the grooming program, Intermedia will be responsible for placing
firm orders for on-net capacity, migrating the traffic and placing cease orders
for the associated off-net circuits. The existing management fee (Professional
Services) structure will be used to meet additional resource requirements.
Interconnect Program
21. Intermedia and Williams shall establish permanent interconnects between
their POP's as set forth in Annex 4 (Interconnect Cities Programmed for 1999)
which is attached hereto and hereby made a part hereof. The parties will agree
on a method of establishing the permanent interconnects and their approximate
cost before substantial work begins on establishing the permanent interconnects.
**** Intermedia will assume the cost of interim local loops used in lieu of
completed interconnects on a cost pass-through basis. Where an interconnect is
delayed for any reason beyond the applicable schedule set forth in Annex 4,
Williams shall pay for **** of the associated local access costs commencing on
the first day of the fifth month following the scheduled date until such time as
the permanent interconnect is available for use. However, if Intermedia cancels
an interconnect build in progress, Intermedia shall thereafter pay **** of the
associated local access costs. Additional interconnects will be determined
during the formal quarterly planning reviews (as described in paragraph 19,
above) and will be subject to the process outlined above.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 59
Letter Amendment
Page 8
22. Intermedia will be permitted to resell capacity under the CPA to ACCA
**** except as provided herein. Intermedia and Williams will enter into
a Letter of Agency or other authorization necessary for Williams to serve
as sole point of contact for ACCA with respect to installation, provisioning
and maintenance for any Williams network capacity resold by Intermedia
to ACCA **** and this Amendment shall in no way be construed to ****.
Other Opportunities
23. Intermedia and Williams will in good faith explore other opportunities of
potential mutual benefit, including establishing a common ILEC collocation
program, the sharing of lab facilities for vendor equipment assessment, switched
voice services between the parties, and modifications to the parties' Master
Services Agreement for IXC Enhanced Data Transport Services.
If this Amendment accurately reflects our agreement to modify the CPA, please
countersign this letter below. Facsimile copies of this Amendment executed in
counterparts shall be deemed legally binding between the parties.
Sincerely,
INTERMEDIA COMMUNICATIONS INC.
By: /s/ RICHARD W. MARCHANT
-----------------------
Richard W. Marchant
Senior Vice President
Engineering
ACCEPTED AND AGREED TO:
WILLIAMS COMMUNICATIONS, INC.
By: /s/ FRANK SEMPLE
-----------------------
Frank Semple
President, Williams Network
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 60
Letter Amendment
Page 9
ANNEXES
ANNEX 1 On-Net Rate Tables
ANNEX 2 Off-Net Rate Tables
ANNEX 3 Service Ordering and Provisioning Metrics and Remedies
ANNEX 4 Interconnect Cities Programmed for 1999
ANNEX 5 Ancillary Charges
ANNEX 6 Portability
<PAGE> 61
IN CONFIDENCE TO INTERMEDIA AND WILLIAMS ANNEX 1
ON-NET RATE TABLES
TABLE 1 - 1999 On-net Capacity Price Table
<TABLE>
<CAPTION>
DS0 Equivalent On-net Mileage
per month at December 31 DS3 OC3 OC12 OC48 OC192
<S> <C> <C> <C> <C> <C>
<100,000,000 **** **** **** **** ****
100,000,001 - 200,000,000 **** **** **** **** ****
200,000,001 - 300,000,000 **** **** **** **** ****
> 300,000,000 **** **** **** **** ****
</TABLE>
TABLE 2 - 2000 On-net Capacity Price Table
<TABLE>
<CAPTION>
DS0 Equivalent On-net Mileage
per month at December 31 DS3 OC3 OC12 OC48 OC192
<S> <C> <C> <C> <C> <C>
<100,000,000 **** **** **** **** ****
100,000,001 - 200,000,000 **** **** **** **** ****
200,000,001 - 300,000,000 **** **** **** **** ****
> 300,000,000 **** **** **** **** ****
</TABLE>
TABLE 3 - 2001 On-net Capacity Price Table
<TABLE>
<CAPTION>
DS0 Equivalent On-net Mileage
per month at December 31 DS3 OC3 OC12 OC48 OC192
<S> <C> <C> <C> <C> <C>
<100,000,000 **** **** **** **** ****
100,000,001 - 200,000,000 **** **** **** **** ****
200,000,001 - 300,000,000 **** **** **** **** ****
> 300,000,000 **** **** **** **** ****
</TABLE>
Further Rate reductions for year 2002 and beyond will be established as
described in Paragraph 13 of the Amendment.
Notes
1. Mileage is determined by V&H coordinates, except for OC192 capacity which is
based on route miles.
2. DS0 equivalent miles are calculated using the following table multiplied by
the mileage:
<TABLE>
<CAPTION>
Circuit Type DSO Equivalents
<S> <C>
DS0 1
DS1 24
DS3 672
OC3 2016
OC12 8064
OC48 32256
OC192 129024
</TABLE>
3. On-net is defined as any circuit that is physically provisioned on the
Williams network (Tier A cities).
4. The following circuits qualify as on-net mileage:
a) on-net circuits as defined in note 3 above;
b) circuits in Annex 2 Note 7
c) dark or dim fiber purchases
5. The 1999 rate table will be applied to all circuits for the whole of 1999
6. For all years, the **** DS0 Equivalent mileage row will be assumed
from the beginning of the year
7. Ancillary Charges and Monthly Minimums of $50 DS-O, $250 DS-1, $1,340 DS-3,
$3,830 OC-3, $13,789 OC-12, $49,029 OC-48 apply to all circuits
8. If Intermedia orders a circuit with a request that it be diverse from an
existing circuit, the diverse circuit provisioned on-net for that order will
be charged by ROUTE miles multiplied by the applicable contract rate.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
Page 1
<PAGE> 62
IN CONFIDENCE TO INTERMEDIA AND WILLIAMS ANNEX 1
Table 2 Tier A City List
<TABLE>
<S> <C> <C> <C>
Baltimore, MD. Denver, CO. New York, NY. Sacramento, CA.
Baton Rouge, LA. Detroit, MI. Miami, FL. Raleigh, NC.
Birmingham, AL. Greensboro, NC. Minneapolis, MN. San Diego, CA.
Boston, MA. Hartford, CT. Nashville, TN. San Francisco, CA.
Atlanta, GA Houston, TX. Newark, NJ. South Bend, IN.
Charlotte, NC. Jackson, MI. Oklahoma City, OK. Spartanburg, SC.
Chicago, IL. Kansas City, MO. Omaha, NE. St. Louis, MO.
Cleveland, OH. Indianapolis, IN. Orlando, FL. Tampa, FL.
Colorado Springs, CO. Las Vegas, NV. Philadelphia, PA. Toledo, OH.
Columbia, SC. Los Angeles, CA. Pittsburgh, PA. Tulsa, OK.
Dallas, TX. New Orleans, LA. Richmond, VA. Washington, D.C.
</TABLE>
4/23/99 Page 2
<PAGE> 63
IN CONFIDENCE TO INTERMEDIA AND WILLIAMS ANNEX 2
OFF-NET RATE TABLES
TABLE 1 - Off-net DS0 Equivalent Capacity Price Table for Tier B cities
<TABLE>
<CAPTION>
From 4/1/1999 2000 2001
<S> <C> <C> <C>
DS0 **** **** ****
DS1 **** **** ****
DS3 **** **** ****
OC3 **** **** ****
</TABLE>
Further Rate reductions for year 2002 and beyond will be established as
described in Paragraph 13 of the Amendment.
TABLE 2 - Tier B City List
<TABLE>
<CAPTION>
CITY STATE CITY STATE CITY STATE CITY STATE CITY STATE CITY STATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ABILENE TX CHICAGO IL FT PIERCE FL LODI CA PEORIA IL SHREVEPORT LA
AKRON OH CINCINNATI OH FTN BEACH FL LONG BEACH CA PERRYMAN MD SIOUX FALLS SD
ALBANY GA CIRCLE CITY AZ FT WAYNE IN LONGVIEW TX PHOENIX AZ SMYRNA GA
ALBANY NY CLEARWATER FL FT WORTH TX LOS ANGELES CA PHILADELPHIA PA SOUTH BEND IN
ALBUQUERQUE NM CLEVELAND OH GAINESVILLE FL LOUISVILLE KY PITTSBURGH PA SOUTHFIELD MI
ANARBOR MI CLIMAX MI GAITHERSBURG MD LYNCHBURG VA PLANO TX SPARTANBURG SC
ARLINGTON VA COCKEYSVILLE MD GALION OH LYNN HAVEN FL PLEASANTON CA SPRINGFIELD IL
ASHEVILLE NC COCO FL GARDEN CITY NY MACON GA PORTLAND ME SPRINGFIELD MO
ATLANTA GA COLLEGE PARK MD GARY IN MAPLEWOOD MN POTTSTOWN PA ST AUGUSTINE FL
AUBURN CA COLORADO SPRINGS CO GIBSONIA PA MARTINSBURG WV POUGHKEEPSIE NY ST JOSEPH MO
AUGUSTA GA COLUMBIA MO GLENDALE CA MC CLEAN VA PROVIDENCE RI ST PAUL MN
AUSTIN TX COLUMBIA SC GRAND JUNCTION CO MC COMB OH PROVO UT ST PETERSBURG FL
AVON PARK FL COLUMBUS IN GREENSBORO NC MC MINNVILLE TN PUEBLO CO ST LOUIS MO
BAKERSFIELD CA COLUMBUS OH GREEN BAY WI MELBOURNE FL RALEIGH NC STAMFORD CT
BALTIMORE MD COMPTON CA GREENVILLE SC MEMPHIS TN RAMSEY NJ STEVENS POINT WI
BARTLESVILLE OK CONCORD NC GULFPORT MS MERCERVILLE NJ REDDING CA STOCKTON CA
BATON ROUGE LA CONOGA PARK CA HACKENSACK NJ MIDLAND TX REDMOND VA STORM LAKE IA
BEAUFORT SC CORPUS CHRISTI TX HAMPTON VA MILWAUKEE WI REDWOOD CITY CA STUART FL
BEAUMONT TX CULPEPPER VA HARLINGEN TX MOBILE AL RENO NV SUMMIT IL
BEAVERTON OR DALLAS TX HARTFORD CT MONTGOMERY AL RESTON VA SUNNYVALE CA
</TABLE>
4/23/99 PAGE 1
<PAGE> 64
ANNEX 2
IN CONFIDENCE TO INTERMEDIA AND WILLIAMS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BELLEFONTAINE OH DANVILLE VA HARTWELL GA MORRISTOWN NJ RIALTO CA SYRACUSE NY
BELLEVUE WA DAVENPORT IA HAYWARD CA MOUNTAIN VIEW CA RICHMOND CA TACOMA WA
BELLINGHAM WA DAVIS CA HICKSVILLE NY NAPERVILLE IL RICHMOND VA THOUSAND OAKS CA
BELPRE OH DAYTON OH HIGHPOINT NC NASHUA NH RIVERDALE IL TOLEDO OH
BENSENVILLE IL DAYTONA BEACH FL HILBURN NY NASHVILLE TN ROANOKE AL TOPEKA KS
BEVERLY HILLS CA DEARBORN MI HOLLYWOOD CA NATICK MA ROCHESTER NY TRENTON NJ
BILLERICA MA DENVER CO HOUSTON TX NEW BRIGHTON MN ROCKVILLE MD TROUTVILLE VA
BINGHAMPTON NY DES MOINES IA HOPEWELL VA NEW BRUNSWICK NJ ROSEMAYNE OH TROY MI
BIRMINGHAM AL DETROIT MI INDIANAPOLIS IN NEW ORLEANS LA ROSEMADE CA TULSA OK
BIRMINGHAM MI DOWNER'S GROVE IL IOWA CITY IA NEW PALESTINE IN ROSEVILLE CA UTICA NY
BLOUNTSTOWN FL DOUGLASVILLE GA IRVING TX NEW YORK NY RUTHERFORD NJ VAN NUYS CA
BOCA RATON FL DUNWOODY GA JACKSON MI NEWARK NJ RYNEX NY VENTURA CA
BOISE ID DURHAM NC JOHNSON CITY TN NORFOLK VA SACRAMENTO CA VERO BEACH FL
BOSTON MA EDISON NJ JOPLIN MO NORTH DADE FL SALINAS CA WACO TX
BOULDER CO EL PASO TX KANSAS CITY MO NORTH ROYALTON OH SALISBURY CT WALNUT CREEK CA
BOUND BROOK NJ EL SEGUNDO CA KING OF PRUSSIA PA NORTH SACRAMENTO CA SAN ANTONIO TX WALTHAN MA
BROOK PARK OH EL TORO CA KIRKLAND WA OAK RIDGE TN SAN BRUNO CA WARREN MI
BUFFALO NY ELK GROVE IL KNOXVILLE TN OAKBROOK IL SAN CARLOS CA WARWICK NY
BURBANK CA EUCLID WI LACEY WA OCEANSIDE CA SAN DEIGO CA WASHINGTON DC
BURLINGTON NC EVANSVILLE IN LAKE CHARLES LA OKLAHOMA CITY OK SAN JOSE CA WATERLOO IA
BURLINGTON VT EVERETT WA LAKELAND FL OMAHA NE SANFORD NC WAYNE PA
CAMBRIDGE MA FAIR OAKS CA LANCASTER PA ONTARIO CA SANTA ANA CA WAYENSBORO VA
CARMEL IN FAIRFIELD CA LAS CRUCES NM ORANGEBURG SC SANTA BARBARA CA WEST ORANGE NJ
CARVALLIS OR FARMINGDALE BY LAS VEGAS NV OREGON IL SANTA CLARA CA WHEELING IL
CEDAR RAPIDS IA FLINT MI LAUREL SPRINGS NJ ORLANDO FL SANTA FE NM WHIPPANY NJ
CENTERVILLE VA FLORENCE SC LEBANON OH PALMDALE CA SANTA MARIA CA WHITE PLAINS NY
CHAMPAIGN IL FOLSOM CA LEMARS IA PALO ALTO CA SANTA MONICA CA WICHITA KS
CHAPEL HILL NC FOSTORIA OH LEXINGTON KY PAOLI PA SANTA ROSA CA WILLIAMSBURG VA
CHARLOTTE NC FRAMINGHAM MA LINCOLN NE PARK RIDGE IL SARASOTA FL WILMINGTON DE
CHARLOTTESVILLE VA FREDERICKSBURG VA LITTLE ROCK AR PAWTUCKET RI SAVANNAH GA WINCHESTER VA
CHARLTON MA FREMONT CA LITTLETON CO PEMBOKE NC SCHAUMBURG IL WINTER HAVEN FL
CHATTANOOGA TN FT LAUDERDALE FL LIVINGSTON NJ PENSACOLA FL SHERMAN OAKS CA WOODBRIDGE VA
WORCESTER MA
YORK PA
</TABLE>
4/23/99
Page 2
<PAGE> 65
IN CONFIDENCE TO INTERMEDIA AND WILLIAMS ANNEX 2
TABLE 3 - Off-net Capacity Price Table for Tier C cities
<TABLE>
<CAPTION>
All Years
<S> <C>
Circuits ordered and provisioned by Williams **** billed as routed
Circuits ordered and provisioned by Intermedia Cost (passed through), billed as routed
</TABLE>
Notes:
1. The rates in Table 1 are applied to all capacity between:
a) Tier B cities listed in Table 2 above
b) Tier A cities (on-net) and Tier B cities
c) All assigned circuits provided through the Backbone Agreements (except
for the IFN FPL and MCI Sonet circuits), until migrated on-net
2. The rates in Table 3 are applied to all capacity between:
a) Tier C cities
b) Tier C cities and Tier B cities
c) Tier C cities and Tier A cities
3. All capacity will be provisioned on-net as far as geographically possible in
order to minimize off-net mileage.
4. Tier B cities may be duplicative of Tier A cities. In the event that
Williams is unable to provision an order from Intermedia for a circuit
between Tier A cities, for example, due to lack of capacity, Intermedia may
re-order the circuit with the request it be provisioned off-net, in which
case it will be treated as a Tier B or Tier C circuit, as applicable.
5. Further Tier B cities may be added to the Net in Table 2 by mutual agreement.
6. Rates for year 2002 and beyond will be established as described in Paragraph
13 of the Amendment.
7. The following circuits are subject to cost (pass-through) pricing until
migrated on-net: MCI SONET circuits and IFN FPL circuits
8. Ancillary Charges and Monthly Minimums of $50 DS-0, $250 DS-1, and $2,000
DS-3 Apply. The minimums for all OC services are ICB
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
4/23/99 Page 3
<PAGE> 66
SERVICE ORDERING AND PROVISIONING METRICS AND REMEDIES
ANNEX 3 TO LETTER AMENDMENT
The schedule of Service Ordering and Provisioning Metrics and Remedies is
included in Annex 3. Any applicable credits will be calculated on a quarterly
basis as part of the quarterly planning reviews addressed by Paragraph 19 of
the Letter Amendment. This document is intended to explain how the metrics and
remedies set forth in Annex 3 will be applied by the parties.
PROVISIONING CATEGORY NO. 1: ON-NET WITH INTERCONNECT CAPACITY AVAILABLE ON
BOTH ENDS
This category of provisioning metrics and remedies applies to new circuit orders
from Intermedia in each calendar quarter, when the circuit should be On-net,
and there is capacity available on an established interconnect between Williams
and Intermedia POPs at both ends of the requested circuit.
The first metric is whether an individual circuit ordered by Intermedia is
provisioned within **** days from Receipt and Acceptance of a valid order. For
purposes of Annex 3, "provisioned" shall mean Intermedia has been notified by
Williams that the circuit is ready to be tested. If Williams fails to provision
a circuit within **** days of Receipt and Acceptance of a valid order, then
Intermedia will receive a remedy in the form of a credit as follows: (i) If the
circuit is provisioned within **** days after Receipt and Acceptance of a valid
order, then the credit Intermedia will receive shall be ****. (ii) If the
circuit is provisioned within **** days after Receipt and Acceptance, then
Intermedia will receive a credit of ****. (iii) If the circuit is provisioned
more than **** days after Receipt and Acceptance, then Intermedia will receive
a credit of ****. These remedies are issued on a quarterly basis for individual
circuits. The Remedy for each Circuit can not exceed a maximum cap of ****.
The second metric within this category is whether on a calendar quarter basis
Williams has met the goal of provisioning the circuit within **** days of
Receipt and Acceptance of valid order at least **** percent of the time. This
standard is calculated using all orders provisioned within the given calendar
quarter falling within this category, placed by Intermedia.
Example: Assume Williams provisioned only **** percent of the circuits,
within **** days of Receipt and Acceptance of a valid order from January 1
to March 31 of a given year, which Intermedia ordered. Intermedia would
receive a credit in an amount equal to ****
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
04/23/99 Page 1
<PAGE> 67
****This credit amount cannot exceed the cap of ****.
If Williams misses the goal of **** percent of circuits provisioned within
**** days of Receipt and Acceptance of a valid order for a second consecutive
calendar quarter, then for all provisioned circuits ordered by Intermedia that
fall within this category for that second quarter, Intermedia would receive a
credit of ****.
Example: Assume Williams provisioned only **** percent of the circuits,
within **** days of Receipt and Acceptance of a valid order from January 1
to March 31 of a given year, which Intermedia ordered. Intermedia would
receive a credit in an amount equal to ****. Additionally, assume Williams
provisioned only **** percent of the circuits, within **** days of Receipt
and Acceptance of a valid order from April 1 to June 30 of that same year,
which Intermedia ordered. Intermedia would receive a credit in an amount
equal to ****. This credit amount cannot exceed the cap of ****.
The third metric within this category is whether on a calendar quarter basis
Williams has met the goal of issuing the FOC **** after Receipt and Acceptance
of a valid order from Intermedia at least **** percent of the time. Again,
this standard is calculated using all provisioned orders, placed by Intermedia
falling within this category within the given calendar quarter.
Example: Assume Williams met this goal on only **** percent of provisioned
circuits from January 1 to March 31 of a given year ordered by Intermedia.
Intermedia would receive a credit in an amount equal to ****. This amount
cannot exceed the cap of ****.
The "second consecutive" and "third consecutive" quarters for this performance
metric are handled as described above in the example for the second metric.
PROVISIONING CATEGORY NO. 2: ON-NET WITH LEC PROVIDING INTERCONNECT
The provisioning metrics are stated differently for the second category of
On-Net capacity, when one or both ends of the circuit rely on a Local Exchange
Carrier (LEC) or other third party for interconnection or local access. In this
circumstance, Williams' provisioning is dependent upon the actions of the LEC,
and the metrics and remedies reflect that.
The first metric is whether an individual circuit ordered by Intermedia is
provisioned within **** days from the FOC due date issued by the LEC. If
Williams fails to provision a circuit falling within this category within ****
days of the LEC's FOC due date, then
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
Page 2
<PAGE> 68
Intermedia will receive a credit in the amount of ****. If the circuit is
provisioned within **** after the LEC's FOC due date, then Intermedia will
receive a credit of ****. If the circuit is provisioned more than **** days
after the LEC's FOC due date, then Intermedia will receive a credit of ****.
These remedies are issued on a quarterly basis for individual circuits. The
Remedy for each circuit cannot exceed a maximum cap of ****.
The second metric within this category is whether on a calendar quarter basis
Williams has met the goal of provisioning the circuit within **** days of the
LEC's FOC due date at least **** percent of the time. Again, this standard is
calculated using all provisioned orders falling within this category within the
given calendar quarter placed by Intermedia.
Example: Assume Williams provisioned only **** percent of the circuits
falling within this category from January 1 to March 31 of a given year,
within **** days of the LEC's FOC due date, which Intermedia ordered.
Intermedia would receive a credit in an amount equal to ****. This amount
cannot exceed the cap of ****.
If Williams misses the goal of **** percent of circuits provisioned within
**** days of the LEC's FOC due date for a second consecutive calendar quarter,
for all provisioned circuits that fall within this category for that second
quarter, then, Intermedia would receive a credit of ****.
Example: Assume Williams provisioned only **** percent of the circuits
falling within this category from January 1 to March 31 of a given year
within **** days of the LEC's FOC due date that Intermedia ordered.
Intermedia would receive a credit in an amount equal to ****. Additionally,
assume Williams provisioned only **** percent of the circuits falling
within this category within **** days of the LEC's FOC due date from April
1 to June 30 of that same year which Intermedia ordered. Intermedia would
receive a credit ****. This amount cannot exceed the cap of ****.
The third metric within this category is whether on a calendar quarter basis
Williams has met the goal of issuing the FOC within **** days after Williams
has received the LEC's FOC at least **** percent of the time. Again, this
standard is calculated using all orders falling within this category within the
given calendar quarter, placed by Intermedia.
Example: Assume Williams met this goal on only **** percent of circuits
falling within this category from January 1 to March 31 of a given year
ordered by
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
4/23/99 Page 3
<PAGE> 69
Intermedia. Intermedia would receive a credit in an amount equal to ****.
This amount cannot exceed the cap of ****.
The "second consecutive" and "third consecutive" quarters for this performance
metric are handled as described above in the example for the second metric.
PROVISIONING CATEGORY NO. 3: OFF-NET SERVICES
This category of provisioning metrics and remedies applies to new circuits
provisioned in each calendar quarter, when the circuit is Off-Net. The metrics
and remedies are applied in the same way as for Category No. 1 and No. 2.
GENERAL NOTES FOR ALL PROVISIONING METRICS AND REMEDIES
All metrics and remedies will be calculated using the calendar quarter in which
Williams provisions the circuits. A valid circuit order must contain all
necessary information for Williams to provision the requested circuit. Williams
may not accept the order and will notify Intermedia via email, or similar
communication within a timely manner which shall not exceed such order
confirmation interval listed within the Operation Guideline Manual. In that
event, the performance metrics and remedies shall not apply. Remedies do not
apply in the event that Williams' non-compliance with the metrics is caused by a
force majeure event, regulatory event, acts or failure to act by Intermedia, or
by Intermedia's equipment or facilities. Remedies do not apply in cases where
Intermedia makes any material change to a circuit order.
OUTAGE CREDITS FOR ON-NET SERVICES
Outage Credits for On-Net Services are calculated based on the **** chart in
Annex 3. ****.
Example: Assume a circuit is out of service a total of **** hours. Credits
would accumulate as follows:
****
****
****
****
The total credits for a circuit out of service for **** hours would be
****.
Outage credits do not apply in the event that the outage is directly or
indirectly caused by a force majeure event, regulatory event, acts or failure
to act by Intermedia, or by Intermedia's equipment or facilities.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
4/23/99 Page 4
<PAGE> 70
SERVICE ORDERING AND PROVISIONING METRICS AND REMEDIES
ANNEX 3
<TABLE>
<CAPTION>
ON-NET WITH INTERCONNECT CAPACITY AVAILABLE ON BOTH ENDS REMEDY
- -------------------------------------------------------- ------
<S> <C>
Provisioned Greater than **** Calendar Days from Receipt & Acceptance of Valid Order ****
Provisioned Greater than **** Calendar Days from Receipt & Acceptance of Valid Order ****
Provisioned Greater than **** Calendar Days from Receipt & Acceptance of Valid Order ****
****% measured on Quarterly Basis(1)
Less than ****% First Quarter ****
Less than ****% Second Consecutive Quarter ****
Less than ****% Third Consecutive Quarter ****
Firm Order Commitment issued within **** after confirmed order receipt(3)
Compliance of ****% Measured on Quarterly Basis(1)
Less than ****% First Quarter ****
Less than ****% Second Consecutive Quarter ****
Less than ****% Third Consecutive Quarter ****
ON-NET SERVICES WITH LEC PROVIDING INTERCONNECT(2)
- --------------------------------------------------
Provisioned Greater than **** Calendar Days from LEC FOC Due Date after Receipt & Acceptance of Valid Order ****
Provisioned Greater than **** Calendar Days from LEC FOC Due Date after Receipt & Acceptance of Valid Order ****
Provisioned Greater than **** Calendar Days from LEC FOC Due Date after Receipt & Acceptance of Valid Order ****
Compliance of ****% Measured on Quarterly Basis(1)
Less than ****% First Quarter ****
Less than ****% Second Consecutive Quarter ****
Less than ****% Third Consecutive Quarter ****
Firm Order Commitment issued within **** days after FOC is received from LEC
Compliance of ****% Measured on Quarterly Basis(1)
Less than ****% First Quarter ****
Less than ****% Second Consecutive Quarter ****
Less than ****% Third Consecutive Quarter ****
OFF-NET SERVICES(2)
- -------------------
Provisioned Greater than **** Calendar Days from Receipt & Acceptance of Valid Order ****
Provisioned Greater than **** Calendar Days from Receipt & Acceptance of Valid Order ****
Provisioned Greater than **** Calendar Days from Receipt & Acceptance of Valid Order ****
</TABLE>
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
4/23/99 Page 5
<PAGE> 71
<TABLE>
<S> <C>
Compliance Of ****% Measured On Quarterly Basis (1)
Less than ****% First Quarter ****
Less than ****% Second Consecutive Quarter ****
Less than ****% Third Consecutive Quarter ****
Firm Order Commitment issued within **** days after FOC is received from Off-net Provider
Compliance of ****% Measured on Quarterly Basis (1)
Less than ****% First Quarter ****
Less than ****% Second Consecutive Quarter ****
Less than ****% Third Consecutive Quarter ****
</TABLE>
Notes:
(1) Percentage of Circuits Provisioned in the Time Period Specified within the
Calendar Quarter
(2) DS-n Service Only, Oc-n Service is Individual Case Basis. As the industry
establishes standard intervals for Ocn services, Williams and Intermedia
will review the applicable service interval.
(3) Firm Order Commitment issued **** after confirmed order receipt.
All Remedies Apply to orders placed within the applicable quarter
Exclusions are:
Occurrence of Force Majeure Event or Regulatory Event
Orders Incomplete
ICIX Requests Changes in Order
Delays due to Intermedia personnel, equipment or facilities
<TABLE>
<CAPTION>
CIRCUIT PERFORMANCE OUTAGE CREDITS FOR ON-NET SERVICE CREDITS ALLOWED EACH HOUR
<S> <C>
**** ****
**** ****
**** ****
**** ****
</TABLE>
Credit = 1/720 of the monthly recurring IXC charge
Credits are Cumulative
****
After an outage exceeding 24 continuous hours, Circuit may be cancelled without
penalty
Exclusions are:
Occurrence of Force Majeure Event or Regulatory Event
Delays due to Intermedia personnel, equipment, or facilities
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 72
ANNEX 4
INTERCONNECT CITIES PROGRAMMED FOR 1999
<TABLE>
<CAPTION>
CITY STATE TARGET DATE Note
<S> <C> <C> <C>
Albany New York TBD *
Atlanta Georgia Jun-99
Boston Massachusetts TBD *
Chicago Illinois Mar-99
Cincinatti Ohio TBD *
Cleveland Ohio TBD *
Dallas/Fort Worth Texas Apr-99
Denver Colorado TBD *
Houston Texas TBD *
Jacksonville Florida Apr-99
Kansas City Missouri Jul-99
Los Angeles California Apr-99
Miami Florida Sep-99
Minneapolis Minnesota TBD *
Nashville Tennessee TBD *
New York New York May-99
Orlando Florida Aug-99
Philadelphia Pennsylvania TBD *
Phoenix Arizona TBD *
Pittsburgh Pennsylvania TBD *
Raleigh North Carolina Apr-99
Richmond Virginia TBD *
Salt Lake City Utah TBD *
San Francisco California Aug-99
St. Louis Missouri Jun-99
Tallahassee Florida TBD *
Tampa Florida Aug-99
Washington DC Apr-99
</TABLE>
Note: * These interconnects and dates are under review
Based on our discussions the following cities have been removed from the
interconnect list
Birmingham Alabama
Indianapolis Indiana
Memphis Tennessee
New Orleans Louisiana
<PAGE> 73
<TABLE>
<CAPTION>
DS-3 RECURRING/NON-RECURRING/ANCILLARY CHARGES SCHEDULE
- --------------------------------------------------------------------------------------------------------------------------------
LONG HAUL (IXC) CROSS CONNECTS L/L ADMIN (PER LOOP) ENTRANCE FACILITY CHARGES*1
--------------- -------------- -------------------- -----------------------------
RECURRING NRC RECURRING NRC RECURRING NRC RECURRING NRC
--------------- -------------- -------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Installation $ 0 $2,000 $ 0 $ 750 $ 0 $ 100 $ 0 *1
Chng of Req. Svc Date--Initial $ 0 $ 0 $ 0 $ 0 $ 0 $ 100 $ 0 *1
Chng of Req. Svc Date--Subsequent $ 0 $ 500 $ 0 $ 250 $ 0 $ 100 $ 0 *1
Chng of Order--Administration $ 0 $ 0 $ 0 $ 0 $ 0 $ 100 $ 0 *1
Chng of Order--Pre-Engineering $ 0 $ 500 $ 0 $ 250 $ 0 $ 100 $ 0 *1
Chng of Order--Post-Engineering $ 0 $2,000 $ 0 $ 250 $ 0 $ 100 $ 0 *1
Order Cancellation--Pre-Engineering $ 0 $ 500 $ 0 $ 250 $ 0 $ 100 $ 0 *1
Order Cancellation--Post-Engineering $ 0 $2,000 $ 0 $ 250 $ 0 $ 100 $ 0 *1
Billing Administration $ 0 $ 0 $ 0 $ 0 $ 100 $ 150 *1 *1
Minimum Recurring Charge $2,000 $ 0 $ 250 $ 0 Pass-thru Pass-thru *1 $ 0
Expedite Charges $ 0 $ 300 $ 0 $ 250 Pass-thru Pass-thru $ 0 *1
Off-Net Ancillary Pass-Through Pass-Through Pass-Through Pass-Through
Contract Termination 100% of Remaining Contract Life
Additional Install/Maint/Eng/Tech Chgs $100/Hour, $125/Hour After Hours
</TABLE>
*1 -- Entrance Facility Charges are based on pass-through DS-3 applicable
Tariff Rates
Note: All third party charges are passed on to the customer.
04/23/99 Page 1
<PAGE> 74
<TABLE>
<CAPTION>
OC-48 RECURRING/NON-RECURRING/ANCILLARY CHARGES SCHEDULE
- --------------------------------------------------------------------------------------------------------------------------------
LONG HAUL (IXC) CROSS CONNECTS L/L ADMIN (PER LOOP) ENTRANCE FACILITY CHARGES *1
--------------- -------------- -------------------- -----------------------------
RECURRING NRC RECURRING NRC RECURRING NRC RECURRING NRC
--------------- -------------- -------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Installation $ 0 $5,000 $ 0 $1,000 $ 0 $ 300 $ 0 *1
Chng of Req. Svc Date--Initial $ 0 $ 0 $ 0 $ 0 $ 0 $ 300 $ 0 *1
Chng of Req. Svc Date--Subsequent $ 0 $1,250 $ 0 $ 600 $ 0 $ 300 $ 0 *1
Chng of Order--Administration $ 0 $ 0 $ 0 $ 0 $ 0 $ 300 $ 0 *1
Chng of Order--Pre-Engineering $ 0 $1,250 $ 0 $ 600 $ 0 $ 300 $ 0 *1
Chng of Order--Post-Engineering $ 0 $5,000 $ 0 $1,000 $ 0 $ 300 $ 0 *1
Order Cancellation--Pre-Engineering $ 0 $1,250 $ 0 $ 600 $ 0 $ 300 $ 0 *1
Order Cancellation--Post-Engineering $ 0 $5,000 $ 0 $1,000 $ 0 $ 300 $ 0 *1
Billing Administration $ 0 $ 0 $ 0 $ 0 $ 100 $ 150 *1 *1
Minimum Recurring Charge $3,830 $ 0 $ 600 $ 0 Pass-thru Pass-thru *1 $ 0
Expedite Charges $ 0 $ 900 $ 0 $ 600 Pass-thru Pass-thru $ 0 *1
Off-Net Ancillary Pass-Through Pass-Through Pass-Through Pass-Through
Contract Termination 100% of Remaining Contract Life
Additional Install/Maint/Eng/Tech Chgs $100/Hour, $125/Hour After Hours
</TABLE>
*1 -- Entrance Facility Charges are based on pass-through OC-48 applicable
Tariff Rates
Note: All third party charges are passed on to the customer.
Services not described above will be considered exceptions and handled on an
individual case basis.
<TABLE>
<CAPTION>
OC-12 RECURRING/NON-RECURRING/ANCILLARY CHARGES SCHEDULE
- --------------------------------------------------------------------------------------------------------------------------------
LONG HAUL (IXC) CROSS CONNECTS L/L ADMIN (PER LOOP) ENTRANCE FACILITY CHARGES *1
---------------- -------------- -------------------- -----------------------------
RECURRING NRC RECURRING NRC RECURRING NRC RECURRING NRC
---------------- -------------- -------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Installation $ 0 $18,000 $ 0 $1,500 $ 0 $1,000 $ 0 *1
Chng of Req. Svc Date--Initial $ 0 $ 0 $ 0 $ 0 $ 0 $1,000 $ 0 *1
Chng of Req. Svc Date--Subsequent $ 0 $ 3,500 $ 0 $1,200 $ 0 $1,000 $ 0 *1
Chng of Order--Administration $ 0 $ 0 $ 0 $ 0 $ 0 $1,000 $ 0 *1
Chng of Order--Pre-Engineering $ 0 $ 3,500 $ 0 $1,200 $ 0 $1,000 $ 0 *1
Chng of Order--Post-Engineering $ 0 $18,000 $ 0 $1,500 $ 0 $1,000 $ 0 *1
Order Cancellation--Pre-Engineering $ 0 $ 3,500 $ 0 $1,200 $ 0 $1,000 $ 0 *1
Order Cancellation--Post-Engineering $ 0 $18,000 $ 0 $1,500 $ 0 $1,000 $ 0 *1
Billing Administration $ 0 $ 0 $ 0 $ 0 $ 100 $ 150 *1 *1
Minimum Recurring Charge $13,790 $ 0 $1,200 $ 0 Pass-thru Pass-thru *1 $ 0
Expedite Charges $ 0 $ 1,200 $ 0 $1,200 Pass-thru Pass-thru $ 0 *1
Off-Net Ancillary Pass-Through Pass-Through Pass-Through Pass-Through
Contract Termination 100% of Remaining Contract Life
Additional Install/Maint/Eng/Tech Chgs $100/Hour, $125/Hour After Hours
</TABLE>
*1 -- Entrance Facility Charges are based on pass-through OC-12 applicable
Tariff Rates
Note: All third party charges are passed on to the customer.
<PAGE> 75
<TABLE>
<CAPTION>
OC-48 RECURRING/NON-RECURRING/ANCILLARY CHARGES SCHEDULE
- --------------------------------------------------------------------------------------------------------------------------------
LONG HAUL (IXC) CROSS CONNECTS L/L ADMIN (PER LOOP) ENTRANCE FACILITY CHARGES *1
---------------- -------------- -------------------- -----------------------------
RECURRING NRC RECURRING NRC RECURRING NRC RECURRING NRC
---------------- -------------- -------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Installation $ 0 $48,000 $ 0 $3,000 $ 0 $3,500 $ 0 *1
Chng of Req. Svc Date--Initial $ 0 $ 0 $ 0 $ 0 $ 0 $3,500 $ 0 *1
Chng of Req. Svc Date--Subsequent $ 0 $12,000 $ 0 $3,500 $ 0 $3,500 $ 0 *1
Chng of Order--Administration $ 0 $ 0 $ 0 $ 0 $ 0 $3,500 $ 0 *1
Chng of Order--Pre-Engineering $ 0 $12,000 $ 0 $3,000 $ 0 $3,500 $ 0 *1
Chng of Order--Post-Engineering $ 0 $48,000 $ 0 $3,500 $ 0 $3,500 $ 0 *1
Order Cancellation--Pre-Engineering $ 0 $12,000 $ 0 $3,000 $ 0 $3,500 $ 0 *1
Order Cancellation--Post-Engineering $ 0 $48,000 $ 0 $3,500 $ 0 $3,500 $ 0 *1
Billing Administration $ 0 $ 0 $ 0 $ 0 $ 100 $ 150 *1 *1
Minimum Recurring Charge ICB $ 0 $3,500 $ 0 Pass-thru Pass-thru *1 $ 0
Expedite Charges $ 0 $ 4,800 $ 0 $3,000 Pass-thru Pass-thru $ 0 *1
Off-Net Ancillary Pass-Through Pass-Through Pass-Through Pass-Through
Contract Termination 100% of Remaining Contract Life
Additional Install/Maint/Eng/Tech Chgs $100/Hour, $125/Hour After Hours
</TABLE>
*1 -- Entrance Facility Charges are based on pass-through OC-3 applicable
Tariff Rates
Note: All third party charges are passed on to the customer.
Services not described above will be considered exceptions and handled on an
individual basis.
04/23/99 Page 3
<PAGE> 76
ANNEX 6
PORTABILITY
[To be provided by Williams]
<PAGE> 77
AMENDMENT NO. 1
THIS AMENDMENT ("Amendment") is made and entered into effective this 1st day of
August, 1998, by and between WILLIAMS COMMUNICATIONS, INC. ("Grantor")
and INTERMEDIA COMMUNICATIONS INC. ("Purchaser").
WHEREAS, Grantor and Purchaser are parties to that certain Capacity Purchase
Agreement entered into as of January 5, 1998, (the "Agreement"); and
WHEREAS, Grantor and Purchaser desire to amend the Agreement; and
NOW, THEREFORE in consideration of the foregoing premises and mutual promises
and covenants of the parties hereto, the receipt and sufficiency of which is
hereby acknowledged, Grantor and Purchaser agree to amend the Agreement as
follows:
1. The definition of "Due Date" in Section 1.2, "Defined Terms" shall be
amended to read as follows:
"Due Date": the twenty-third (23rd) of the month following the month in
which an invoice is issued for Circuits under the Backbone Agreements, or the
last day of the month following the month in which an invoice is issued for
On-Net Circuits; provided that the Purchaser's payments of the Non-Recurring and
Monthly Recurring Charges shall be received by the Grantor in immediately
available funds.
2. Except as specifically amended herein, all terms and conditions and
provisions contained in the Agreement shall remain unchanged and in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment on the day and year
first above set forth.
WILLIAMS COMMUNICATIONS, INC. INTERMEDIA COMMUNICATIONS INC.
/s/ David K. Parrack /s/ Richard Marchant
- ----------------------------------- -----------------------------------
(SIGNATURE) (SIGNATURE)
David K. Parrack Richard Marchant
- ----------------------------------- -----------------------------------
(PRINT) (PRINT)
Director, Accounting Services Vice President, Engineering
- ----------------------------------- -----------------------------------
(TITLE) (TITLE)
<PAGE> 1
Redacted portions have been marked with asterisks (****). Confidential treatment
has been requested for the redacted portions. The confidential redacted portions
have been filed separately with the Securities and Exchange Commission.
EXHIBIT 10.26
CONFIDENTIAL TREATMENT
SETTLEMENT AND RELEASE AGREEMENT
This SETTLEMENT AND RELEASE AGREEMENT (the "AGREEMENT") is made and
entered into as of the 1st day of July, 1998 (the "EFFECTIVE DATE"), by and
between WorldCom Network Services, Inc. ("WORLDCOM") and Williams
Communications, Inc. ("WILLIAMS").
RECITALS:
A. WilTel, Inc. (now known as WorldCom Network Services, Inc.) and
Vyvx. Inc. (now known as Williams Communications, Inc.) previously entered into
that certain System Use and Service Agreement dated effective as of January 1,
1994 (the "SUSA") and that certain Statement of Settlement dated December 23,
1996 (the "SETTLEMENT STATEMENT").
B. Certain disputes have arisen between the parties under the SUSA, the
Settlement Statement and with respect to certain other matters.
C. On or about March 20, 1998, Williams filed a Petition for
Declaratory Relief, Money Damages, and Other Relief (the "PETITION") in a case
styled Williams Communications, Inc. v. WorldCom Network Services, Inc., Case
No. CJ 98-1386 (the "LAWSUIT") alleging, among other things, WorldCom's failure
to pay charges for services provided and other breaches of the SUSA and
Settlement Statement.
D. On or about May 4, 1998, WorldCom filed an Answer and a Counterclaim
in the Lawsuit (collectively referred to as the "ANSWER AND COUNTERCLAIM")
alleging, among other things, Williams' failure to pay charges for services
provided and other breaches of the SUSA and the Settlement Statement.
E. WorldCom denies all of Williams' contentions described in the
Petition and Williams denies all of WorldCom's contentions described in the
Answer and Counterclaim.
F. The parties hereto have determined that it is in their respective
best interests to settle the Lawsuit and certain other disputes currently
existing between the parties upon the terms and conditions set forth in this
Agreement.
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, WorldCom and Williams agree as
follows:
1. APPLICABLE PARTIES. Unless otherwise specifically defined
differently herein, references herein to "WorldCom" and "Williams" will be
deemed to include such parties and all parties previously, currently or in the
future Controlling, Controlled by or under common Control with such party. For
purposes of this Agreement, "CONTROL", whether used as a noun or a verb, means
to have the power, directly or indirectly, to cause the direction of the
management or policies of another party, whether through the ownership of voting
securities, by contract, agency or otherwise.
2. WILLIAMS FIBER.
(A) Williams and WorldCom acknowledge Williams' ownership of one (1)
single fiber (with continuation of protection switching for Williams
as described in Subsection 4.b. of Exhibit E, System Service
Statement, to the SUSA, the Settlement Statement and subject to
Paragraph 6 below) on the WilTel Network pursuant to the SUSA and
the Settlement Statement and defined therein as the "VYVX FIBER".
The "WILTEL NETWORK" is depicted graphically on Attachment 1 hereto
and consists of approximately 9,700 route miles. In lieu of any past
or future rights Williams may have or may claim to have to purchase
any additional fiber whatsoever under the SUSA, including but not
limited to Section 2.09 thereof, or the SOS or any other agreement,
which rights, if any, are extinguished and relinquished by Williams,
Williams and WorldCom agree that Williams has a right to purchase a
single fiber strand on those domestic buildouts (but not
acquisitions or mergers) to the WilTel Network (which buildout
routes are shown on Attachment 2 hereto and which consist of
approximately 7,721 route miles) ("BUILD-OUT FIBER"). The Network
routes depicted on Attachment 1 or described on Attachment 2 total
approximately 17,421 route miles. The Vyvx Fiber and the Build-Out
Fiber are hereinafter collectively and in total referred to as the
"WILLIAMS FIBER").
(B) Williams agrees that, except as provided in Subsection 2(A),
above it does not have and does and will not claim any further
rights to purchase any additional fiber on the WilTel Network, or
any fiber on any network owned, operated or affiliated with WorldCom
or any of its
2
<PAGE> 3
subsidiaries, affiliated or related entities, or any
predecessor or successor network or any network of entities
previously, currently or in the future Controlling, Controlled by or
under common Control with WorldCom, without regard to whether such
entity or network was obtained by acquisition, domestic expansion,
international expansion or otherwise.
(C) The purchase price for the Build-Out Fiber will be as set forth
in Section 2.09 of the SUSA to be modified as provided in Section 4
below (the "WILLIAMS FIBER CHARGE"). WorldCom agrees to give
Williams the final Williams Fiber Charge with respect to the routes
shown on Attachment 2 the later of (a) August 1, 1998, or (ii)
ninety (90) days following completion of such routes. Provided,
however, in determining the Williams Fiber Charge with respect to
such routes, WorldCom will exclude fifteen percent (15%) of the
fibers used for protect channels in calculating the total number of
fibers which are to be divided into one in order to establish the
percentage used to multiply by the net book value. Williams will
then have sixty (60) days after receipt of such final Williams Fiber
Charge to elect whether or not to purchase such Build-Out Fiber
subject to the right to dispute such Williams Fiber Charge as
described in Subsection 4(C) below. In the event Williams elects to
purchase a Build-Out Fiber on any route, Williams agrees to pay
WorldCom the applicable Williams Fiber Charge the later of (i)
thirty (30) days following such election, or (ii) three (3) days
following delivery of the Build-Out Fiber to Williams which
Build-Out Fiber meets generally accepted industry standards or the
Build-Out Fiber is used by Williams. In the event Williams elects
not to purchase a Build-Out Fiber on a specified route or fails to
respond within such sixty-day period, Williams will be deemed to
have waived its right to purchase a Build-Out Fiber on such route.
3. RESTRICTIONS OF WILLIAMS FIBER. WorldCom and Williams agree that
through and including June 30, 2001, Williams will restrict its usage and will
reasonably restrict its customers' usage of the Williams Fiber only to video and
radio transmission service, Internet Services (as further described herein),
and/or related applications including but not limited to graphic, visual
imaging, interactive and multimedia (collectively, the "PERMITTED SERVICES").
Further, during such period, without WorldCom's written consent, Williams will
not use the Williams Fiber for or in conjunction with cellular and personal
communications service applications or long distance data and voice applications
unless the data and voice applications are incidental to the Permitted Services
described above. After June 30, 2001, such contractual
3
<PAGE> 4
restrictions on Williams and its customers' use of the Williams Fiber will be
lifted and Section 4.04(a) of the SUSA (as modified herein) shall be of no
further force or effect. For purposes of this Agreement, "Internet Services"
shall mean the transmission between computers of data communications over the
public and private interconnected network of networks (or a component thereof)
known as the Internet and using a common network protocol which as of the date
of this Agreement is predominantly TCP/IP (Transmission Control
Protocol/Internet Protocol) and which may be over an ATM/SONET infrastructure or
its equivalent but shall specifically exclude voice or facsimile public switched
telephone network ("PSTN") calls.
4. WORLDCOM FIBER.
(A) Williams agrees to promptly allow WorldCom to purchase a single
fiber (or, if Williams is unable to transfer ownership using
reasonable commercial efforts, an indefeasible right of use ("IRU")
of the same, dependent upon the rights Williams is legally and
contractually able to transfer) (the "WORLDCOM FIBER"), on the fiber
builds identified in the route map shown on Attachment 3 hereto
which routes comprise approximately 9,701 route miles. This route
map includes routes that are planned but not yet constructed as well
as routes that are partially complete and nearing completion. The
purchase price shall be as reflected in Section 2.09 of the SUSA to
be modified to be reciprocal **** Except as otherwise specifically
set forth herein, the other contractual terms applying to WorldCom
and governing the maintenance, operation and other issues related
to the WorldCom Fiber shall be the same as contained in the SUSA
and/or Settlement Statement and applying to Williams, unless the
parties otherwise expressly provide. It is expressly understood by
the parties that the WorldCom Fiber will not be subject to the use
limitations or restrictions set forth in Section 4.04(a) of the
SUSA such as those attendant to the Williams Fiber described in
Section 3 above.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
4
<PAGE> 5
(B) Williams agrees to give WorldCom estimates of the WorldCom Fiber
Charge on a route by route basis when available and agrees to give
WorldCom the final WorldCom Fiber Charge within ninety (90) days
following completion of any route, except with respect to the
Dallas, TX-Washington, D.C. route where Williams is not required to
make one fiber available until the earlier of (i) December 31, 1999,
or (ii) the expiration of any existing obligations it may have with
IXC Communications, Inc. concerning the transfer of one fiber or an
IRU on such route. WorldCom will then have sixty (60) days after
receipt of such final WorldCom Fiber Charge to elect whether or not
to purchase such WorldCom Fiber subject to the right to dispute such
final WorldCom Fiber Charge as described in Subsection 4(C) below.
In the event WorldCom elects to purchase a WorldCom Fiber on any
route, WorldCom agrees to pay Williams the WorldCom Fiber Charge the
later of (i) thirty (30) days following such election, or (ii) three
(3) days after delivery of the fiber to WorldCom which WorldCom
Fiber meets generally accepted industry standards, or the WorldCom
Fiber is used by WorldCom. In the event WorldCom elects not to
purchase a WorldCom Fiber on a specified route or fails to respond
within such sixty-day period, WorldCom will be deemed to have waived
its right to purchase a WorldCom Fiber on such route. In the event
Williams fails (for whatever reason) to build any of the routes
shown as "Future Network Routes" in Attachment 3, Williams agrees to
offer WorldCom a fiber or fibers ("OTHER FIBERS") on other routes
acceptable to WorldCom that Williams is building (whether
individually or jointly with other entities) consisting of a similar
number of route miles to the route miles not completed by Williams
but in no event will the total number of route miles which WorldCom
is entitled in the aggregate exceed 9,701 route miles unless
otherwise agreed to in writing by the parties. Williams' obligation
to offer Other Fibers to WorldCom and WorldCom's obligation to
respond to such offer shall also be governed by the conditions
applicable to the offer and acceptance of the WorldCom Fiber.
Williams' obligation to offer WorldCom Other Fibers pursuant to this
Subsection (B) shall expire on June 30, 2003.
(C) With respect to **** that paid by Williams to WorldCom in
accordance with Section 2, reasonable cost substantiation of the
**** shall be provided to the party required to pay for the fiber or
the IRU. In calculating the ****, each party agrees to use generally
accepted accounting principles which have been consistently applied.
Attached as Attachment 4 is a list of cost categories that have been
and will be used to gather the costs comprising the net book value.
Pursuant to this Section and Section 2, if either party disputes the
**** proposed by the party offering fiber, the disputing party shall
notify the party offering fiber within thirty (30) days following
receipt of the final Williams Fiber Charge or the WorldCom Fiber
Charge, whichever is applicable. Upon receipt of the dispute notice,
the party offering fiber shall within fifteen (15) business days
allow a mutually acceptable nationally recognized independent
accounting firm to review its calculation of the **** including
third party and internal cost information supporting the calculation
of ****. Based on its review of the cost information, the
independent accounting firm shall calculate the **** which
calculation shall be final and binding on the parties. The party
challenging the **** shall pay for the cost of the independent
accounting firm. The disputing party shall have sixty (60) days
after the independent accounting firm distributes its calculation of
the **** to the parties in which to elect to purchase a fiber. The
failure to make an election within the sixty (60) day period will be
deemed to be a waiver of the disputing party's right to purchase
fiber on such segment(s).
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
5
<PAGE> 6
(D) WorldCom's purchase of fiber pursuant to this Section 4 shall
not include purchase of any rights of protection services from
Williams and shall not include optronics, but instead shall be
"dark" fiber.
5. MIGRATION OF EXISTING SERVICES. WorldCom and Williams will create a
migration team that will cooperate to complete migration of Williams to a single
fiber onto the Williams Fiber described in Section 2 above. The migration will
be completed as soon as possible but in no event after June 30, 1999, unless
otherwise mutually agreed. The intent of the parties is to complete the
migration substantially sooner than June 30, 1999. WorldCom will provide
reasonable support for that migration including power, rollover fiber and
required space. During the reconfiguration process there will be no additional
charge for the use of additional fiber necessary to accommodate the
reconfiguration for traffic prior to completion of reconfiguration and no
charge shall be due for delay in the reconfiguration which is due to lack of
reasonable support for the reconfiguration by WorldCom. In the event either
party determines that the other party is failing to support the migration effort
described in this Section 5, such party shall notify the other party (i) in the
case of Williams, Howard Janzen, and (ii) in the case of WorldCom, Charles
Cannada, specifically describing the lack of support
6
<PAGE> 7
encountered by such party and such parties shall resolve such conflict through
such representatives.
6. PROTECTION SWITCHING. Williams shall use reasonable best efforts to
eliminate the need for WorldCom's obligation to provide protection switching on
or before June 30, 2001. Service Costs payable under the SUSA will be reduced
commensurately on a system segment by system segment basis when Williams has
notified WorldCom that a particular system segment no longer requires protection
service. In no event will WorldCom be under an obligation to continue providing
protection switching on any system segment after June 30, 2002, unless otherwise
mutually agreed.
7. SYSTEM SEGREGATION. The parties agree to make the necessary
amendments to the WilTel Collocate Agreement dated August 21, 1994 ("Collocate
Agreement") which was executed in connection with the SUSA to allow each party
to segregate its single fiber from the other's network to the extent
commercially practicable. It is the intent of the parties that WorldCom be able
to manage the WorldCom Fiber and Williams be able to manage the Williams Fiber
as systems independent of the network in which they are collocated to the
maximum extent commercially practicable. The parties also agree that WorldCom's
collocate rights and obligations for the WorldCom Fiber shall be governed by the
terms and conditions of the Collocate Agreement.
8. ADDITIONAL FIBER AND OTHER SERVICES. Each party will consider,
without obligation, requests by the other party to purchase additional fiber or
other products or services.
9. ADDITIONAL PURCHASE PRICE/VIDEOCONFERENCING CREDITS. Section 2.03 of
the SUSA relating to the Additional Purchase Price and videoconferencing credits
is hereby canceled and deleted including all alleged credits outstanding.
10. WAIVER OF CERTAIN CLAIMS AND AMOUNTS OWED; MUTUAL RELEASE.
(A) WorldCom and Williams agree that those claims which are
specifically set forth on Attachment 5 hereto and any related
finance charges or other penalty amounts are hereby waived (the
"RELEASED CLAIMS").
7
<PAGE> 8
(B) Notwithstanding Section 10.20 of the SUSA, from and after the
Effective Date hereof, with respect to charges for "Common
Facilities Cost" or "Costs" provided under the SUSA, Williams and
WorldCom hereby agree to pay backbills which are properly
substantiated so long as the charges do not relate to periods more
than one year prior to the date the invoice is sent. WorldCom and
Williams hereby also agree to pay backbills that relate to third
party charges, even after the expiration of the one-year period, so
long as the party invoices the third party charges to the other
party within six months of the date such party is first invoiced for
those third-party charges.
(C) Other than with respect to the Released Claims, if applicable,
this Agreement shall not affect or release any amounts owing under
agreements not related to the SUSA or the Settlement Statement such
as non-SUSA agreements for capacity service or agreements between
the parties even if such capacity has been provided to WorldCom over
the Williams Fiber.
(D) Nothing in this Section 10 of the Agreement is intended to
waive, release or modify any current or future obligation under the
SUSA or the Settlement Statement, except as otherwise provided for
in this Agreement.
(E) Upon execution hereof, WorldCom, on behalf of itself and its
officers, directors, partners, employees, agents, stockholders,
attorneys, predecessors, assigns, servants, insurers, and all
persons, partnerships, corporations or other entities acting in
concert or participating with them (hereinafter collectively
referred to the "WORLDCOM GROUP" hereby releases and discharges
fully and forever Williams and its officers, directors, partners,
employees, agents, stockholders, attorneys, predecessors, assigns,
servants, insurers, and all persons, partnerships, corporations or
other entities acting in concert or participating with them
(hereinafter collectively referred to the "WILLIAMS GROUP") of and
from any and all liabilities, claims, demands for damages, costs
(including, without limitation, attorneys' fees), indemnification,
contribution or any other thing whatsoever relating to the Released
Claims.
(F) Upon execution hereof, the Williams Group hereby releases and
discharges fully and forever the WorldCom Group of and from any and
all liabilities, claims, demands for damages, costs (including,
without
8
<PAGE> 9
limitation, attorneys' fees), indemnification, contribution or any
other thing whatsoever relating to the Released Claims.
(G) This Agreement effects the settlement of claims which are denied
and contested by the respective parties and nothing contained herein
shall be construed as an admission of liability by or on behalf of
any party, all of which expressly deny any such liability.
(H) Nothing in this Agreement shall have effect on any rights or
claims which any party may have against any other party or person
not released hereby.
(I) Each party covenants and agrees not to seek or initiate any
administrative proceeding, bring any claim, or assert any cause of
action released hereby against the other party concerning the
Lawsuit, the SUSA, the Settlement Statement or the Released Claims
arising prior to the Effective Date, and further covenants and
agrees that this Agreement shall be a bar to any such proceeding,
claim or cause of action thereon by any party hereto against the
other party.
11. ****
12. CONSENT TO ASSIGNMENT. WorldCom hereby (i) consents to the
assignment of the Intermedia contracts requested to date, (ii) agrees to
accommodate Williams' request for connections to Internet facilities at
Washington D.C. MAE or any other MAE facility in accordance with standard terms
and conditions applicable thereto, except as otherwise negotiated, and (iii)
agrees to accommodate Williams' request dated June 4, 1998, to the extent
legally permissible, for the assignment of certain telecom rights, pursuant to
Section 9 of the MidWest Cross Master Agreement dated December 11, 1986 between
Williams Pipeline Company and Williams Telecommunications Company (now
WorldCom).
13. NON-SOLICITATION. Without the other party's prior written consent,
WorldCom and Williams mutually agree not to solicit the other's employees
located in Tulsa County, Oklahoma and those counties contiguous to Tulsa County
for a period of five (5) years commencing July 1, 1998. Further, commencing
August 1, 1998 and continuing for a period of one (1) year thereafter, in the
event either party hires or engages, directly or indirectly, whether as an
employee, agent, contractor, consultant or otherwise, a Necessary Employee (as
defined herein) of the other party located in Tulsa County, Oklahoma and those
counties contiguous to Tulsa County and the other party does not consent in
writing to such hiring, the party hiring such employee, directly or indirectly,
agrees to pay the other party five (5) times the greater of (i) such employee's
annual total compensation package (i.e., salary, bonus, stock options as well as
other non-cash consideration) in effect immediately prior to such employee's
termination of employment with the other party, or (ii) the total annual
compensation package (i.e., salary, anticipated bonus, stock options as well as
other non-cash consideration) offered to such employee by the hiring party. The
term "Necessary Employee" shall be limited
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
9
<PAGE> 10
to the following: (i) those employees in the Network Planning Groups of either
WorldCom or Williams who will either directly or indirectly participate in
completing the migration of Williams to a single fiber onto the Williams Fiber,
(ii) those employees at WorldCom (a) at the director level or above, and/or (b)
who have access to proprietary information of WorldCom concerning the sales,
marketing, network, construction, operations, systems and plans of WorldCom's
networks, and (iii) those employees at Williams (a) at the director level or
above, and/or (b) who have access to proprietary information of Williams
concerning the sales, marketing, network, construction, operations, systems and
plans of Williams' networks.
14. DISMISSAL OF LAWSUIT. On or before July 15, 1998, the parties agree
to dismiss with prejudice the Lawsuit, with each party to bear its own costs and
attorney fees. Further, the parties agree to jointly issue a press release with
respect to the dismissal of the Lawsuit and will not, without the other party's
consent make any further announcements, whether public or private, concerning
the dismissal of the Lawsuit or the settlement thereof, except as required by
law. However, the parties may state that the settlement was beneficial to both
parties.
15. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(A) Each party represents and warrants to the other party that it
has received independent legal advice from attorneys of its choice
with respect to the advisability of making the settlement and
release provided herein, and with respect to the advisability of
executing this Agreement, and prior to the execution of this
Agreement, its respective attorneys have reviewed this Agreement in
full and have made all desired changes thereto.
10
<PAGE> 11
(B) Except as set forth herein, there have been no other
representations, agreements or understandings between the parties
hereto, relating to this Agreement or the subject matter hereof.
(C) The terms of this Agreement are contractual, not a mere recital,
and are the result of arms-length negotiations between the parties
hereto. Each party agrees that the rules of construction to the
effect that any ambiguities in this Agreement are to be resolved
against the drafting party shall not be employed in the
interpretation of this Agreement.
(D) This Agreement has been carefully read by, the context hereof is
known and understood by, and is signed freely by the parties.
16. GENERAL PROVISIONS.
(A) No provision hereof may be waived unless in writing signed by
the party to be charged. Waiver of any one provision herein shall
not be deemed to be a waiver of any other provision herein. This
Agreement may be modified or amended only by a written agreement
executed by both parties.
(B) This Agreement shall be governed by and construed under and in
accordance with the internal laws (without regard to the laws of
conflicts) of the State of New York. Any action brought to enforce,
apply or interpret this Agreement or to resolve any dispute arising
out of or relating in any way to this Agreement shall be brought in
the District Court in Tulsa County, Oklahoma (or, if necessary, in
the courts in and for the United States of America for the Northern
District of Oklahoma) and all parties to this Agreement acknowledge
and agree that such courts have jurisdiction and are proper venues.
(C) This Agreement may be executed in one or more counterparts, each
of which shall be an original but all of which, together, shall be
deemed to constitute a single document.
(D) Titles or captions contained in this Agreement are inserted only
as matter of convenience and for reference and in no way define,
limit, extend or describe the scope of this Agreement or the intent
of any provision hereof.
11
<PAGE> 12
(E) Each party represents and warrants to each other that it is the
sole and lawful owner of all right, title and interest in and to
every claim and other matter which the party purports to release
herein and that such party has not heretofore assigned or
transferred, or purported to assign or transfer, to any other person
or entity any claims or other matters herein released.
(F) This Agreement shall inure to the benefit of and shall be
binding upon the predecessors, successors and assigns of the parties
hereto, and each of them. Except with respect to the parties
referenced in Section 1 above, this Settlement Agreement is not
intended to constitute a third party beneficiary contract.
(G) Except as may otherwise be expressly agreed in writing, the
parties hereto agree to bear their own costs and attorneys' fees in
connection with the Lawsuit, the SUSA, the Settlement Statement and
this Agreement.
(H) The warranties and representations of this Agreement are deemed
to survive the execution hereof.
(I) In the event that any of the terms or provisions of this
Agreement are found to be legally unenforceable by a court of
competent jurisdiction, then the remaining terms and conditions, if
capable of substantial performance, shall nevertheless remain in
full force and effect and such unenforceable provisions shall be
deemed to be restated to reflect the original intentions of the
parties as nearly as possible, in accordance with applicable law.
(J) In the event of a breach or threatened breach of this Agreement,
the non-defaulting party shall have the right to seek injunctive
relief without a showing of irreparable harm or injury and without
bond as well as the right to seek specific performance or monetary
damages against the party breaching or threatening to breach this
Agreement.
12
<PAGE> 13
IN WITNESS HEREOF, the parties hereto have approved and executed this
Agreement as of the Effective Date set forth above.
DATED: July 8, 1998 WORLDCOM NETWORK SERVICES, INC.
By:
-----------------------------------
Its:
-----------------------------------
DATED: July 8, 1998 WILLIAMS COMMUNICATIONS, INC.
By:
-----------------------------------
Its:
-----------------------------------
13
<PAGE> 14
ATTACHMENT 1
WILTEL NETWORK
[MAP]
ATTACHMENT 2
ADDITIONAL WILLIAMS ROUTES
Salt Lake City, UT - Seattle, WA/Portland, OR[1,048 Miles]
Salt Lake City, UT - Santa Clara, CA[871 Miles]
Santa Clara, CA - Portland, OR[782 Miles]
Dallas, TX - Houston, TX[269 Miles]
Las Vegas, NV - Phoenix, AR[363 Miles]
Denver, CO - El Paso, TX[749 Miles]
Shreveport, LA - Memphis, TN[340 Miles]
Memphis, TN - Charlotte, NC[722 Miles]
Charlotte, NC - Hamlet, NC[77 Miles]
Cleveland, OH - New York, NY[727 Miles]
Albany, NY - Boston, MA[201 Miles]
Anderson, MO - Cleveland, OH[1,076]
Riverdale, IL - Indianapolis, IN[191 Miles]
Houston, TX - Austin, TX/San Antonio, TX[305 Miles]
14
<PAGE> 15
ATTACHMENT 3
WORLDCOM FIBER NETWORK
Atlanta, GA - Washington, D.C.
Atlanta, GA - Houston, TX
Dallas, TX - Houston, TX
Atlanta, GA - Jacksonville, FL
Jacksonville, FL - Miami, FL
Daytona Beach, FL - Tampa, FL
New York City, NY - Washington, D.C.
New Orleans, LA - Tallahassee, FL
Tallahassee, FL - Miami, FL
Minneapolis, MN - Kansas City, MO
Kansas City, MO - Denver, CO
Denver, CO - Salt Lake City, UT
FUTURE NETWORK ROUTES
Sacramento, CA - Salt Lake City, UT
San Diego, CA - Phoenix, AR
Boston, MA - Albany, NY
Atlanta, GA - Nashville, TN
Nashville, TN - Louisville, KY
Louisville, KY - Cincinnati, OH
Denver, Co - El Paso, TX
Dallas, TX - Nashville, TN
Nashville, TN - Charlotte, NC
Cleveland, OH - Washington, DC.
15
<PAGE> 16
ATTACHMENT 4
COST CATEGORIES TO BE USED IN DETERMINING NET BOOK VALUE
CONSTRUCTION
Contract Labor/Construction Management
Engineering/Surveying/Drafting
Company Labor/Travel
Utilities/Rent to Field Offices and Warehouses
ROW Damages
Inspection
Railroad Flagging
Legal Fees
Bonding
REGENERATION SITES
Site Preparation
AC & DC Power
Buildings/Installation of Pre-Fabricated Buildings
Acquisition of Land/Site
Inspection
Utility Power
Engineering/Surveying/Drafting
Company Labor/Travel
Materials
ROW & PERMITTING (SWAP 0R PURCHASE)
Easement, Permit, License and Zoning Acquisition
Labor & Management of Labor
Environmental Surveys for Permitting
Franchise Fees for City Permitting
Legal Fees
Bonding
16
<PAGE> 17
FIBER CABLE
Fiber Cable and Associated Shipping and Tax
Materials (including conduit)
(NOTE: NET BOOK VALUE WILL ALSO INCLUDE ANY FEES, EXPENSES
AND/OR DAMAGES ASSESSED AGAINST OR INCURRED BY EITHER
ENTITY AFTER THE COMPLETION OF SUCH ROUTE PROVIDED
SUCH FEES, EXPENSES OR DAMAGES ARE PROPERLY
CAPITALIZED IN ACCORDANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES)
17
<PAGE> 18
ATTACHMENT 5
RELEASED CLAIMS
A. As of the Effective Date, the WorldCom Group agrees to release the
following claims it has or may have against the Williams Group:
1. The Total Previous Balance shown on Williams' Invoice dated
05/20/1998 for Account No. 00001476 (the "Williams Invoice") in the
amount of $5,870,694.99.
2. In addition to those claims included in the $5,870,694.89 in item 1,
any claims for "Costs" or "Common Facilities Costs" as defined in
the SUSA for the period prior to July 1, 1997 subject to the
backbill provision described in Subsection 10(B) of the Agreement.
3. All amounts charged by the WorldCom Group relating to Williams
Group's use of a second fiber as described in Mr. Barnett's letter
to Mr. Semple dated March 31, 1998.
4. All charges and amounts due and/or credits for videoconferencing
services provided pursuant to the SUSA or Settlement Statement prior
to the Effective Date.
5. Any claim the Williams Group violated the Non-Competition Agreement
dated January 5, 1995.
6. Any claims specifically alleged in the Lawsuit.
B. As of the Effective Date, the Williams Group agrees to release the
following claims it has or may have against the WorldCom Group:
1. All charges and amounts due for audioconferencing and fax services
provided pursuant to the SUSA or Settlement Statement prior to June
1, 1998, except for a payment due by WorldCom of $909,850 (which
amount Williams represents is for services provided and does not
contain any finance charges or other penalty amounts).
2. All charges and amounts due for videoconferencing services provided
pursuant to the SUSA or Settlement Statement prior to the Effective
18
<PAGE> 19
Date, except for a payment due by WorldCom of $279,551 for
maintenance, repair and set up services associated with
videoconferencing services provided by Williams to WorldCom (which
amount Williams represents is for services provided and does not
contain any finance charges or other penalty amounts.
3. Any claims relating to unfair competition or anticompetitive
conduct.
4. The Waterhouse Securities matter referenced in Mr. Hellwege's
February 19, 1998 letter to Mr. Rich Little.
5. Any Claims specifically alleged in the Lawsuit.
19
<PAGE> 1
Redacted portions have been marked with asterisks (****). Confidential treatment
has been requested for the redacted portions. The confidential redacted portions
have been filed separately with the Securities and Exchange Commission.
CONFIDENTIAL TREATMENT
EXHIBIT 10.29
WILTEL COMMUNICATIONS,
L.L.C.
&
NORTHERN TELECOM INC.
DISTRIBUTORSHIP AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE ONE
ESTABLISHMENT OF DISTRIBUTORSHIP
<S> <C>
Section 1.1 DEFINITIONS: Page 1
Section 1.2 EFFECTIVE DATE Page 5
Section 1.3 TERM, RENEWAL, REPLACEMENT, AND EXPIRATION Page 5
Section 1.4 GRANT OF DISTRIBUTION RIGHTS Page 6
Section 1.4.1 EXISTING DISTRIBUTORS Page 6
Section 1.4.2 RESERVATION OF RIGHTS Page 6
Section 1.5 NON-EXCLUSIVE RELATIONSHIP Page 6
Section 1.6 AFFILIATES OF DISTRIBUTOR Page 7
Section 1.7 NO FAVORED DISTRIBUTOR Page 7
ARTICLE TWO
OBLIGATIONS OF THE PARTIES
Section 2.1 DISTRIBUTOR'S OBLIGATIONS Page 8
Section 2.1.1 DISTRIBUTION STANDARDS Page 8
Section 2.1.1.1 DISTRIBUTION TO OTHER THAN END USERS Page 9
Section 2.1.1.2 SPECIFIC ACCOUNT PROGRAM (a) Page 10
Section 2.1.2 MINIMUM DISTRIBUTION LEVEL Page 11
Section 2.1.3 ADVERTISING AND PROMOTION Page 12
Section 2.1.4 USE OF MARKS Page 12
Section 2.1.5 OPERATING REQUIREMENTS Page 13
Section 2.1.5.1 SERVICE CENTERS Page 13
Section 2.1.5.2 SERVICE STANDARDS Page 13
Section 2.1.5.3 RIGHT TO ENSURE SERVICE Page 13
Section 2.1.5.4 RIGHT TO INSPECT INSTALLATIONS Page 14
Section 2.1.6 RECORD KEEPING AND REPORTING Page 14
Section 2.1.7 SUBCONTRACTING TO THIRD PARTIES Page 14
Section 2.1.8 SALES AGENT AUTHORIZATION Page 15
</TABLE>
<PAGE> 3
ARTICLE THREE
OBLIGATIONS OF NORTEL
<TABLE>
<S> <C>
SECTION 3.1 SUPPORT OF DISTRIBUTOR BY NORTEL Page 17
SECTION 3.2 ACCOUNT DIRECTOR/MANAGER Page 18
SECTION 3.3 TRAINING Page 18
SECTION 3.4 PRODUCT CATALOG Page 18
SECTION 3.5 NORTEL SUPPORT IN EVENT OF CATASTROPHE Page 18
SECTION 3.6 PROGRAMS OF SUPPORT Page 19
SECTION 3.7 PROTECTION AGAINST POTENTIAL LIABILITIES Page 19
ARTICLE FOUR
PROVISION OF PRODUCTS
SECTION 4.1 PRODUCT SPECIFICATIONS Page 19
SECTION 4.1.1 DRAWINGS AND SPECIFICATIONS Page 19
SECTION 4.1.2 FCC REGISTRATION Page 19
SECTION 4.1.3 RFE/EMI STANDARDS Page 19
SECTION 4.1.4 CHANGES IN DESIGN OR MANUFACTURE Page 20
SECTION 4.1.5 RETROFITS Page 20
SECTION 4.1.6 OCCUPATIONAL SAFETY AND HEALTH Page 21
SECTION 4.2 SALE AND PURCHASE OF PRODUCTS Page 21
SECTION 4.2.1 FORECAST OF ORDERS Page 21
SECTION 4.2.2 DELIVERY; TITLE; RISK OF LOSS; SECURITY INTEREST Page 21
SECTION 4.2.3 NET DISTRIBUTOR PRICE; TAXES; CHANGES IN PRICE Page 22
SECTION 4.2.4 PAYMENT TERMS Page 23
SECTION 4.3 SOFTWARE LICENSES Page 23
SECTION 4.4 LIMITED WARRANTIES Page 25
SECTION 4.4.1 LIMITED WARRANTY OF TITLE Page 25
SECTION 4.4.2 LIMITED HARDWARE AND SOFTWARE WARRANTIES; NO
SERVICE WARRANTY Page 25
SECTION 4.4.3 CONDITIONS PRECEDENT Page 25
SECTION 4.4.4 LIMITATION ON WARRANTIES Page 26
SECTION 4.4.5 POST WARRANTY SUPPORT Page 26
SECTION 4.4.6 LONG TERM SOFTWARE SUPPORT Page 27
SECTION 4.4.7 CESSATION OF MANUFACTURE; CHANGES IN DESIGN;
ALLOCATION OF PRODUCT; RELEASE OF NEW PRODUCTS Page 27
</TABLE>
<PAGE> 4
<TABLE>
ARTICLE FIVE
PROPRIETARY INFORMATION
<S> <C>
SECTION 5.1 DISCLOSURE OF PROPRIETARY INFORMATION 18
SECTION 5.2 APPLICATION OF RESTRICTION 18
SECTION 5.3 SURVIVAL OF RESTRICTION 18
ARTICLE SIX
COMPLIANCE WITH LAWS: GRATUITIES AND INSURANCE
SECTION 6.1 COMPLIANCE WITH LAWS 18
SECTION 6.2 GRATUITIES 18
SECTION 6.3 INSURANCE COVERAGE 18
SECTION 6.4 MISCELLANEOUS OBLIGATIONS
SECTION 6.4.1 RIGHT OF ACCESS/HARMONY 19
SECTION 6.4.2 PLANT AND WORK RULES 19
SECTION 6.4.3 PERSONAL RELEASES VOID 19
ARTICLE SEVEN
BREACH OF AGREEMENT: TERMINATION
SECTION 7.1 BREACH OF THIS AGREEMENT 19
SECTION 7.2 TERMINATION OF DISTRIBUTOR 19
SECTION 7.3 TERMINATION FOR STATED CAUSES 19
SECTION 7.4 SUPPORT OF DISTRIBUTOR AFTER TERMINATION 20
SECTION 7.5 FORCE MAJEURE 20
ARTICLE EIGHT
GENERAL TERMS AND CONDITIONS
SECTION 8.1 LIMITATION OF LIABILITIES 21
SECTION 8.2 GENERAL INDEMNITIES 21
SECTION 8.3 INTELLECTUAL PROPERTY INFRINGEMENT 21
SECTION 8.4 ENFORCEMENT OF INDEMNITIES
SECTION 8.4.1 NOTICE OF CLAIMS 22
</TABLE>
<PAGE> 5
ARTICLE NINE
MISCELLANEOUS
<TABLE>
<S> <C>
SECTION 9.1 ASSIGNMENT AND DELEGATION 23
SECTION 9.2 NOTICES 23
SECTION 9.2.1 ADDRESS FOR NORTEL 23
SECTION 9.2.2 ADDRESS FOR DISTRIBUTOR 23
SECTION 9.3 SURVIVAL OF SOFTWARE LICENSES AND SUBLICENSES 23
SECTION 9.4 ANNEXES INCORPORATED 24
SECTION 9.5 GOVERNING LAW 24
SECTION 9.6 PRINCIPLES OF INTERPRETATION
SECTION 9.6.1 SEVERABILITY 24
SECTION 9.6.2 HEADINGS FOR CONVENIENCE ONLY 24
SECTION 9.6.3 WAIVERS OR AMENDMENTS 24
SECTION 9.6.4 SURVIVAL OF OBLIGATIONS 24
SECTION 9.7 PRODUCT REFERENCE GUIDE AND PRODUCT CATALOG 24
SECTION 9.8 ENTIRE AGREEMENT 25
</TABLE>
<PAGE> 6
DISTRIBUTORSHIP AGREEMENT
This Distributorship Agreement ("Agreement") is entered into by and between
Northern Telecom Inc., a corporation created and existing under the laws of the
State of Delaware ("Nortel"), and WilTel Communications, L.L.C., a limited
liability company created and existing under the laws of the State of Delaware
("Distributor").
Nortel desires to obtain assistance in the sale, installation, and maintenance
of its products covered by the terms of this Agreement within specified portions
of the United States.
Distributor desires to become one of Nortel's distributors, and to sell,
install, and maintain Nortel's products which are covered by the terms of this
Agreement within those specified portions of the United States.
Therefore, the Parties agree:
ARTICLE ONE
ESTABLISHMENT OF DISTRIBUTORSHIP
Section 1.1 DEFINITIONS:
For the purpose of this Agreement certain terms have been defined below:
"Affiliate" or "Affiliates": shall mean certain legal entities related to
Distributor and agreed to in writing in Annex C to this Agreement.
"Class A Corrective Retrofits": shall mean retrofits to Products shipped
pursuant to this Agreement which are designed to correct electrical or
mechanical conditions rendering the Product functionally inoperable or creating
a significant safety hazard.
"Class B Corrective Retrofits": shall mean retrofits to Products shipped
pursuant to this Agreement which are designed to correct conditions or
performance deficiencies not requiring a Class A Corrective Retrofit.
"Commercial List Price": shall mean the price or license fee in U.S. dollars
specified in the Product Catalog for the ordered Products, Software and/or
Services in effect on the date the order is accepted by Nortel.
"Designated Hardware": shall mean the Hardware for which specific Software was
supplied.
"Disclosing Party": shall mean that party to this Agreement which, in any
particular instance, discloses Proprietary Information to the other party.
"Distribute" or "Distribution": shall mean the offer or sale, lease, or rent of
Hardware, or the offer or transfer of a license to use Software in connection
with Designated Hardware as an agent for Nortel or Nortel's suppliers, to End
Users.
"Distributorship Agreement": shall mean this Agreement plus the version of the
Product Reference Guide, in effect from time to time, for Products made
available to Nortel Authorized Distributors under this Agreement. Nortel from
time to time may have contractual arrangements for the distribution of other
products or other terms and conditions, which will not be deemed subject to or
available under this Agreement.
"Distributor Discount": shall mean the amount in U.S. Dollars calculated by
multiplying the Commercial List Price by the distributor discount percentage
specified in the product Catalog for that particular Product.
"Effective Date": shall mean the date on which this document shall first become
an effective and binding obligation on the parties. The Effective Date shall be
determined as provided in Section 1.2.
"End User" or "End Users": shall mean a customer or customers buying, leasing,
or renting Hardware, and/or acquiring the right to use Software, for its own
use, or for the use of a related entity specifically identified to Distributor
in writing and for which the customer is acting, without charge, as a purchasing
agent. Lessors appearing in the chain of Distribution of the Product solely as
an incident of the provision of financing for the Distribution of the Product
shall be considered End Users but only for so long as only the lessor or the
lessee under such lease, but not both, shall have all rights against, and duties
to,
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Distributor and/or Nortel, as a result of the Software licensing procedures
permitted or required under this Distributorship Agreement. Except as provided
above, no customer buying in anticipation of Distributing such Products can be
an End User.
"Formal Notice": shall mean notice as defined in Section 9.2.
"Gross Distributor Price": shall mean the amount, in U.S. dollars, resulting
from the subtraction of the Distributor Discount from the Commercial List Price
for an order of a particular Product.
"Hardware": shall mean any physical portion of a Nortel or third party Product,
including money circuits and media upon which Software may be delivered, but
excluding Software.
"Mark": shall mean the trademarks, trade names and service marks now owned by,
licensed to, or hereafter obtained by Nortel or its suppliers for Products or
services or any portion thereof.
"Minimum Distribution Level": shall mean an amount of a particular Product,
measured at the Net Distributor Price, paid to Nortel, and established each year
by Nortel for each Product, as a measure of the minimum acceptable effectiveness
of Distributor in Distributing that Product within the Territory during a
specified period.
"Net Distributor Price": shall mean the amount, in U.S. dollars, resulting from
the subtraction of any applicable Other Discount from the Gross Distributor
Price for an order of a particular Product, and which a Distributor must pay to:
(1) acquire title to specific Hardware; or (2) acquire specific Software for
Distribution purposes or internal use purposes pursuant to a Software License.
"Nortel Authorized Distributor": shall mean, with respect to any particular
Product, any business entity with which Nortel shall have executed a
Distributorship Agreement for Distribution of that Product in the Territory
described in the Distribution Agreement.
"Other Discount": shall mean an amount, in U.S. dollars, calculated by
multiplying a designated percentage which may be specified from time to time by
Nortel in the Product Catalog or by other appropriate written notification to
Distributor. The concept of Other Discounts is intended to provide a means by
which Nortel management may, from time to time and at its discretion, institute
discounts on a Product in addition to the Distributor Discount. Other Discounts
are generally limited in time, location, purpose or type of intended End User.
"Product" or "Products": shall mean either Hardware or Software which
Distributor is authorized to Distribute pursuant to the terms of this Agreement.
"Product Catalog": shall mean that version of a Product Catalog, whether in hard
copy, or software on tangible media, or made available through on-line services
provided to authorized Distributors for Nortel Products, as the prime source of
pricing and ordering information which is in effect on the date of order
acceptance.
"Product Reference Guide": shall mean that version of a Product reference guide
that is provided to authorized Distributors as a source of Product information
and a reference guide to additional Product documentation which is in effect on
the date of order acceptance.
"Proprietary Information": shall mean any of: (1) information or data, in any
form (including but not limited to Software), which is either a trade secret of
the Disclosing Party or any of Nortel's suppliers, or in which the Disclosing
Party or any of Nortel's suppliers, holds any form of intellectual property
right, whether or not conspicuously marked to indicate its confidential or
proprietary nature; or (2) general business information, in any form not readily
available to the public which is of a nature that a reasonably prudent
businessperson would normally consider confidential, regarding the conduct of
business of the parties, and/or between the parties, and/or between the other
party and any End User (whether or not marked to indicate its nature); or (3)
any information regarding actual or potential future business and/or Product
plans of the other party (whether or not marked to indicate its nature) which is
not considered by all parties to this Agreement to be in the public domain.
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"Receiving Party": shall mean that party to this Agreement which, in any
particular instance, receives Proprietary Information.
"Regulatory Retrofits": shall mean retrofits to Products shipped pursuant to
this Agreement and which are designed to comply with changes in applicable
requirements imposed by appropriate governmental authority.
"Sales Agent": shall mean an individual or business entity with written
authorization from Distributor to act for Distributor in accordance with
Section 2.1.8 of this Agreement.
"Service Center": shall mean an appropriate physical facility, permanently
staffed with employees of Distributor, and meeting the Nortel requirements
specified in the Product Reference Guide.
"Significant Ownership Change": With regard to a Distributor, Significant
Ownership Change shall mean a transfer of a direct or beneficial interest (as
that term is defined for purposes of compliance with the regulations of the
U.S. Securities and Exchange Commission) in the control or profits of a
Distributor: (1) of 20% or greater; or (2) of any amount sufficient to cause a
change in majority ownership; whichever is leSection With regard to an
Affiliate, Significant Ownership Change shall mean a reduction of a direct or
beneficial interest (as that term is defined for purposes of compliance with
the regulations of the U.S. Securities and Exchange Commission) in the control
or profits of the Affiliate directly or indirectly held by Distributor or
Distributor's parent: (1) of 20% or greater; or (2) of any amount sufficient to
cause such beneficial interest to fall from a majority to less than a majority;
whichever is leSection
"Software": shall mean any set of one or more computer programs which is
composed of routines, subroutines, concepts, processes, algorithms, formulas,
ideas, know how, model, generated code, source code, and/or related
documentation, some or all of which are trade secrets and/or are copyrighted or
patented, in whole or in part, severally owned by or licensed to Nortel and/or
one or more of Nortel's suppliers, regardless of the particular delivery medium
in or on which such intangible assets licensed under this Agreement may be
embodied. The term Software shall also include any corrections, patches,
updates, or revisions to Software originally Distributed.
"Software Documentation": shall mean publications supplied with Software, which
may be in various media, to explain the construction, operation, and/or use of
the Software by the End User.
"Software License": shall mean the Nortel software license in Annex D of this
Agreement or as appropriate any applicable third party software license.
"Standard Lead Time": shall mean Nortel's most recent publicly announced
estimated interval between acceptance of an order for a particular Product by
Nortel and the expected date of shipment of that order to Distributor.
"Standard Price Item": shall mean any merchandise or service, other than
Hardware or Software, offered or provided to Distributor by Nortel in
furtherance of the purposes of this Distributorship Agreement.
"System": shall mean Hardware and Software necessary to deliver a particular
functioning configuration of Product to an End User specified by Nortel in the
applicable Product Catalog.
"Territory": may be described as: (1) a geographic area lying within the
boundaries of states and/or counties and/or cities; or (2) a geographic area
coextensive with a regulated utility serving area; or (3) a class list of
customers, or any combination of the three. Territory may consist of more than
one discrete geographical area and may be different for each authorized Product.
For purposes of this Agreement, "Territory" shall mean the Distributor's
authorized Territory for each authorized Product specified in Annex A to this
Agreement.
"United States": shall mean the fifty (50) states of the United States of
America and the District of Columbia.
"UTAM": shall mean the Unlicensed PCS (UPCS) Ad Hoc Committee for 1.9 GHz
Transition and Management. UTAM is designated by the FCC as the coordinator of
deployment of UPCS devices and relocation of incumbent microwave equipment in
the UPCS band.
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Section 1.2 EFFECTIVE DATE
This Agreement shall become effective on January 1, 1998 or the date this
Agreement is executed by a duly authorized Nortel representative, whichever is
later. The effective date for Territory and Product authorizations shall be the
effective dates specified in the relevant Annex A and Annex B to this Agreement.
Furthermore, Distributor agrees to be bound by the Product specific terms and
conditions in the Product Reference Guide that is in effect on the date the
Product order is accepted by Nortel.
Section 1.3 TERM, RENEWAL, REPLACEMENT, AND EXPIRATION
The term of this Agreement shall begin on the Effective Date and shall expire at
midnight, Central Time, December 31, 2000, unless sooner terminated in
accordance with the termination provisions of this Agreement, or renewed as
provided below. On or before October 1 of the year prior to the last calendar
year of an initial or renewal term, Nortel shall provide Formal Notice to
Distributor of Nortel's intention: (1) to renew this Agreement for an additional
three years from the end of the then current term; or (2) to replace this
Agreement, at the expiration of the then current term, with a different
Agreement (in which case Nortel shall attach a copy of the new Agreement to the
Formal Notice); or (3) to allow this Agreement, and the Distributor
relationship, to expire at the end of the then current term. Failure of Nortel
to provide such Formal Notice shall be deemed an election by Nortel of option
(1). If either option (1) or (2) is unacceptable to Distributor, or if Nortel
shall elect option (3), then the last calendar year of the then current term
shall be considered a "wind-down" or "disengagement" period. Distributor shall
notify Nortel within sixty (60) days of receipt of Nortel's Formal Notice of
Nortel's intent to pursue either option (1) or (2) if either option (1) or (2)
is unacceptable to Distributor.
Section 1.4 GRANT OF DISTRIBUTION RIGHTS
Nortel hereby grants to Distributor, for use only during the Term and only
within the Territory, a personal, non-transferable, non-exclusive right to: (1)
purchase Hardware in one or more of the product groups ("Product Groups") set
forth in Annex B from Nortel; (2) thereafter retain the Hardware for its own
use, for inventory purposes or to distribute the Hardware; (3) use Software for
Distributor's internal purposes pursuant to the terms and conditions of a
Software License; and (4) Distribute Software. Distributor's right to Distribute
Software shall include the right to order Software and retain same in inventory
solely for Distribution purposes.
The relationship of the parties under this Agreement shall be, and shall at all
times remain, one of independent contractors and not that of franchiser and
franchisee or joint venture. For the purpose of software licensing only, the
relationship of principal and agent is established. All persons furnished by
either party to accomplish the intent of this Agreement shall be considered
solely the furnishing party's employees or agents.
Section 1.4.1 EXISTING DISTRIBUTORS
Distributor acknowledges that Nortel has an existing network of
Distributors, some or all of which may have authorization to Distribute
within the Territory one or more of the Products covered by the terms
of this Agreement. Upon request, Nortel will provide Distributor with a
list of Nortel Authorized Distributors, sorted by state and county, and
the authorized Territory and Products of each.
Section 1.4.2 RESERVATION OF RIGHTS
Nortel may appoint additional Nortel Authorized Distributors, and may
itself and/or through any direct or indirect parent, subsidiary,
subsidiary of a parent, representative or agent Distribute the Products
covered by this Agreement, within the Territory and in competition with
Distributor, irrespective of the grant of rights to Distributor
contained within this Agreement.
Section 1.5 NON-EXCLUSIVE RELATIONSHIP
This Agreement is non-exclusive and, except as specifically provided otherwise
herein, shall not be construed: (1) to require Distributor to purchase only
from Nortel (except to the extent that new Nortel Products for resale may only
be purchased from Nortel, or in limited circumstances as described in Section
2.1.1.1 from other Nortel Authorized Distributors); (2) to require Distributor
to purchase any specific amount of Product from Nortel (except to the extent
that failure to purchase may result in termination of this Agreement); (3) to
require Nortel to sell all or any specific proportion of its output to
Distributor; or (4) to require Nortel to refrain from selling all or any
portion of its output to any other entity.
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Section 1.6 AFFILIATES OF DISTRIBUTOR
Affiliates initially agreed to by the parties are listed in Annex C. Provided
Distributor: (1) causes each Affiliate to agree in a writing addressed to Nortel
to be bound by all of the provisions of this Agreement (or if it does not obtain
such writing, shall be deemed to warrant that it has full rights, power to and
does sign this Agreement on behalf of itself and each named Affiliate), each of
which shall be bound by all of the provisions of this Agreement, and (2)
specifies and obtains Nortel's written authorization as to a Territory for each
named Affiliate, which Territory may extend no further than the boundaries of
Distributor's Territory, except to the extent restricted by the guaranteeing
Distributor in Annex C, then each such Affiliate shall have all rights of a
Nortel Authorized Distributor under this Agreement. By agreeing to list an
entity as an Affiliate, Distributor hereby guarantees the performance of its
Affiliates' obligations to Nortel and/or Nortel's suppliers. The provisions of
this Agreement shall apply to each Affiliate individually, but termination (by
either party) of this Agreement between Nortel and Distributor shall cause an
automatic termination with respect to all Affiliates. Affiliates may be added to
or deleted from Annex C by mutual written agreement.
Section 1.7 NO FAVORED DISTRIBUTOR
It is the intention of Nortel to execute a Distributorship Agreement with each
Nortel Authorized Distributor which, except for Territory, Affiliates, Products
and Sales Agents, is identical in substance to the Distributorship Agreement
between Nortel and every other Nortel Authorized Distributor. To that end,
Nortel shall promptly inform Distributor of al substantive differences between
this Agreement and any Distributorship Agreement executed by Nortel with any
other Nortel Authorized Distributor. Nortel and Distributor shall then execute a
new Agreement to replace this Agreement, and such new Agreement shall embody all
such changes which, in the reasonably exercised opinion of Distributor, do not
adversely affect Distributor's rights and obligations under this Agreement.
Nothing in this contractual provision shall be deemed to require either
Distributor or Nortel to renew or replace, or refrain from renewing or
replacing, this Agreement. Renewal or replacement shall be governed by the
provisions of Section 1.3.
ARTICLE TWO
OBLIGATIONS OF THE PARTIES
Section 2.1 DISTRIBUTOR'S OBLIGATIONS
Distributor hereby accepts appointment as a Nortel Authorized Distributor and
agrees, in accordance with the following standards, to devote all commercially
reasonable efforts to diligently promote the Distribution of the Products within
its authorized Territory and to satisfy the needs of its End Users within that
Territory.
Section 2.1.1 DISTRIBUTION STANDARDS
(a) DISTRIBUTOR SHALL:
(1) perform or comply with the required Product
training, pricing and support services specified in
the Product Reference Guide; and
(2) offer to all of its End Users a warranty for each
Product sold which is substantially as comprehensive
as the warranty extended to Distributor by Nortel
for the same Product; and
(3) be responsible for that portion of any warranty to
any End User which exceeds, whether in time or
scope, that provided for the applicable Product to
Distributor by Nortel under the terms of this
Agreement, and which was expressly granted or
implied to that End User by Distributor; and
(4) provide Nortel, upon Nortel's written request, with
a copy of an audited or certified financial
statement of Distributor, including a balance sheet,
income statement, and statement of changes in
financial position, for the most recent fiscal year
of Distributor ending not less than ninety days
before the date of Nortel's request; and
(5) comply with all federal, state and municipal laws
and regulations applicable to Distributor's
performance as a Distributor of the Product and
related services under this Agreement. Additionally,
Distributor shall comply with instructions given by
UTAM with respect to Distribution and deployment of
Products in the Unlicensed PCS Spectrum.
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(b) DISTRIBUTOR SHALL NOT:
(1) except as expressly allowed under Section 2.1.1.1,
Distribute Products to anyone whom Distributor knows
or reasonable should know are not End Users; or
(2) except as expressly allowed under Section 2.1.1.2
Distribute Products for installation outside the
Territory; or
(3) Distribute Products at locations within the
Territory at which Distributor is unable to provide
the service required by this Agreement; or
(4) convert, adjust, alter or modify Products, except to
the extent such action is in strict accord with the
provisions of the applicable Product Reference
Guide, or is authorized in writing by Nortel; or
(5) remove, alter, disconnect or negate any of the
safety features incorporated into Products; or
(6) Distribute any Product which is represented to an
End User to be a genuine, new and unused Product
unless it is known to Distributor to be, in fact,
genuine, new and unused because it was acquired from
Nortel by Distributor pursuant to this Agreement; or
(7) Distribute Software to anyone from whom Distributor
has not received and retained in its files a
properly executed Software License; provided,
however, that in the event Distributor installs
Software for an End User which requires acceptance
of the software license by opening a sealed package
or acceptance of an electronic software license
during installation, Distributor shall require End
User to accept such software license in the manner
indicated prior to installing the Software; or
(8) take any action which could reasonably be foreseen
to cause a material adverse effect upon the goodwill
of Nortel and/or the quality and functionality of
Nortel Products.
Section 2.1.1.1 DISTRIBUTION TO OTHER THAN END USERS
(a) Nortel recognizes that instances may arise in which
Distributor may wish to engage in forms of
Distribution not allowed by this Agreement, such as
some form of joint venture with or subcontract from
parties other than Nortel or another Nortel
Authorized Distributor, for the Distribution of a
limited amount of Products to a particular End User
in a transaction in which the contract signed by the
End User will be with an entity other than
Distributor or an Affiliate. If Distributor wishes
to engage in such Distribution, it shall submit to
Nortel a written request specifying: (1) the
proposed End User; (2) the party proposing to
contract with the End User; (3) the particular
configuration of Product involved; (4) the
installation location; (5) that Distributor will be
contractually bound, and contractually entitled, to
install the Products and to maintain them through
the end of the warranty period; (6) that Distributor
will offer to maintain the Product for the period
following the warranty period specified in the
Product Reference Guide, and, if Distributor intends
to subcontract the obligations of Section
2.1.1.1(a)(5) and Section 2.1.1.1.(a)(6) as allowed
by Section 2.1.7, then (7) the identity of the
subcontractor which will be used. Within ten
business days of receipt of such a request, Nortel
will notify Distributor of whether Nortel will
approve a deviation from the terms of this Agreement
based upon the information provided.
(b) In each instance in which Distributor is engaging in
activities contemplated by Section 2.1.1.1(a) and
provides Nortel with Formal Notice which would
constitute: (1) a representation that the value of
the portion of the prime contract with the End User
which is being subcontracted to Distributor
constitutes less than 33% of the total value of such
prime contract; (2) a representation that
Distributor will not further subcontract its
obligations to any entity except to Nortel or
another Nortel Authorized Distributor within that
Distributor's Territory and only if such other
Distributor has a service center appropriately
located to provide, at the installation location,
the level of service required by this Agreement; and
(3) representations providing to Nortel the
information requested bySection 2.1.1.1(a)(1)
throughSection 2.1.1.1(a)(7); then Nortel will not
object to such Distribution activity, and approval
may be considered automatic upon Nortel's receipt of
the required Formal Notice.
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Section 2.1.1.2 SPECIFIC ACCOUNT PROGRAM
(a) From time to time, Nortel may specify a limited
number of End User accounts which may be called
premier accounts, national accounts, major accounts,
large accounts, or other appropriate name, which
appear likely to purchase Nortel Products for
installation in widely dispersed geographic
locations within the United States. If Distributor's
Territory encompasses less than the entire United
States, then, at the request of such an account,
and/or at the request of Distributor, Nortel, in its
sole discretion, may name Distributor as authorized
to distribute to that End User account without
regard to the restrictions of Distributor's
Authorized Territory, but nevertheless only within
the United States. Any such designation shall only
be effective if made to Distributor, in writing, by
Nortel.
(b) Nortel will consider accounts for such designation:
(1) if the principal place of business of the End
User is within the Territory and (2) if Distributor
provides Nortel with a copy of a written request to
Distributor from the account demonstrating a
relationship and asking that Distributor offer to
provide the Products to the account wherever the
account may have operations within the United
States. If Distributor is designated by Nortel as a
supplier to such an account, then notwithstanding
Section 1.4, Distribution to that account will be
deemed to occur at the address of the principal
place of business of the account within the
Territory. However, for any Distribution of the
Products to that account by Distributor for
installation outside the Territory, the provisions
of Section 2.1.7(a)(3) shall not be available to
Distributor, and Distributor must either install the
Product itself or subcontract the installation to
Nortel or to a Nortel Authorized Distributor.
Establishment by Distributor of a Service Center
outside the Territory in order to service such a
specific account shall not be construed to authorize
Distribution to any other accounts outside the
Territory, except such other accounts as may be
specifically designated by Nortel pursuant to this
Section 2.1.1.2.
(c) Nortel may, in its discretion, appoint an account
manger for any account so designated, who shall be
responsible for coordinating Distributor sales to
that account, and who, in the course of such
coordination, shall engage in such direct contact
with the End User as may be reasonably necessary.
(d) Nortel may, in its sole discretion, revoke its
authorization to Distribution pursuant to
this Section 2.1.1.2 or its designation of any
account as a specific account at any time and for
any reason. Upon receipt of Formal Notice of such
revocation, Distributor shall immediately cease
Distributing to that account outside the Territory.
In such instance, Distributor may honor any formal
proposals for individual and specific installations
which had already been offered to the account as of
the date of receipt of the Formal Notice. In the
event of such a revocation, Nortel will offer to
Distributor Nortel's Support Agreement to allow
Distributor to continue to support those
installations of Products Distributed to the account
by Distributor outside its Territory during the
period the account was designated to be within the
scope of this section.
Section 2.1.2 MINIMUM DISTRIBUTION LEVEL
Nortel may establish, in writing, on or before October 1 of each year,
or subsequent to such date as appropriate, a product line ("Product
Line") and associated Minimum Distribution Level for that Product Line.
For ease of administration, the Minimum Distribution Level shall be
stated and measured in terms of the dollar value of each Product Line
for which Distributor shall have paid Nortel during the applicable
period or any pro rata portion thereof. In the event that Distributor
fails to meet the Minimum Distribution Level established by Nortel for
a particular year, Nortel shall have the right, in its sole discretion,
with or without other cause (1) to terminate this Agreement; or (2) to
terminate Distributor's right to Distribute Products for which Minimum
Distribution Levels have not been met; or (3) to assess **** in order
for Distributor to continue as a Nortel Authorized Distributor for the
remainder of the year following the year in which the Minimum
Distribution Level was not met.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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Section 2.1.3 ADVERTISING AND PROMOTION
Distributor shall not advertise or promote the Products outside the
Territory. Distributor shall not hold itself out within the Territory
as a Nortel Authorized Distributor or other than those Products as to
which Distributor has been authorized to Distribute in Annex B to this
Agreement. Distributor and Nortel shall regularly discuss planned
advertising and promotional efforts with respect to the Products.
Except as otherwise expressly agreed in writing, Distributor shall bear
all promotional, display and operating expenses incurred by it with
respect to the Distribution of the Products. Nothing contained in this
Section 2.1.3 shall imply any right in Nortel to pre-approve or screen
Distributor's advertising and/or promotional efforts. However, Nortel
shall have the right to prohibit the continued use by Distributor of
specific advertising and/or promotional materials which Nortel
reasonably believes will damage Nortel's reputation. Nortel shall not
use Distributor's name, tradename, or trademark in any advertising or
promotion without Distributor 's prior written consent.
Section 2.1.4 USE OF MARKS
(a) Distributor shall Distribute Products only under the Marks
used by Nortel and/or Nortel's suppliers, as appropriate.
Distributor shall make no use of the Marks which use would
imply that Distributor was a Nortel Authorized Distributor of
any products other than those Products as to which Distributor
has been authorized to Distribute in Annex B, hereto.
(b) From time to time, by use of the Products Catalog, or other
appropriate written notification, Nortel shall notify
Distributor of current Marks and any changes thereto.
Distributor shall not alter, obliterate, cover or remove any
Marks, serial number, or other symbols, characteristics or
legends appearing on any Product (including any associated
packaging, labels, manuals, and/or documentation). All Marks
are proprietary to Nortel or Nortel's suppliers, as the case
may be.
(c) This Section 2.1.4 shall not be construed to grant to
Distributor, or any End User, any general license to use such
Marks. Distributor shall not use or display any Marks except
in connection with the advertising, promotion or Distribution
of the Products within the Territory and in accordance with
the provisions of this Agreement. Distributor shall not use or
claim any Mark which is identical, or confusingly similar, to
any of Nortel's or Nortel's suppliers' Marks. Except as
expressly allowed by this Agreement, Distributor shall not
affix any different or additional Mark or other publicly
visible identifying Mark, symbol, logo or characteristic to
any Product. Distributor, in any of its advertising or
quotations to potential End Users which includes references to
any Mark, shall, at least once in a prominent place in each
such reference clearly indicate by the use of "(TM)", or
"(R)", as appropriate, that the particular Mark is that of
Nortel or of the particular Nortel supplier, as the case may
be. Upon termination or expiration of this Agreement
Distributor's privilege to use the Marks shall expire, and
Distributor shall immediately discontinue the active use of
same in connection with any business conducted by Distributor,
except for such use directly related to final disposal of any
inventory of Products held by Distributor on the date of
termination or expiration.
Section 2.1.5 OPERATING REQUIREMENTS
Section 2.1.5.1 SERVICE CENTERS
Distributor agrees to comply with the requirements for the
establishment and maintenance of Service Centers, service
standards and response time standards for each authorized
Product as specified in the Product Reference Guide.
Section 2.1.5.2 SERVICE STANDARDS
Nortel Products shall be Distributed, installed and maintained
in a manner which will neither damage the quality or
functionality of the Products or the reputation of Nortel nor
require extraordinary technical support from Nortel in order
to resolve installation and/or maintained problems.
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Section 2.1.5.3 RIGHT TO ENSURE SERVICE
In the event that Nortel shall have received a written
complaint from an aggrieved End User under warranty from
Distributor or maintenance contract with Distributor, which
compliant includes representations that the End User is not in
breach of its contract with Distributor and which leads Nortel
to reasonably believe that Distributor has failed to comply
with service standards and response standards as specified in
the Product Reference Guide, then Nortel may elect to provide
the required service itself or through such contractor or
contractors as Nortel may reasonably choose. Before acting on
an election under the preceding sentence, Nortel: (1) shall
notify Distributor of such election; and (2) shall notify
Distributor of Nortel's intention to wait 24 hours from the
time of such notice for Distributor to take corrective action
before itself taking any such action, except in circumstances
in which Nortel believes that failure to act immediately may
endanger life and/or property. Except to the extent that
Nortel is able to require the complaining End User to pay for
services Nortel chooses to provide, such services shall be
provided at Distributor's expense. In such case, Distributor
shall have no claim of any kind against Nortel.
Section 2.1.5.4 RIGHT TO INSPECT INSTALLATIONS
Subject to receipt of permission from the affected End User,
Nortel shall have the right, at any time and with reasonable
written notice to Distributor, to inspect any installation of
Products by Distributor, in order to ensure that the
requirements of this Agreement are being met. Upon receipt of
written request from Nortel, Distributor shall make all
commercially reasonable efforts to obtain any necessary
permission from the affected End User for such inspection and
to arrange a time permitting Distributor personnel to
accompany Nortel if Distributor so wishes. Nortel shall advise
Distributor of the results of any such inspection.
Section 2.1.6 RECORD KEEPING AND REPORTING
Distributor shall maintain a record of its Distribution of the Products
in order to comply with the requirements imposed upon Nortel by
Nortel's suppliers of Software and for Distributor's and Nortel's
protection in the event that products liability, copyright
infringement, trade secret misappropriation, or intellectual property
misuse claims related to the Products should arise. Such records shall
include: (1) documentation of Distributor's purchases of Hardware; (2)
documentation of Software ordered and received from Nortel from
Distribution and internal use purposes; (3) documentation of
Distributor's Distribution of Products to End Users; and (4) copies of
Software Licenses executed by each End User to which Software is
licensed. Distributor shall retain a copy of those records specified in
subsection (4) above and shall use all commercially reasonable efforts
to retain a copy of the records specified in subsections (1) (2) and
(3), for at least ten years from the date of Distribution of the
Product and such obligation shall survive the termination of this
Distributorship Agreement. Distributor may, upon termination of this
Agreement, satisfy the requirement to retain such records by delivering
complete and accurate copies of such records to Nortel and formally
assigning to Nortel all of Distributor's rights under all then
effective Software Licenses. Nortel, and any of Nortel's suppliers of
Software Distributed through Distributor which have ben identified to
Distributor in writing by Nortel and which are accompanied by Nortel
personnel, shall have a limited right, upon reasonable notice to
Distributor, to examine Distributor's records regarding the
Distribution of such Nortel or Nortel supplier generated Software
pursuant to the terms of this Agreement. Distributor will cooperate
fully with Nortel or any of its Software suppliers in the defense or
prosecution of any suit in which the existence or non-existence of a
Software License is either an issue or any aspect of such Software
License is in question.
Section 2.1.7 SUBCONTRACTING TO THIRD PARTIES
Distributor's obligations under this Agreement may be subcontracted
only as follows:
(a) Distributor may subcontract the installation, warrant period
maintenance, and post-warranty period maintenance of a Product
for which Distributor may contractually obligate itself, only
to: (1) Nortel; or (2) another Nortel Authorized Distributor
within that Distributor's Territory if such other Distributor
has a Service Center appropriately located to provide the
level of service required by the Product Reference Guide; or
(3) any other third party with the prior written approval of
Nortel, which approval may be withheld for any reason solely
in Nortel's discretion.
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(b) No subcontract shall relive Distributor of primary
responsibility to Nortel for the performance of Distributor's
obligations under this Agreement.
Section 2.1.8 SALES AGENT AUTHORIZATION
(a) If Distributor is authorized in Annex B to use Sales Agents in
the Distribution of a particular Product, then Distributor,
with Nortel's prior authorization with respect to each
proposed agent and subject to the provisions of subsections
2.1.8(b) through (f) below, may appoint Sales Agents for the
purpose of selling Products within the scope of the
Distributor's Product Authorization and Territory.
(b) Contracts between Sales Agents and the Distributor shall not
grant or purport to grant the right for Sales Agents to use
Nortel's trademarks, tradename or logos.
(c) Authorization by Nortel for Distributor to establish Sales
relationships by Nortel shall not constitute any release or
waiver by Nortel of any Distributor's covenants, obligations,
duties or indemnities under the Agreement.
(d) Distributor shall not give, disclose, provide copies or
otherwise make Nortel's Product Catalog, price manuals, price
lists, electronic pricing aids, or any other such forms of
documentation containing Nortel's prices or discounts to its
Sales Agents.
(e) When using Sales Agents, Distributor shall:
(1) Purchase all Products from Nortel. Nortel will not
accept any orders from a Sales Agent. Distributor
must pass title to Products (other than Software)
directly to the End User, and the Sales Agent may
not be in the chain of title. Distributor will be
responsible for assuring that each End User executes
appropriate Software Licenses as described elsewhere
in this Agreement.
(2) Remain responsible to the End User for the quality
and timeliness of all functions and work performed
by a Sales Agent.
(3) Place calls or other requests for support to Nortel.
Nortel support will be provided only to
Distributor's own employees. Nortel will not accept
calls or other requests for support from Sales
Agents.
(4) Appoint Sales Agents only pursuant to written
contracts reflecting fully the requirements of the
terms and conditions set forth in this Section 2.1.8
and, to the extent applicable, the terms and
conditions of this Agreement, and make them
available to Nortel for inspection upon request.
Further, such contracts shall prohibit Sales Agents
from altering or modifying Nortel Products.
(5) Provide adequate Product training to Sales Agents in
order to ensure they are fully capable of fulfilling
all requirements for which they are authorized.
(6) Require Sales Agents to participate in completing
Nortel's Customer Satisfaction Surveys.
(7) Provide to Nortel a monthly report or orders for
Products sold by each Sales Agent.
(8) Provide in contracts with Sales Agents that the
Sales Agents shall indemnify and hold Nortel
harmless from any liabilities, proceedings, damages
or costs arising out of or related to any
misrepresentation made about Nortel or the Products
to anyone or any act or omission related to or
arising from any failure to comply with the terms
and conditions of its contract with Distribu tor, or
its obligations related to this Agreement.
(9) Ensure Sales Agents are authorized to sell only
Products sold by Distributor within Distributor's
authorized Territory.
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(10) Provide in contracts with Sales Agents that their
appointment will terminate upon the earliest of
termination or expiration of this Agreement, or
Nortel's revocation of Distributor's right to
appoint Sales Agents.
(11) Indemnify, defend and hold Nortel harmless from any
claims, suits or proceedings, damages, liabilities,
and costs (including, without limitation, reasonable
attorneys' fees) which are attributable to any act
or omission of a Sales Agent, including, but not
limited to, any which arise from injury to or death
to persons or loss of or injury to property, which
are in any way connected with Sales Agent's
performance related to this Agreement or its
contract with Distributor.
(12) Remain responsible for all warranty obligations to
the End User and for all Product returns from the
End User in accordance with the terms and conditions
of this Agreement.
(13) Disclose to the End User that a Sales Agent may
perform the sales function only and may not perform
installation, diagnostic or maintenance services, or
work on-site.
(14) Advise the Sales Agent of all the limitations
imposed on Sales Agents by this Agreement
(including, without limitation, Nortel's right to
require the termination of a Sales Agent's
authorization).
(f) Nortel reserves the right to require Distributor to terminate
its relationship with a Sales Agent within thirty (30) days
following Formal Notice. Circumstances wherein Nortel in its
sole discretion may invoke such a right shall include, but are
not limited to:
(1) Failure of the Distributor or the Sales Agent to
abide by the terms and conditions specified herein;
or
(2) Failure of the Sales Agent to achieve satisfactory
ratings on Nortel's Customer Satisfaction Surveys;
or
(3) Misrepresentations by the Sales Agent to End Users,
potential End Users or others about the Products,
services and/or warranties available, or the
relationship the Sales Agent has with the
Distributor or Nortel; or
(4) Any other reason that in the sole judgment of Nortel
is necessary to achieve Nortel's distribution
strategy or to comply with the law.
ARTICLE THREE
OBLIGATIONS OF NORTEL
Section 3.1 SUPPORT OF DISTRIBUTOR BY NORTEL
Nortel shall provide Distribution and promotional support to Distributor as
provided in the following sections. Each item and type of support, except
provision of a Product or Product Catalog, is considered a Standard Price Item.
Nortel reserves the right: (1) to discontinue offering any Standard Price Item;
(2) to add any Standard Price Item; (3) to institute, raise or lower price for
any Standard Price Item; and (4) to announce and/or change the terms and
conditions upon which Standard Price Items are offered. Nortel will give
Distributor thirty (30) days prior Formal Notice of any such changes. In the
provision of such support, Nortel shall not take any action, other than as
authorized in this Agreement, which could reasonably be foreseen to cause a
material adverse effect upon the goodwill of the Distributor. A Standard Price
Item is not eligible for Distributor Discount or Other Discount.
Section 3.2 ACCOUNT DIRECTOR/MANAGER
Nortel shall appoint one or more Account Directors and/or Account Managers who
shall be responsible for providing administrative support and coordination to
Distributor. An Account Director or Manager may provide support to one or more
Distributors in connection with the Distribution of the Products. The Account
Director/Managers shall have no authority to interpret or vary the terms of this
Agreement or other notices or programs issued in support of this Agreement.
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Section 3.3 TRAINING
Nortel will provide access to Nortel's Training Centers for various forms of
training for employees of Distributor. Training shall be offered and provided on
such terms and conditions as Nortel may specify in technical training catalogs
or other appropriate forms of written notice to Distributor and, unless
otherwise specified by Nortel in the applicable technical training catalog,
shall be strictly limited to bona fide employees of Distributor and/or bona fide
employees of Distributor's subcontractors authorized by Nortel in accordance
with Section 2.1.7 and Section 2.1.8. In all cases in which Distributor wishes
Nortel to accept employees of subcontractors for training, Distributor shall
identify such employees, and Nortel shall invoice Distributor, which shall be
responsible for paying for such training.
Section 3.4 PRODUCT CATALOG
Nortel shall provide Distributors with a reasonable number of Product Catalogs,
as the price source of pricing and ordering terms and conditions on either paper
or electronic media. Each Product Catalog is considered proprietary and is
provided to Distributor as a loan. Upon termination of this Agreement,
Distributor shall promptly return all Product Catalogs to Nortel.
Section 3.5 NORTEL SUPPORT IN EVENT OF CATASTROPHE
Nortel will make all commercially reasonable efforts, at its then usual charges
(including, without limitation thereto, charges for overtime), to assist
Distributor in recovering from the effects of a catastrophic occurrence upon
Distributor's installed base of Products within the Territory. Nothing in this
Agreement shall require Nortel to maintain inventories or stand in any state of
readiness to assist Distributor. In the event of a catastrophe affecting the
installed base of Products of more than one Nortel Authorized Distributor,
Nortel may divide its support efforts among the affected Distributors as deemed
by Nortel to be most reasonable. In each instance in which Distributor requests
support in event of catastrophe, Distributor shall notify Nortel of the
existence or lack of written contractual Agreements between Distributor and the
End User needing such support which contract protects Nortel against liability
to such End Users for incidental, special and/or consequential damages arising
out of Nortel's performance. Nortel reserves the right to deny support in the
absence of such protection.
Section 3.6 PROGRAMS OF SUPPORT
From time to time, Nortel may announce programs of support to Distributors of
End Users. All of such programs are subject to all limitations of liability
contained in this Agreement.
Section 3.7 PROTECTION AGAINST POTENTIAL LIABILITIES
In any case in which Distributor requests and accepts any form of pre-sale or
post-sale support, which support involves direct contact between Nortel and an
End-User, Distributor shall obtain a written agreement with that End User which
includes both warranty and general contractual disclaimers as to any direct
Nortel liability for warranties or for any incidental and consequential losses,
damages or claims of that End User, or failing to do so shall indemnify and hold
Nortel harmless from such claims, demands or damages.
ARTICLE FOUR
PROVISION OF PRODUCTS
Section 4.1 PRODUCT SPECIFICATIONS
Section 4.1.1 DRAWINGS AND SPECIFICATIONS
Drawings and technical specifications for Products which are available
to Authorized Distributors are identified in the Product Reference
Guide.
Section 4.1.2 FCC REGISTRATION
Nortel represents and warrants that any Product sold to Distributor
pursuant to this Agreement which is subject to, and not exempted by,
Part 68 of the Rules and Regulations of the Federal Communications
Commission in effect at the time of such sale ("Part 68"), is
registered under and complies with Part 68, including (without
limitation
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thereto) all labeling and customer instruction requirements. In the
event of a breach of the warranty of this Section 4.1.2, a condition
precedent to any duty on the part of Nortel to remedy the breach and to
the indemnity stated herein, shall be that the Product was installed
within the Distributor's Territory in accordance with the terms of the
Agreement.
Section 4.1.3 RFE/EMI STANDARDS
Nortel represents and warrants that any Product sold to Distributor
pursuant to this Agreement which is subject to, and not exempted by,
Part 15, Subpart A & B of the Rules and Regulations of the Federal
Communications Commission in effect at the time of sale, will comply
with the requirements in Part 15, Subpart A & B of the Rules and
Regulations of the Federal Communications Commission. In the event of a
breach of the warranty of this Section 4.1.3, a condition precedent to
any duty on the part of Nortel to remedy the breach and to the
indemnity stated herein shall be that the Product was installed within
the Distributor's Territory in accordance with the terms of this
Agreement.
Section 4.1.4 CHANGES IN DESIGN OR MANUFACTURE
(a) Any Product shipped by Nortel in fulfillment of an accepted
order shall not contain any change from those design and/or
manufacturing specifications in place on the date the order
was accepted. For the purposes of this provision, a change is
defined as an action which materially, adversely, and
measurably impacts reliability, form, fit, or function.
(b) Nortel shall give Distributor thirty (30) days written notice
of Nortel's intent to commence accepting orders for Products
containing any change in the design and/or manufacture which
materially, adversely, or measurable impacts reliability,
form, fit, or function. For all changes in design and/or
manufacture of Products, Nortel shall provide Distributor with
revisions to the applicable Northern Telecom Practices manual
or other specifications as promptly as is reasonably possible.
Section 4.1.5 RETROFITS
If Nortel shall determine that a need exists to make either Class A
Corrective Retrofits or Class B Corrective Retrofits, then Nortel shall
so notify Distributor within thirty (30) days of the date of such
determination by means of appropriate documentation. Nortel shall use
all commercially reasonable efforts to develop required Corrective
Retrofits and, when and if such Corrective Retrofits are developed,
shall provide to Distributor without charge, one Corrective Retrofit
kit for each affected item of Product delivered to Distributor pursuant
to this Agreement. Nortel will install all Class A Corrective Retrofit
kits with its own personnel, or such personnel as it may contract and
at its own expense, provided Distributor first: (1) obtains permission
from the affected End User for Nortel personnel to work on the End
User's affected Product during normal business working hours and at
such time as is reasonably convenient to both Nortel and the End User;
and (2) when necessary, obtains the affected End User's permission to
take the affected Product out of service during the time necessary to
install the Class A Corrective Retrofit kit; and (3) has obtained from
the End User a written Agreement protecting Nortel against liability
for any incidental, special and/or consequential damages to such End
User as a result of performance by Nortel. Installation of Class B
Corrective Retrofit kits at affected End User sites shall be the
responsibility and obligation of Distributor, at Distributor's
expense, unless Nortel is providing post-warranty maintenance to the
affected Product under contract to the affected End User, in which case
Nortel will install the Class B Corrective Retrofit kit at Nortel's
expense. If Nortel shall determine that a need exists to make
Regulatory Retrofits, then Nortel shall notify Distributor by means of
appropriate documentation. When a Regulatory Retrofit kit is developed,
Nortel shall offer, at such price as it may announce, and on its then
standard terms and conditions, to provide such Regulatory Retrofit kit
for all affected Products delivered to Distributor pursuant to this
Agreement.
Section 4.1.6 OCCUPATIONAL SAFETY AND HEALTH
When required by the Occupational Safety and Health Act, Nortel shall
provide to Distributor appropriate documentation for any Product
shipped to Distributor by Nortel.
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Section 4.2 SALE AND PURCHASE OF PRODUCTS
Section 4.2.1 FORECAST OF ORDERS
In order to assist Nortel in keeping the Products' price competitive in
the marketplace, the Distributor, on or before February 1, May 1,
August 1, and November 1 of each year, shall prepare and submit a
written "rolling" forecast of Distributor's anticipated orders of each
Product for the 12-month period beginning two months after the forecast
due date (i.e., beginning April 1, July 1, October 1, and January 1,
respectively).
Section 4.2.2 DELIVERY; TITLE; RISK OF LOSS; SECURITY INTEREST
(a) The Net Distributor Price of any ordered Products is based
upon delivery on board the carrier, which may be either a
carrier, which may be either a common carrier or may be
Nortel, at Nortel's factory or warehouse of origin, or for
Products imported from Nortel's factories located outside the
United States, at the United States port of entry. Title to
Hardware shall pass to Distributor, and tender and acceptance
shall occur when Nortel duly surrenders possession to the
common carrier, or if Nortel is acting as carrier, upon
departure from the factory or warehouse of origin loading dock
or port of entry as the case may be. Risk of loss to Product
shall pass to Distributor upon delivery at the destination
specified in Distributor's order. Provided Nortel shall
promptly make a replacement shipment of Products for any
Products lost for more than five business days or damaged in
shipment, Nortel shall have no liability to Distributor for
non-delivery or late delivery in such circumstances. Unless
otherwise requested by Distributor, Nortel will normally ship
all Products to Distributor by "best way" surface freight.
Nortel will prepay the common carrier, or if it acts as the
carrier will itself initially bear the cost of shipping, and
will in all cases invoice Distributor for all shipping charges
incurred in addition to the Net Distributor Price. If Nortel
acts as the carrier, Nortel may charge and invoice freight
charges not to exceed the then available comparable commercial
rates for the shortest usual commercial route from the
shipping point or port of entry to the point of destination
for such carriage, and shall assume all risks of carriage as
if it was a common carrier. If requested by Distributor,
Nortel will ship by air or other available means, but reserves
the right to assess and invoice additional handling charges
for non-standard shipment methods; such additional handling
charges shall be a Standard Price Item and will be listed in
the Product Catalog or Product Reference Guide or quoted to
Distributor in advance of shipment. Nortel reserves the right
to reject any order or portion thereof for any reason. If
Nortel is unable to fill an order in full, partial shipment
may be permitted. Provided Distributor authorizes a partial
shipment, then Nortel shall invoice Distributor for the
Products contained in the partial shipment and Distributor
will not withhold payment of such invoice because of the
remaining unfilled portion of the order.
(b) Upon request, Distributor shall grant to Nortel, in writing, a
security interest in all Products to be delivered to
Distributor pursuant to this Agreement, and any proceeds
thereof, to secure payment of the purchase price, and shall
sign appropriate financing statements naming Distributor as
debtor and Nortel as secured party, as may be necessary for
Nortel to perfect its security interest under Article 9 of the
Uniform Commercial Code. Upon receipt of payment in full of
the purchase price of the Product as to which the security
interest was granted, Nortel shall promptly file a
satisfaction of any financing statement filed with respect
thereto. Refusal or failure of Distributor to grant any
requested security interest and/or to sign any requested
financing statement shall entitle Nortel to refuse to ship any
order.
Section 4.2.3 NET DISTRIBUTOR PRICE; TAXES; CHANGES IN PRICE
(a) The Net Distributor Price for any order of Products shall be
calculated as follows: (1) the Commercial List Price in effect
on the date Nortel accepts the order less the applicable
Distributor Discount equals the Gross Distributor Price; (2)
The Gross Distributor Price less any Other Discounts equals
Net Distributor Price. All discounts will be stated in
percentage terms. The Net Distributor Price does not include
any applicable handling charges, interest charges, freight
charges, insurance charges, cancellation charges, or
rescheduling charges, or any applicable sales, use, and/or
privilege taxes, all of which will be invoiced to Distributor
in addition to the Net Distributor Price.
(b) Nortel shall not invoice Distributor for any federal or state
sales, use, value added or privilege tax if Distributor has
provided Nortel with a valid exemption certificate from the
state imposing the tax (which usually will be the state to
which the order is shipped).
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(c) Nortel reserves the right to change the Commercial List Price,
and/or change or eliminate discounts.
Section 4.2.4 PAYMENT TERMS
(a) Except as otherwise stated in the Product Reference Guide or
Product Catalog, Nortel will invoice Distributor as of the
date that a full or partial shipment is made, or for services
upon completion thereof but no less often than monthly if
services continue from month to month. Any invoiced amount
shall be due and payable thirty days after the date of the
invoice. If an invoice contains one or more amounts which are
disputed, as well as one or more amounts which are not,
Distributor agrees it will not withhold any amount(s) which
are not disputed. All amounts past due shall accrue interest
from the thirty-first day following the date of the invoice at
the rate of one percent (1%) per month (or such lesser rate as
may be the maximum permissible rate under applicable law).
Nortel reserves the right to refuse to grant credit to
Distributor at any time and for any reason and to insist upon
cash on delivery or cash-in advance transactions.
(b) Notwithstanding the above, Nortel will invoice Distributor the
purchase price for any Meridian SL-100 system as follows:
10% upon execution of the "Meridian SL-100 Installation
Subcontract" and acceptance of Distributor's order by
Nortel; and
80% upon shipment of the central processor unit of the
system; and
10% upon in-service date or 60 days from the completion of
testing, whichever occurs first.
Section 4.3 SOFTWARE LICENSES
(a) Distributor's failure to fully abide by all of the software
provisions of this Agreement shall be deemed in breach of this
Agreement and Nortel or an aggrieved Nortel supplier through
Nortel may, upon its election and in addition to any other
rights and remedies that it may have, require the termination
of Distributor's right to Distribute Software under this
Agreement. Such election may be made with respect to all
Software or only the affected Software supplied to Distributor
pursuant to this Agreement. Exercise of such option shall
require that Nortel give Distributor written notice of such
breach with no less than thirty days in which to cure,
specifying with reasonable particularity the nature of the
claimed breach and the Software with respect to which the
election is made.
(b) If Distributor's right to Distribute Software under this
Agreement shall have been terminated, then within thirty days
of such termination, Distributor shall deliver all affected
Software in Distributor's possession (including all back-up
copies) to Nortel for credit at a price equal to the price
paid by Distributor to Nortel, render unusable all portions of
the affected Software placed in any storage apparatus under
Distributor's control and certify such destruction to Nortel
in writing, and provide Nortel with originals of the Software
License for all copies of the affected Software previously
Distributed by Distributor. Distributor's obligations under
this Section 4.3 shall survive the expiration or termination
of this Agreement, regardless of the cause of such expiration
or termination.
(c) Nortel expressly reserves the right to modify the Nortel
Software License. Such modified Software License shall apply
to all Software transactions between Nortel and Distributor
and/or between Distributor and End User occurring after the
Formal Notice of the modification. Any such modification shall
not require the replacement of currently effective Software
Licenses until such time as such End Users order additional
Software.
(d) Distributor must Distribute Software only to End Users which:
(1) acquire from Distributor the title to the accompany
Hardware which was obtained by Distributor from Nortel by
means of a particular order issued pursuant to this Agreement
and installed within the authorized Territory; or (2) hold
title to Hardware acquired other than from Distributor but
installed within the authorized Territory; and (3) execute the
Nortel Software License. Distributor shall pay Nortel the
license fee designated in the Product Catalog. Distributor may
choose to absorb the majority of the fees charged by Nortel
and/or Nortel's suppliers or to pass those fees on to the End
User/Licensee, in part, unchanged, or marked-up, as
Distributor may see fit. However, Distributor must obtain
consideration for use of the Software.
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(e) Distributor shall maintain a properly executed Software
License from each End User ordering Software from Distributor.
Distributor shall use all commercially reasonable efforts to
ensure that each End User complies with all of the
requirements of the Software License. If Distributor becomes
aware of an End User breaching the Nortel Software License,
then Distributor shall promptly advise Nortel in writing of
the identity of such End User and the nature of the breach.
Distributor shall cooperate, in any commercially reasonable
manner requested, at the expense of Nortel and/or Nortel's
suppliers, in any legal action or potential legal action by
them against the End User in material breach, related to that
breach. Distributor shall indemnify and hold Nortel harmless
from any claims, demands or damages if Distributor violates
any provisions of this section.
Section 4.4 LIMITED WARRANTIES
Nortel warrants the Hardware and/or Software supplied to Distributor and
installed within the authorized Territory in accordance with the following
provisions and any additional Product specific warranty provisions in the
Product Reference Guide.
Section 4.4.1 LIMITED WARRANTY OF TITLE
Nortel warrants that it will deliver good title to all Hardware sold to
Distributor pursuant to this Agreement, free and clear of any claims,
liens, encumbrances, or security interests of any kind except any
security interest obtained from Distributor by Nortel pursuant to
Section 4.2.2(b). The exclusive remedy of Distributor for breach of the
warranty contained in this Section 4.4.1 shall be to require Nortel,
without cost to Distributor, to promptly clear the title to the
Hardware.
Section 4.4.2 LIMITED HARDWARE AND SOFTWARE WARRANTIES; NO SERVICE
WARRANTY
The Hardware and Software Limited Warranties, and exclusive remedies
with respect to each of them, are set forth in detail in the Product
Reference Guide by applicable Product Group.
Nortel provides no warranty in connection with or for any service
provided by it to Distributor.
Section 4.4.3 CONDITIONS PRECEDENT
In addition to any conditions precedent contained in the sections of
the Product Reference Guide describing each warranty, conditions
precedent to any obligation upon Nortel to remedy any breach of
warranty shall be that:
(a) Nortel shall not have declared a termination of this
Agreement;
(b) the particular item of Product with respect to which the
warranty is being invoked shall have been Distributed in
compliance with all requirements of this Agreement without
respect to the question of materiality to the whole of this
Agreement;
(c) the Product in question shall not have been altered, or
repaired by any party other than Nortel, and if a System is
involved, the System shall not have been maintained by any
other party other than Nortel, Distributor or another Nortel
Authorized Distributor, qualified with respect to that System
and under subcontract to Distributor, without Nortel's prior
written consent;
(d) Hardware defects, or Software failures shall not have been the
result of mishandling, abuse, misuse, improper storage,
improper installation, improper maintenance, or improper
operation (including use in conjunction with equipment
electrically or mechanically incompatible) by any party other
than Nortel;
(e) the Product shall not have been damaged by fire or explosion
(other than fire or explosion directly attributable to a
Product defect), power failure, lightning or other induced
power surge, act of God, or any other cause whatsoever not
attributable to Nortel;
(f) Nortel shall have received from Distributor, prior to the
expiration of the warranty period, written notice stating with
reasonable particularly the claimed breach of warranty;
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(g) The burden upon Distributor to prove compliance with the above
conditions precedent shall not arise unless and until Nortel
shall notify Distributor in writing that Nortel believes that
one or more of such conditions has not been met. Such notice
shall specify with reasonable particularity the alleged
failure to meet these conditions precedent.
Section 4.4.4 LIMITATION ON WARRANTIES
THE WARRANTIES AND REMEDIES CONTAINED IN THIS AGREEMENT AND THE PRODUCT
REFERENCE GUIDE CONSTITUTE THE ONLY WARRANTIES WITH RESPECT TO THE
PRODUCTS PROVIDED TO DISTRIBUTOR PURSUANT TO THIS AGREEMENT AND
DISTRIBUTOR'S EXCLUSIVE REMEDIES IF SUCH WARRANT TIES ARE BREACHED. THE
STATED WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES, WRITTEN OR ORAL,
STATUTORY, EXPRESS, OR IMPLIED, INCLUDING, WITHOUT LIMITATION THERETO,
THE WARRANTY OF MERCHANTABILITY AND THE WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE. THERE ARE NO WARRANTIES WITH RESPECT TO SERVICES
PROVIDED BY NORTEL. NORTEL SHALL NOT BE LIABLE TO OR THROUGH
DISTRIBUTOR FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY
NATURE OR FOR ANY REASON, ARISING OUT OF THIS AGREEMENT, EVEN IF NORTEL
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE NET
DISTRIBUTOR PRICE DESCRIBED ELSEWHERE IN THIS AGREEMENT IS BASED UPON
AND IS IN PARTIAL CONSIDERATION FOR THIS LIMITATION ON WARRANTIES AND
REMEDIES.
Section 4.4.5 POST WARRANTY SUPPORT
Nortel shall provide, at its then current prices, support for Nortel
Products for which the warranty period shall have expired in accordance
with the Product Reference Guide. For Products manufactured by third
parties, the manufacturer may discontinue their Products. Nortel makes
no guarantee as to the availability of any of these Products, whether
for new system sales or for installed base sales or whether the
Products are available in the U.S. Market. However, Products may be
returned for repair at prices established by Nortel if they are
repairable items for which necessary components are available to
Nortel.
Section 4.4.6 LONG TERM SOFTWARE SUPPORT
Long term software support shall be provided for each Product Group to
the extent defined in the then current Product Reference Guide.
Section 4.4.7 CESSATION OF MANUFACTURE; CHANGES IN DESIGN; ALLOCATION
OF PRODUCT; RELEASE OF NEW PRODUCTS
Nortel expressly reserves the following rights with respect to the
offer of Products to Distributor: (1) to cease manufacturing,
distributing, supporting, except as provided in the "Life Cycle
Support" provision in the Product Reference Guide, any Products not
constituting an entire line of Products, upon **** written notice to
Distributor; and (2) to cease manufacturing, distributing, supporting,
except as provided in the "Life Cycle Support" provisions in the
Product Reference Guide, an entire line of Products upon **** written
notice to Distributor; (3) except as provided in Section 4.1.4,
"Changes in Design or Manufacture", to alter the design specifications,
configuration, construction, material, or manufacturing methods
applicable to any Product, without notice, provided that such
alteration does not materially and adversely affect the performance of
the Product; and (4) to allocate limited supplies of Product among all
Nortel Distributors as reasonably seems most equitable to Nortel in
light of all information then available to it; and (5) to release new
Products and Product improvements only pursuant to a controlled release
program, and under such program to allocate such Products to and among
such Nortel Distributors as Nortel, in its sole discretion, may
determine.
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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ARTICLE FIVE
PROPRIETARY INFORMATION
Section 5.1 DISCLOSURE OF PROPRIETARY INFORMATION
Except as permitted otherwise by law, the Receiving Party shall keep
confidential Proprietary Information of the Disclosing Party and Nortel's
suppliers using the same degree of care that it uses to safeguard its own
Proprietary Information of a similar nature, but not less than reasonable care,
and shall not disclose Proprietary Information of the Disclosing Party or of
Nortel's suppliers, to any but its own employees with a need to know the
Proprietary Information in furtherance of the purposes of this Agreement. With
respect to Software, this obligation may be expanded, amplified or modified by
the terms of the Software License; in the event of a conflict between a Software
License and this Article 5, the Software License shall control.
Section 5.2 APPLICATION OF RESTRICTION
The restrictions of this article shall not apply: (1) to Proprietary Information
which enters the public domain without fault of the Receiving Party; or (2) to
Proprietary Information which the Receiving Party can prove was rightfully in
its possession prior to disclosure from the Disclosing Party or from Nortel's
supplies; or (3) to Proprietary Information which is independently developed by
the Receiving Party; or (4) if such restrictions would prevent required
compliance with applicable law, applicable governmental regulation, or an order
of a court of competent jurisdiction. A Receiving Party invoking exception (4)
above shall use all commercially reasonable efforts to notify the Disclosing
Party of any intended disclosure as far in advance of the date of required
compliance as is practicable and shall not make such disclosure in advance of
the date of required compliance, so that the Disclosing Party may have an
opportunity to take such steps as it deems appropriate to defend its interests;
provided, however, that in the event the Receiving Party invokes exception (4)
above and the Proprietary Information is that of a Nortel supplier, such
notification shall be made to Nortel.
Section 5.3 SURVIVAL OF RESTRICTION
Distributor's confidentiality obligations shall survive the termination of this
Agreement, regardless of the cause, and shall extend to the earlier of such
times as Proprietary Information and/or Software enters the public domain
through no fault of Distributor, or for Proprietary Information other than
Software, ten (10) years following the expiration or termination of this
Agreement.
ARTICLE SIX
COMPLIANCE WITH LAWS: GRATUITIES AND INSURANCE
Section 6.1 COMPLIANCE WITH LAWS
Nortel and Distributor shall comply with all applicable federal, state and local
laws and regulations regarding the general conduct of business whether or not
specifically related to the design, manufacturing, transportation, sale, lease,
installation, or maintenance of the Products. Additionally, Distributor shall
comply with instructions given by UTAM with respect to Distribution and
deployment of Products in the Unlicenced PCS Spectrum.
Section 6.2 GRATUITIES
Each party to this Agreement represents to the other that it has not offered or
given, and will not offer or give, to any employee of the other, any gratuity
with a view toward securing any business from the other or toward influencing
such person with respect to the terms, conditions or performance of this
Agreement. The foregoing provision shall not apply to any publicly announced
Nortel sales incentive plan in which Distributor may allow its employees to
participate.
Section 6.3 INSURANCE COVERAGE
Both Nortel and Distributor shall maintain, during the term of this Agreement,
all insurance and/or bonds required by any applicable law, including but not
limited to: (1) workers' compensation insurance as prescribed by the laws of all
states in which work pursuant to this Agreement is performed; (2) employer's
liability insurance with limits of at least $5 million per occurrence; (3)
comprehensive general liability insurance (including products liability
coverage, contractual liability,
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advertising liability, and comprehensive automobile liability coverage) with
each coverage having limits of at least $5 million per occurrence. Either party
shall furnish certificates or other adequate proof of such insurance to the
other upon written request. Proof of a program of self-insurance acceptable to
the requesting party (which shall not be unreasonably withheld) shall satisfy
any such request. Both Nortel and Distributor shall require any subcontractors
and Sales Agents involved with the performance of work pursuant to this
Agreement, to agree to maintain insurance coverage and to furnish certificates
or other adequate proof thereof to both Nortel and Distributor upon written
request.
Section 6.4 MISCELLANEOUS OBLIGATIONS
Section 6.4.1 RIGHT OF ACCESS/HARMONY
In order to carry out the intent of this Agreement, Nortel and
Distributor shall each have reasonable access, upon reasonable prior
notice, to the premises of the other during normal business hours and
at such other times as may be agreed upon. Whenever the employees
and/or agents of either party are working on the premises of the other
party, or on the premises of an End User, the employing party shall be
responsible for ensuring that such employees work in harmony with all
other individuals on such premises.
Section 6.4.2 PLANT AND WORK RULES
Whenever the employees and/or agents of either party are on the
premises of the other party, or on the premises of an End User, they
shall comply with all site rules and regulations (including, where
required by government regulations, submission of satisfactory
clearance from the U.S. Department of Defense and/or any other
governmental authorities concerned).
Section 6.4.3 PERSONAL RELEASES VOID
Neither Nortel nor Distributor shall require representatives of the
other any waivers or releases of any personal right in connection with
visits to its premises. Even if obtained, no such waivers or releases
shall be pleaded by either party in any action or proceeding.
ARTICLE SEVEN
BREACH OF AGREEMENT: TERMINATION
Section 7.1 BREACH OF THIS AGREEMENT
A material breach and default of this Agreement shall be deemed to have occurred
whenever: (1) one party shall have violated any material provision of this
entire Agreement; and (2) the violating party shall have received Formal Notice
from the other party stating the nature of the violation with reasonable
particularity and stating that the other party objects to the violation; and (3)
the violating party shall have failed to cure or correct the violation within
thirty (30) days of the receipt of such Formal Notice if the violation is
amenable to immediate correction; or (4) the violating party shall have failed
to commence cure or correction of the violation within thirty (30) days of the
receipt of such Formal Notice or to thereafter diligently pursue such cure or
correction, if the violation is not amenable to immediate correction. The date
of a breach shall be deemed to be the date on which the violating party
received the Formal Notice required under this Section 7.1. The non-breaching
party shall have the right to suspend performance of any executory obligation
under this Agreement from the date of such Formal Notice until the breach is
cured.
Section 7.2 TERMINATION OF DISTRIBUTOR
Distributor expressly recognizes the valid business need for, and hereby agrees
to, the termination provisions set forth below. Further, Distributor agrees
that it shall not be entitled to payment or compensation of any kind upon
termination of this Agreement under the provisions of Section 7.3 for: (1)
Distributor's prior efforts in promoting or creating goodwill for the Products
and/or for Nortel; (2) any of Distributor's costs incurred in the performance
of this Agreement; (3) any of Distributor's costs incurred because of the
termination; and (4) any loss of profit and/or potential profit caused by
termination.
Section 7.3 TERMINATION FOR STATED CAUSES
(a) Either party may unilaterally terminate this Agreement,
immediately but with Formal Notice to the other party, in the
event that the other party: (1) becomes insolvent or makes a
general assignment for the benefit
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of creditors; or (2) admits, in writing, its inability to pay
debts as they come due; or (3) has a trustee or receiver
appointed by any court with respect to it or any substantial
part of its assets; or (4) has bona fide action taken by or
against it under bankruptcy or insolvency laws; or (5)
transfers or assigns, or attempts to transfer or assign any of
its rights under this Agreement without obtaining the prior
written consent of the other party; or (6) except as expressly
authorized in this Agreement, delegates or attempts to
delegate any of its duties under this Agreement; or (7)
causes, agrees to, or suffers a Significant Ownership Change;
or (8) grants or makes, or attempts to grant or make, any
illegal or improper consideration or payment, including,
without limitation thereto, any bribe, inappropriate
commission, "pay-off", "kick-back" or payment of similar
nature in conjunction with the Distribution of any Product
under this Agreement; or (9) accepts, receives, or solicits
any illegal or improper consideration or payment, including,
without limitation thereto, any bribe, inappropriate
commission, "pay-off", "kick-back" or payment of similar
nature in conjunction with the Distribution of any Product
under this Agreement; or (10) makes payment of any fees for
services which are not actually rendered or pays any fees in
excess of the fair value of any services rendered, in
conjunction with the Distribution of any Product under this
Agreement. Any party becoming aware of evidence tending to
indicate the possible occurrence of any of the events
described in Section 7.3(a)(1) through Section 7.3(a)(10), and
involving its own employees or the employees of the other
party, shall cause its attorneys to notify the other party's
attorneys of such evidence, and, if appropriate, to request
that the other party's attorneys conduct and/or cooperate in
an investigation of the evidence in anticipation of
litigation. No such notification shall be deemed an admission
of the occurrence of any such event or of any possible
complicity therein. Nortel's rights with respect to situations
as provided above may be exercised, at Nortel's option, to
terminate some contractual provisions without terminating
others.
(b) Certain possible failures of Distributor to abide by the terms
of this Agreement are of sufficient importance to Nortel that
Nortel wishes to have the right to terminate this Agreement,
in whole or part, or portions thereof relating to specific
Product authorizations, or otherwise extend this Agreement
beyond the expiration of the Term, in any such case without
regard to an inquiry as to whether such failure might be
considered by a court as a material breach of the Agreement as
a whole. Accordingly, occurrence of any of the following
possible failures of Distributor to comply with this Agreement
shall afford Nortel the complete and unrestricted right to
declare a breach and default in accordance withSection 7.1,
without regard to the materiality requirement ofSection 7.1,
and to thereafter terminate this Agreement, and any subsequent
renewal agreement which may have been offered underSection
1.3, for breach, or to refuse to renew or otherwise extend
this Agreement beyond the expiration of the Term: (1) failure
to comply with the requirements ofSection 2.1.1: (2) failure
to meet, within the Territory, the Minimum Distribution Level
during any calendar year; (3) failure to comply with the
requirements ofSection 2.1.6: (4) failure to comply with the
requirements ofSection 4.3 (including all subsections
thereof).
(c) The enumerations of failures presumed material for purposes of
termination which are contained in Section 7.3(b) shall not be
deemed to exclude the possibility that other failures not
enumerated may be found to be material for purposes of
termination and/or for any other purpose. Invocation or
admission of any of the above failures shall not be deemed an
admission of materialtiy for any other purpose and in
particular for purposes of adjudication of any claim damages.
Section 7.4 SUPPORT OF DISTRIBUTOR AFTER TERMINATION
Nortel will not provide any post termination support to a Distributor if this
Agreement is terminated by Nortel in accordance with the provisions of Section
7.3. In the event of a termination of this Agreement by Distributor pursuant to
Section 7.1, or in the event of expiration of the Term of this Agreement, Nortel
will provide the Product specific level of support specified in the Product
Catalog.
Section 7.5 FORCE MAJEURE
Neither party shall be responsible for delays or failures in performance of this
Agreement resulting from: (1) acts or occurrences beyond the reasonable control
of such party (including, without limitation thereto, fire, explosion, power
failure, lightning, severe weather, acts of God, war, revolution, civil
commotion, infection of Products or tools by a software virus, any law, order,
regulation, ordinance, or requirement of any government or legal body (or any
representative of any such government or legal body)); or (2) labor unrest
(including, without limitation thereto, strikes, slowdowns, picket-lines, and
boycotts whether primary or secondary, and without regard to whether such labor
unrest could have been settled by acceding to the demands of a labor
organization). In such event, the party whose performance is directly affected
by any such
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circumstances shall be excused from such performance on a day-for-day basis to
the extent of the interference. If such excuse of the performance of the
directly affected party shall prevent related performance by the other party,
then the performance of the other party shall also be excused on a day-for-day
basis to the extent of the indirect interference. In the event that any such
event of force majeure shall continue for more than thirty days, then the
parties shall enter into good faith negotiations directed toward a mutually
acceptable resolution of outstanding obligations. If the event of force majeure
shall continue for more than sixty days, then any order by Distributor may be
considered terminated without any penalty to Distributor or Nortel.
ARTICLE EIGHT
GENERAL TERMS AND CONDITIONS
Section 8.1 LIMITATION OF LIABILITIES
NEITHER NORTEL NOR DISTRIBUTOR SHALL BE LIABLE TO THE OTHER FOR ANY
SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY NATURE OR FOR ANY
REASON, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, NOR, EXCEPT
TO THE EXTENT EXPLICITLY PROVIDED FOR HEREIN, FOR ANY CLAIMS AGAINST
THE OTHER BY ANY THIRD PARTY. DISTRIBUTOR HEREBY WAIVES ANY CLAIMS IT
MAY ACQUIRE BY VIRTUE OF THIS AGREEMENT AGAINST NORTEL'S SOFTWARE
SUPPLIERS FOR ANY SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES
WHATSOEVER, ARISING OUT OF THE LICENSING OF SOFTWARE FOR THE
DISTRIBUTOR'S OWN USE OR DISTRIBUTION OF SOFTWARE BY DISTRIBUTOR AS
AGENT FOR NORTEL OF LICENSES TO END-USERS PURSUANT TO THIS AGREEMENT.
Section 8.2 GENERAL INDEMNITIES
(a) In addition to those indemnities set forth in Section 2.1.8(e)(11),
Section 3.7, and Section 4.3, each party shall indemnify the other with
respect to any third party claims, as follows:
(1) claims, suits, or proceedings threatened or brought alleging
bodily injury, including death, or damage to tangible property, to
the extent any damage is caused by the negligence or willful
misconduct of the indemnifying party (except that in all cases
Distributor shall indemnify Nortel with respect to any claim that
the installation or placement of a telephone instrument, console or
other device intended to be used by an individual user, including
any wires connected to it, caused the injury or damage);
(2) all other third party claims, suits, or proceedings threatened
or brought alleging damages, losses, costs or expenses arising out
of or related to the failure of the party against whom
indemnification is sought to properly and fully perform any
affirmative obligation undertaken by it in this Agreement (so long
as no corresponding and concurrent duty to perform the same
obligation, at the time of the act or omission complained of, by the
party seeking indemnification also exists in this Agreement), except
that with respect to intellectual property infringement claims,
Nortel's sole obligations shall be as defined in Section 8.3 below.
(b) The Receiving Party shall indemnify the Disclosing Party against
measurable economic loss proximately caused by the breach of the
provisions of Article Five of this Agreement by the Receiving Party.
Section 8.3 INTELLECTUAL PROPERTY INFRINGEMENT
(a) The following terms shall have the definitions indicated herein for the
purposes of this Section 8.3 only:
"Software" shall mean any set of one or more Nortel proprietary
computer programs which is composed of routines, subroutines, concepts,
processes, algorithms, formulas, ideas, know how, model, generated
code, source code, and/or related documentation, some or all of which
are trade secrets, severally owned by Nortel. The term Software shall
also include any corrections, patches, updates or revisions to Software
originally Distributed.
"Hardware" shall mean only Nortel proprietary physical portions of
Nortel Product, including memory circuits and media upon which Software
and/or Licensed Software may be delivered, but excluding Software and
Licensed Software.
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"Licensed Software" shall mean any set of one or more third party-owned computer
programs which are composed of routines, subroutines, concepts, processes,
algorithms, formulas, ideas, know how, model, generated code, source code,
and/or related documentation, some or all of which are trade secrets. The term
Licensed Software shall also include any corrections, patches, updates or
revisions to Licensed Software originally Distributed.
"Third Party Hardware" shall mean only third party owned physical portions of a
Product, including memory circuits and media upon which Software and/or
Licensed Software may be delivered, but excluding Software and Licensed
Software in which Nortel has Distribution rights.
(b) Nortel will indemnify and/or defend, as the case may be, claims of
infringement of intellectual property rights of third parties for only
those Products and Product components specifically identified as being so
covered in the Product Catalog. If a Product or Product component is
identified in the Product Catalog as being covered by a duty to indemnify
and/or defend, the following shall apply:
(1) For Software and Hardware: Nortel will indemnify and defend, at its
own expense, Distributor from and against any action brought against
Distributor by a third party, to the extent that such action is based
on a claim that the normal manufacture, use or sale of such Software
and/or Hardware infringes any United States patent, trademark or
copyright or misappropriates the trade secret rights of that third
party.
(2) For Licensed Software and Third Party Hardware: Nortel will defend, at
its own expense, any action brought against Distributor by a third
party, to the extent that such action is based on a claim that the
normal manufacture, use or sale of such Licensed Software and/or Third
Party Hardware infringes any United States copyright or
misappropriates the trade secret rights of that third party.
(c) The conditions precedent to the duties set forth herein shall be that: (1)
Distributor, in the applicable instance, shall have complied with the
requirements of this Agreement with respect to retention of, transfer of,
and/or license of the right to use Software and/or Licensed Software; (2)
Distributor shall have given Nortel Formal Notice of such claim promptly on
receipt of same; (3) such claim does not arise from modifications to
Hardware, Software, Licensed Software or Third Party Hardware not
authorized in writing by Nortel; (4) such claim does not arise from use or
combinations of Hardware, Software, Licensed Software or Third Party
Hardware with other products not provided by Nortel wherein the
infringement arises from such combination and such use or combination is
not authorized in writing by Nortel; (5) such claim does not arise from
Hardware, Software, Licensed Software or Third Party Hardware supplied in
accordance with any design or special instructions provided by Distributor
on its behalf or on behalf of an End User; and (6) should Hardware,
Software, Licensed Software or Third Party Hardware become, or in Nortel's
sole opinion, be likely to become, the subject of such claim of
infringement, Distributor shall permit Nortel, at Nortel's option and
expense, either to (i) procure the right to continue using such Hardware,
Software, Licensed Software or Third Party Hardware; (ii) replace or modify
(at Nortel's option) such Hardware, Software, Licensed Software or Third
Party Hardware while maintaining the functionality of such Hardware,
Software, Licensed Software or Third Party Hardware; or (iii) refund to
Distributor the purchase price or fee paid less a reasonable amount for
use, damage and obsolescence, whereupon Distributor shall return to Nortel
all Hardware, Software, Licensed Software or Third Party Hardware for which
such amount is paid by Nortel.
(d) In no event shall Nortel's portion of such defense costs under Section
8.3(b)(2) exceed the aggregate purchase price or fee paid by Distributor
for the alleged infringing Licensed Software or Third Party Hardware.
Section 8.4 ENFORCEMENT OF INDEMNITIES
Section 8.4.1 NOTICE OF CLAIMS
(a) A party choosing to invoke an indemnity in a third
party claim situation shall provide Formal Notice to
the other party of the existence and basic nature of
the claim, suit, or proceeding against the invoking
party.
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(b) The party seeking indemnification must immediately turn
over full defense and settlement of the claim to the
party against whom indemnification is sought, and
cooperate fully with such party. The party against whom
indemnification is sought will not be liable for
indemnification of amounts settled or compromised
without its consent, or for judgments, decrees or
orders issued by a court or administrative agency of
competent jurisdiction to the extent it was not given
full defense of the matter.
ARTICLE NINE
MISCELLANEOUS
Section 9.1 ASSIGNMENT AND DELEGATION
Distributor may not assign any rights or delegate any duties arising out of this
Agreement without the prior written consent of Nortel. Any such attempted
assignment and/or delegation shall be void.
Section 9.2 NOTICES
Routine correspondence between the parties to this Agreement shall be in writing
and sent by appropriate mail, telegram, courier service, electronic communicator
or electronic mail system to the addresses specified in this Agreement. Formal
Notice shall be given whenever required by a provision of this Agreement. Formal
Notice shall be in writing, sent by certified or registered U.S. mail, or
express courier service, with postage prepaid, return receipt requested, to the
addresses listed below. Formal Notice shall be deemed delivered as of midnight,
Central Time, on the date mailed. In addition, any notice to be given may also
be given by facsimile or other electronic format provided that the party giving
the notice obtains acknowledgment by facsimile or other electronic format that
such notice has been received by the party to be notified. Notice given in this
manner shall be effective upon delivery of the Formal Notice.
Section 9.2.1 ADDRESS FOR NORTEL
MAILING ADDRESS STREET ADDRESS
NORTHERN TELECOM INC. NORTHERN TELECOM INC.
Distribution Management Distribution Management
P.O. Box 833858 2221 Lakeside Boulevard
Richardson, TX 75083-3858 Richardson, TX 75082-4399
Section 9.2.2 ADDRESS FOR DISTRIBUTOR
MAILING ADDRESS STREET ADDRESS
WilTel Communications, L.L.C. WilTel Communications, L.L.C.
2400 Camino Ramon, Suite 100 2400 Camino Ramon, Suite 100
San Ramon, CA 94583 San Ramon, CA 94583
Attn: Frank Lipari Attn: Frank Lipari
Title: Vice President of Title: Vice President of Marketing
Marketing
Section 9.3 SURVIVAL OF SOFTWARE LICENSES AND SUBLICENSES
If Distributor was a Distributor under a prior version (Version 2.00, 2.10,
3.00, 3.10) of this Agreement, and pursuant to that version granted licenses or
sublicenses of Software in conformance with the terms and conditions then in
effect, such terms and conditions of the prior version of this Agreement with
respect to such licensing or sublicensing shall survive and remain in full force
and effect for all licenses or sublicenses duly made and executed. However, all
Software replacements and/or upgrades shall be governed by the Nortel Software
License in Annex D to this Agreement and the other license terms of this
Agreement.
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Section 9.4 ANNEXES INCORPORATED
The following Annexes to this Agreement are incorporated herein by this
reference as if they had been fully set out within the main body. Each Nortel
Product which may be authorized for Distribution pursuant to this Agreement is
so authorized only pursuant to a duly executed Annex B.
Annex A: Territory
Annex B: Authorized Products
Annex C: Affiliates of Distributor
Annex D: Software License
Section 9.5 GOVERNING LAW
This Agreement shall be construed under, and enforced in accordance with, the
laws of the State of Texas (with the exception of such laws governing conflict
of law questions).
Section 9.6 PRINCIPLES OF INTERPRETATION
Section 9.6.1 SEVERABILITY
If any provision of this Agreement shall be found by a court of
competent jurisdiction to be invalid or unenforceable, such finding
shall not affect the validity and/or enforceability of the Agreement
as a whole or of any other part of the Agreement. In such case, the
parties will substitute a valid provision which most closely
achieves the intent of the invalid provision, and this Agreement
shall be construed and enforced as if it did not contain the invalid
and/or unenforceable provision.
Section 9.6.2 HEADINGS FOR CONVENIENCE ONLY
The Article and Section headings contained in this Agreement are
inserted for convenience only and shall not be considered to affect
the meaning of the provisions of the body of the Agreement.
Section 9.6.3 WAIVERS OR AMENDMENTS
No failure to enforce any provision, assert any right, or insist on
performance of any obligation under this Agreement, in any instance,
shall be deemed a waiver of the ability to enforce such provision,
assert such right, or insist on the performance of such obligation
in the future. No course of dealing, or informal communication of
any kind, shall be deemed to amend this Agreement. Except as stated
herein with respect to the Product Reference Guide, etc., this
Agreement may be amended only by a formal written amendment signed
by a duly authorized representative of both parties, and any oral
amendment shall be deemed void.
Section 9.6.4 SURVIVAL OF OBLIGATIONS
The provisions of any section of this Agreement which, by their
sense and context, appear to be intended to survive the termination
or expiration of this Agreement shall so survive.
Section 9.7 PRODUCT REFERENCE GUIDE AND PRODUCT CATALOG
The Product Reference Guide and the Product Catalog are both documents which are
intended to be modified and changed from time to time. References in this
Agreement to prices, descriptions, specifications, warranties, programs, or
other terms and conditions contained in either such document shall always be
deemed to apply to that version of the product Reference Guide or the Product
Catalog which is in effect on the date Nortel accepts an order for a Product or
service from the Distributor or Affiliate with respect to matters related to
that specific Product or service order. Certain programs may have defined
periods of effectiveness or applicability or may be terminated with a notice to
Distributor pursuant to their terms as defined in the document. Nortel reserves
the right to amend the Product Reference Guide and Product Catalog at any time
and from time to time.
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Section 9.8 ENTIRE AGREEMENT
This Agreement, together with the Product Reference Guide and other written
notifications from Nortel, shall constitute the entire Agreement between the
parties with respect to the contemplated Distribution relationship and
supersedes all previous negotiations, proposals, commitments, writings,
advertisements, publications, agreements and understandings of any nature
whatsoever related to the contemplated Distribution relationship. Except for
forms included in or referenced in this Agreement, provisions on either party's
forms used in conjunction with transactions pursuant to this Agreement shall not
be deemed to modify or add to this Agreement or to govern the transactions in
which used.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective duly authorized representatives.
NORTHERN TELECOM INC. WILTEL COMMUNICATIONS, L.L.C.
By: /s/ RADFORD L. KELLY By: /s/ GARRY K. MCGUIRE
--------------------------------------- --------------------------------
Name: Radford L. Kelly Name: Garry K. McGuire
------------------------------------ ------------------------------
Title: AVP, Distribution & Contracts Mgmt. Title: President & COO
----------------------------------- -----------------------------
Date: October 20, 1997 Date: November 3, 1997
----------------------------------- ------------------------------
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ANNEX A
TERRITORY
TO BE COMPLETED FOR DISTRIBUTOR AND EACH AFFILIATE SEPARATELY WHENEVER THE
TERRITORY OF EACH AFFILIATE IS NOT IDENTICAL TO DISTRIBUTOR'S TERRITORY. TO BE
COMPLETED FOR EACH PRODUCT SEPARATELY WHENEVER THE TERRITORY FOR ALL PRODUCTS
CARRIED IS NOT IDENTICAL. SEE ANNEX B FOR AUTHORIZED PRODUCTS.
Name of Distributor: WilTel Communications, L.L.C.
DEFINITION OF AUTHORIZED TERRITORY SHALL BE DEFINED AS FOLLOWS:
For M1, Meridian Safe for M1, TSAPI, Open IVR, VISIT Messenger,
SL-100, Meridian Safe for SL-100, Residential/Business Terminals,
Norstar, VISIT Voice/Video, National ISDN, COMPANION, Galileo,
911 CTI and MBA:
The fifty states of the United States and the District of Columbia.
For Meridian Digital Centrex, the Authorized Territory shall be
defined as that area in which WilTel Communications, L.L.C. or
its authorized Affiliates provide dial tone to the End User: (i)
through a central office owned and operated by WilTel
Communications, L.L.C., or (ii) as an agent for a local exchange
provider, or (iii) pursuant to interconnection agreements under
the Communications Act, as amended by the Telecommunications Act
of 1996.
Any failure to achieve the Minimum Distribution Level for a given
calendar year shall entitle Nortel to invoke its right to
terminate the Distributorship Agreement pursuant to the terms of
Section 2.1.2.
THIS ANNEX IS EFFECTIVE AS OF JANUARY 1, 1998
----------------------------
NORTHERN TELECOM INC. WILTEL COMMUNICATIONS, L.L.C.
By: /s/ DAVID E. CALKINS By: /s/ GARRY K. MCGUIRE
----------------------------------- --------------------------------
Name: David E. Calkins Name: Garry K. McGuire
--------------------------------- ------------------------------
Title: Dir. Market Channell Development Title: President & COO
& Distribution Contracts -----------------------------
--------------------------------
Date: October 20, 1997 Date: November 3, 1997
--------------------------------- ------------------------------
Annex A
Page 1
<PAGE> 32
ANNEX B
AUTHORIZED PRODUCT(S)
Name of Distributor: WilTel Communications, L.L.C.
DEFINITION OF AUTHORIZED PRODUCT(S) SHALL BE DEFINED AS FOLLOWS:
Each Nortel Product which may be authorized for Distribution pursuant
to this Agreement is part of a Nortel Product Group. The following
matrix identifies the Products which have been authorized by Nortel
for Distribution, the applicable Product Group for the authorized
Product, the date each Product was authorized for Distribution, the
applicable Software License, Sales Agent authorization and the
applicable Product Catalog.
<TABLE>
<CAPTION>
PRODUCT DATE SOFTWARE SALES
PRODUCT GROUP AUTHORIZED LICENSE AGENT PRODUCT CATALOG
- ---------------------------- ------- ---------- ------------------ ------ -----------------------------------
<S> <C> <C> <C> <C> <C>
Residential/Business A 01/01/98 Not Required Yes Residential/Business Sets
Terminals
National ISDN A 01/01/98 Not Required Yes National ISDN
Meridian Digital Centrex B 01/01/98 Not Required Yes Meridian Business Sets
Meridian 1 (M1) C 01/01/98 Nortel's SW License No Meridian 1
Norstar C 01/01/98 Nortel's SW License Yes Norstar
COMPANION C 01/01/98 Nortel's SW License No COMPANION
Galileo C 01/01/98 Nortel's SW License No Galileo
Meridian Safe for M1 D 01/01/98 Nortel's SW License No Meridian 1
and Original Section : System Administration
Manufacturer's Products (Meridian Safe)
SW License
NetWare Telephony D 01/01/98 Nortel's SW License No Meridian 1
Services (TSAPI) Section : System Administration
Products-NetWare Telephony
Services (TSAPI)
Open IVR D 01/01/98 Nortel's SW License No Meridian 1
Section : Message Processing
Applications (Open IVR)
VISIT Messenger D 01/01/98 Nortel's SW License No Meridian 1
Section : Message Processing Applications
(VISIT Messenger)
VISIT Voice/Video D 01/01/98 Nortel's SW License No VISIT Multimedia Applications
</TABLE>
Annex B
Page 1 of 2
<PAGE> 33
ANNEX B
AUTHORIZED PRODUCT(S)
(CONTINUED)
<TABLE>
<CAPTION>
SALES
PRODUCT DATE SOFTWARE SALES AGENT PRODUCT CATALOG
- -------------------- ------- ---------- --------------------- -------- -----------------------
<S> <C> <C> <C> <C> <C>
CC MIS D Nortel's SW License No SL-100
Section : CC MIS
911 CTI D 01/01/98 Nortel's SW License No 911 Computer Telephony
Integrated Solutions
Multimedia Business D 01/01/98 Nortel's SW License No Multimedia Business
Applications (MBA) and Original Applications
Manufacturer's SW
License
Meridian Safe for SL-100 E 01/01/98 Nortel's SW License No SL-100
and Original
Manufacturer's SW
License
SL-100 E 1/01/98 Nortel's SW License No SL-100
</TABLE>
NORTHERN TELECOM INC. WILTEL COMMUNICATIONS, L.L.C.
By: /s/ RADFORD L. KELLY By: /s/ GARRY K. MCGUIRE
----------------------------------- --------------------------------
Name: Radford L. Kelly Name: Garry K. McGuire
--------------------------------- ------------------------------
Title: AVP, Distribution & Contract Title: President & Coo
Mgmt. -----------------------------
--------------------------------
Date: October 20, 1997 Date: November 3, 1997
--------------------------------- ------------------------------
Annex B
Page 2 of 2
<PAGE> 34
ANNEX C
AFFILIATES OF DISTRIBUTOR
Name of Distributor: WilTel Communications, L.L.C.
LIST OF AUTHORIZED AFFILIATES:
None.
This Annex is effective as of __________________.
<TABLE>
<CAPTION>
NORTHERN TELECOM INC. DISTRIBUTOR
<S> <C>
By: By:
--------------------- -----------------------
Name: Name:
--------------------- -----------------------
Title: Title:
--------------------- -----------------------
Date: Date:
--------------------- -----------------------
</TABLE>
<PAGE> 35
ANNEX D
TO DISTRIBUTION AGREEMENT 4.01
SOFTWARE LICENSE
NORTHERN TELECOM INC. ("NORTEL") TELECOMMUNICATIONS PRODUCTS
- --------------------------------------------------------------------------------
THIS LEGAL DOCUMENT IS A LICENSE AGREEMENT ("License") BETWEEN YOU, THE END-USER
("CUSTOMER"), AND NORTEL. BY ACQUIRING A SYSTEM, AN UPGRADE TO AN EXISTING
SYSTEM OR SOFTWARE PRODUCTS FROM NORTEL OR A NORTEL DISTRIBUTOR, YOU, THE
CUSTOMER, AGREE TO BE BOUND BY THE TERMS OF THIS LICENSE.
- --------------------------------------------------------------------------------
Subject to the terms hereinafter set forth, NORTEL grants to CUSTOMER and/or its
representatives, with a "need to know", a personal, non-exclusive license (1) to
use the licensed software, proprietary to NORTEL or its suppliers and (2) to use
the associated documentation. CUSTOMER is granted no title or ownership rights,
in or to the licensed software, in whole or in part, and CUSTOMER acknowledges
that title to and all copyrights, patents, trade secrets and/or any other
intellectual property rights to and in all such licensed software and associated
documentation are and shall remain the property of NORTEL and/or NORTEL's
suppliers. The right to use licensed software may be restricted by a measure of
usage of applications based upon number of lines, number of ports , number of
terminal numbers assigned, number of users, or some similar measure. Expansion
beyond the specified usage level may require payment of an incremental charge or
another license fee.
NORTEL considers the licensed software to contain "trade secrets" of NORTEL
and/or its suppliers. Such "trade secrets" include, without limitation thereto,
the specific design, structure and logic of individual licensed software
programs, their interactions with other portions of licensed software, both
internal and external, and the programming techniques employed therein. In order
to maintain the "trade secret" status of the information contained within the
licensed software, the licensed software is being delivered to CUSTOMER in
object code form only.
NORTEL or any of its suppliers holding any intellectual property rights in any
licensed software, and/or any third party owning any intellectual property
rights in software from which the licensed software was derived, are intended
third party beneficiaries of this License. All grants of rights to use
intellectual property intended to be accomplished by this License are explicitly
stated. No other grants of such rights shall be inferred or shall arise by
implication.
CUSTOMER warrants to NORTEL that CUSTOMER is not purchasing the rights granted
by this License in anticipation of reselling those rights.
CUSTOMER shall:
o Hold the licensed software in confidence for the benefit of NORTEL and/or
NORTEL's suppliers using no less a degree of care than it uses to protect
its own most confidential and valuable information; and
o Keep a current record of the location of each copy of licensed software
made by it; and
o Install and use each copy of licensed software only on a single CPU at a
time (for this purpose, single CPU shall include systems with single
processing units); and
o Affix to each copy of licensed software made by it, in the same form and
location, a reproduction of the copyright notices, trademarks and all other
proprietary legends and/or logos of NORTEL and/or NORTEL's suppliers,
appearing on the original copy of such licensed software delivered to
CUSTOMER; and retain the same without alteration on all original copies;
and
o Issue instructions to each of its authorized employees, agents and/or
representatives to whom licensed software is disclosed, advising them of
the confidential nature of such licensed software and to provide them with
a summary of the requirements of this License: and
o Return the licensed software and all copies through an Authorized
Distributor to NORTEL at such time as CUSTOMER chooses to permanently cease
using it.
CUSTOMER shall not:
o Use licensed software (i) for any purpose other than CUSTOMER's own
internal business purposes and (ii) other than as provided by this License;
or
o Allow anyone other than CUSTOMER's employees, agents and/or representatives
with a "need to know" to have physical access to licensed software; or
o Make any copies of licensed software except such limited number of object
code copies in machine readable form only, as may be reasonably necessary
for execution or archival purposes only; or
o Make any modifications, enhancements, adaptations, or translations to or of
licensed software, except as may result from those CUSTOMER interactions
with the licensed software associated with normal use and explained in the
associated documentation; or
o Attempt to reverse engineer, dissemble, reverse translate, decompile, or in
any other manner decode licensed softwares in order to derive the source
code form or for any other reason; or
o Make full or partial copies of any documentation or other similar printed
or machine-readable matter provided with licensed software unless the same
has been supplied in a form by NORTEL intended for periodic reproduction of
partial copies; or
o Export or re-export licensed software an/or associated documentation from
the fifty states of the United States and the District of Columbia.
o NOTE: Notwithstanding the above restrictions, if CUSTOMER has licensed the
licensed software under a "site license" option as set forth in CUSTOMER's
purchase agreement, CUSTOMER is authorized to make a limited number of
copies of the licensed software and documentation to support additional
users as specified in CUSTOMER's purchase agreement.
CUSTOMER may assign collectively its rights under this License to any subsequent
owner of the associated hardware, but not otherwise, subject to the payment of
the then current license fee for new users, if any. No such assignment shall be
valid until CUSTOMER has delegated all of its obligations under this License to
the assignee; and (2) has obtained from the assignee an unconditional written
assumption of all such obligations; and (3) has provided Nortel a copy of such
assignment, delegation and assumption; and (4) has transferred physical
possession of all licensed software and all associated documentation to the
assignee and destroyed all archival copies. Except as provided, neither this
License nor any rights acquired by CUSTOMER through this License are assignable.
Any attempted assignment of rights and/or transfer
Annex D - Page 1
<PAGE> 36
of licensed software not specifically allowed shall be void and conclusively
presumed a material breach of this License.
If NORTEL (i) claims a material breach of this License, and (ii) provides
written notice of such claimed material breach to CUSTOMER and (iii) observes
that such claimed material breach remains uncorrected and/or unmitigated more
than thirty (30) days following CUSTOMER's receipt of written notice specifying
in reasonable detail the nature of the claimed material breach, then CUSTOMER
acknowledges that this License may be immediately terminated by NORTEL and
CUSTOMER further acknowledges that any such termination shall be without
prejudice to any other rights and remedies that NORTEL may have at law or in
equity.
EXPRESS LIMITED WARRANTIES FOR ANY ITEM OF LICENSED SOFTWARE, IF ANY, WILL BE
SOLELY THOSE GRANTED DIRECTLY TO CUSTOMER BY DISTRIBUTOR. OTHER THAN AS SET
FORTH THEREIN, THIS LICENSE DOES NOT CONFER ANY WARRANTY TO CUSTOMER FROM OR BY
NORTEL.
THE LICENSED SOFTWARE IS PROVIDED BY NORTEL "AS IS" AND WITHOUT WARRANTY OF ANY
KIND OR NATURE, WRITTEN OR ORAL, EXPRESS OR IMPLIED, INCLUDING (WITHOUT
LIMITATION) THE IMPLIED WARRANTIES OF MERCHANTABILITY AND OF FITNESS FOR A
PARTICULAR PURPOSE.
THIS LIMITATION OF WARRANTIES WAS A MATERIAL FACTOR IN THE ESTABLISHMENT OF THE
LICENSE FEE CHARGED FOR EACH SPECIFIC ITEM OF SOFTWARE LICENSED.
IN NO EVENT WILL NORTEL AND/OR NORTEL'S SUPPLIERS AND THEIR DIRECTORS, OFFICERS,
EMPLOYEES OR AGENTS BE LIABLE TO OR THROUGH CUSTOMER FOR INCIDENTAL, INDIRECT,
SPECIAL, CONSEQUENTIAL, PUNITIVE, OR EXEMPLARY DAMAGES OF ANY KIND, INCLUDING
LOST PROFITS, LOSS OF BUSINESS OR BUSINESS INFORMATION, BUSINESS INTERRUPTION,
OR OTHER ECONOMIC DAMAGE, AND FURTHER INCLUDING INJURY TO PROPERTY, AS A RESULT
OF USE OR INABILITY TO USE THE LICENSED SOFTWARE OR BREACH OF ANY WARRANTY OR
OTHER TERM OF THIS LICENSE, REGARDLESS OF WHETHER NORTEL AND/OR NORTEL'S
SUPPLIERS WERE ADVISED, HAD OTHER REASON TO KNOW, OR IN FACT KNEW OF THE
POSSIBILITY THEREOF.
THE RIGHTS AND OBLIGATIONS ARISING UNDER THIS LICENSE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF TEXAS.
- -------------------------------------------------------------------------------
CUSTOMER HEREBY AGREES TO ADHERE TO THE TERMS AND
CONDITIONS OF THIS SOFTWARE LICENSE AGREEMENT:
CUSTOMER SIGNATURE:
------------------------------------------------------------
PRINTED NAME: DATE:
-------------------------------------- --------------------
COMPANY NAME: TELEPHONE NUMBER:
------------------------------ ------------------
DISTRIBUTOR NAME:
--------------------------------------------------------------
- -------------------------------------------------------------------------------
RADFORD L. KELLY
AVP, CONTRACTS AND MARKET CHANNEL MANAGEMENT
NORTHERN TELECOM INC.
Annex D - Page 2
<PAGE> 1
EXHIBIT 10.32
LIMITED LIABILITY COMPANY AGREEMENT
OF
WILTEL COMMUNICATIONS, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
EXECUTION COPY
-1-
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Construction and Definitions...........................................................................2
1.1 Construction................................................................................2
1.2 References..................................................................................2
1.3 Headings....................................................................................2
1.4 Definitions.................................................................................2
1.5 Accounting Terms...........................................................................14
ARTICLE II
Organization..........................................................................................14
2.1 Formation..................................................................................14
2.2 Qualification in Other Jurisdictions.......................................................14
ARTICLE III
Name..................................................................................................14
ARTICLE IV
Purpose and Powers....................................................................................15
4.1 Purposes...................................................................................15
4.2 Powers of the Company......................................................................15
ARTICLE V
Registered Office; Registered Agent;Principal Office; Other Offices...................................15
ARTICLE VI
Term..................................................................................................16
ARTICLE VII
No State Law Partnership..............................................................................16
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VIII
Capital Contributions; Capital Accounts...............................................................16
8.1 Capital Accounts...........................................................................16
8.2 Capital Contributions......................................................................17
8.3 Limitation on Liability of Members.........................................................17
8.4 Adjustment of Capital Accounts.............................................................18
8.5 Return of Contributions....................................................................18
8.6 Additional Capital Contributions...........................................................18
ARTICLE IX
Distributions; Repayment of Member Loans..............................................................19
9.1 Distributions..............................................................................19
9.2 No Interest on Unwithdrawn Share...........................................................20
9.3 Withholding................................................................................20
9.4 Limitations on Distributions...............................................................20
9.5 Repayment of Member Loans..................................................................20
ARTICLE X
Allocations of Income, Gains, Losses, Deductions and Credits..........................................21
10.1 General....................................................................................21
10.2 Allocations................................................................................22
10.3 Allocations for Income Tax Purposes........................................................24
10.4 Allocations for Financial Reporting........................................................24
10.5 Tax Matters Partner........................................................................24
10.6 Tax Elections..............................................................................26
ARTICLE XI
Books of Account, Records and Financial Information...................................................26
11.1 Books and Records..........................................................................26
11.2 Financial Information......................................................................26
11.3 1997 Provisional Operating Budget..........................................................27
ARTICLE XII
Fiscal Year...........................................................................................27
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE XIII
Company Funds.........................................................................................27
ARTICLE XIV
Meetings of Members...................................................................................28
14.1 Annual Meeting.............................................................................28
14.2 Special Meetings...........................................................................28
14.3 Notice of Meeting..........................................................................28
14.4 Waiver of Notice...........................................................................29
14.5 Quorum.....................................................................................29
14.6 Voting.....................................................................................29
14.7 Proxies....................................................................................29
14.8 Action Without a Meeting...................................................................29
14.9 Member's Power.............................................................................29
14.10 Contracts. ................................................................................30
ARTICLE XV
Management; Management Committee......................................................................30
15.1 Management by Management Committee.........................................................30
15.2 Organization of Management Committee.......................................................31
15.3 Third Parties Dealing with the Company.....................................................31
15.4 Duties and Powers of Management Committee..................................................32
15.5 Duties of Representatives..................................................................32
15.6 Qualification of Representatives...........................................................33
15.7 Action by Management Committee.............................................................33
15.8 Meetings of the Management Committee.......................................................33
15.9 Quorum.....................................................................................33
15.10 Technology, Human Resources and Audit Committees...........................................34
15.11 Other Committees...........................................................................34
15.12 Supermajority Approval by the Representatives..............................................34
15.13 Affiliated Transactions....................................................................37
ARTICLE XVI
Officers..............................................................................................38
16.1 Appointment and Tenure.....................................................................38
16.2 Removal....................................................................................38
16.3 Chairman of the Management Committee.......................................................38
16.4 Chief Executive Officer....................................................................39
16.5 President..................................................................................39
16.6 Chief Financial Officer....................................................................40
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
16.7 Vice Presidents............................................................................40
16.8 Secretary; Assistant Secretaries...........................................................40
16.9 Treasurer; Assistant Treasurers............................................................40
16.10 Vacancies..................................................................................41
ARTICLE XVII
Liability and Exculpation.............................................................................41
17.1 Liability..................................................................................41
17.2 Exculpation................................................................................41
17.3 Duties and Liabilities of Covered Persons..................................................42
ARTICLE XVIII
Indemnification.......................................................................................43
18.1 Power to Indemnify in Actions, Suits or Proceedings Other Than
Those by or in the Right of the Company....................................................43
18.2 Power to Indemnify in Actions, Suits or Proceedings by or in the Right
of the Company.............................................................................43
18.3 Authorization of Indemnification...........................................................44
18.4 Good Faith Defined.........................................................................44
18.5 Indemnification by a Court.................................................................44
18.6 Expenses Payable in Advance................................................................45
18.7 Nonexclusivity of Indemnification and Advancement of Expenses..............................45
18.8 Insurance..................................................................................45
18.9 Meaning of "Company" and "Other Enterprises" for the Purposes of
Article XVIII..............................................................................45
18.10 Survival of Indemnification and Advancement of Expenses....................................46
ARTICLE XIX
Transfer of Interests by Members......................................................................46
19.1 Restrictions on Transfers..................................................................46
19.2 Prohibitions on Transfer by Williams Member................................................47
19.3 Prohibitions on Transfer by Nortel Member..................................................47
19.4 Purchase and Sale Rights...................................................................49
19.5 Terms of Purchase and Sale.................................................................51
19.6 Right of First Refusal.....................................................................52
19.7 Recognition of Members.....................................................................54
19.8 Prohibited Transfers.......................................................................54
19.9 Admission of Substituted Members...........................................................55
19.10 Compliance with Securities Laws............................................................55
19.11 Representations Regarding Transfers; Legend................................................56
</TABLE>
-iv-
<PAGE> 6
<TABLE>
<S> <C>
19.12 Distributions and Allocations in Respect of Transferred
Membership Interest. ......................................................................57
ARTICLE XX
Distributorship Agreement.............................................................................58
20.1 Company Right of Renewal...................................................................58
20.2 Company Right of Renewal after Put or Call.................................................58
20.3 Company Right to Distribute Products Not Covered
by the Distributorship Agreement...........................................................59
ARTICLE XXI
Additional Members....................................................................................59
ARTICLE XXII
Dissolution...........................................................................................60
22.1 Liquidating Events.........................................................................60
22.2 Judicial Dissolution.......................................................................60
22.3 Continuation of Business...................................................................60
22.4 Covenants Concerning Early Dissolution; Remedies Upon Breach...............................60
22.5 Option to Purchase Membership Interest of Bankrupt Member..................................61
ARTICLE XXIII
Winding Up and Termination of the Company.............................................................61
23.1 Liquidator.................................................................................61
23.2 Liquidation Reserves.......................................................................62
23.3 Liquidating Distributions..................................................................62
23.4 Accounting.................................................................................63
23.5 Recourse to Company Assets.................................................................63
23.6 Cancellation of Certificate................................................................63
ARTICLE XXIV
Notices...............................................................................................64
ARTICLE XXV
Representations, Warranties and Covenants.............................................................65
25.1 Representations and Warranties ............................................................65
25.2 Nondisclosure of Proprietary Information...................................................66
</TABLE>
-v-
<PAGE> 7
<TABLE>
<S> <C>
ARTICLE XXVI
Dispute Resolution....................................................................................66
ARTICLE XXVII
Miscellaneous.........................................................................................66
27.1 No Partition...............................................................................66
27.2 Entire Agreement...........................................................................66
27.3 Governing Law..............................................................................67
27.4 Binding Effect.............................................................................67
27.5 Effect of Invalid Provision................................................................67
27.6 Counterparts...............................................................................67
27.7 Negotiated Transaction.....................................................................67
</TABLE>
-vi-
<PAGE> 8
<TABLE>
<S> <C>
EXHIBITS
Exhibit A Agreed Value of Initial Capital Contributions (Section 1.4)
Exhibit B Nortel Member Merger Agreement (Section 1.4)
Exhibit C Williams Member Merger Agreement (Section 1.4)
Exhibit D Percentage Interests (Section 1.4)
Exhibit E Illustration of Dilution Formula (Section 8.6(a))
Exhibit F 1997 Provisional Operating Budget (Section 11.3)
Exhibit G Representatives and Alternate Representatives (Section 15.2(b))
Exhibit H Functions and Scope of Technology Committee (Section 15.10(b))
Exhibit I Functions and Scope of Human Resources Committee (Section 15.10(c))
Exhibit J Functions and Scope of Audit Committee (Section 15.10(d))
Exhibit K Initial Scope of Business (Section 15.12(a)(ii))
Exhibit L Valuation Methodology (Section 19.3(a) Article XIX)
Exhibit M Registration Procedures for Delcorp Common Stock (Section 19.3(e))
Exhibit N Registration Procedures for Intended Listed Affiliate (Section 19.4(h))
Exhibit O Dispute Resolution Procedures (Article XXVI)
</TABLE>
-vii-
<PAGE> 9
THE MEMBERSHIP INTERESTS REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE. WITHOUT SUCH REGISTRATION, SUCH
MEMBERSHIP INTERESTS MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED EXCEPT UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL
SATISFACTORY TO THE MEMBERS THAT REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER
OR THE SUBMISSION TO THE MEMBERS OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY
TO THE MEMBERS TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION
OF THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS
OR ANY RULE OR REGULATION PROMULGATED THEREUNDER. THE SALE AND TRANSFER OF THE
MEMBERSHIP INTERESTS IS ALSO SUBJECT TO CERTAIN RESTRICTIONS WHICH ARE SET
FORTH IN THIS AGREEMENT.
LIMITED LIABILITY COMPANY AGREEMENT
OF
WILTEL COMMUNICATIONS, LLC,
a Delaware Limited Liability Company
This Limited Liability Company Agreement of WilTel Communications,
LLC, a Delaware limited liability company (the "Company"), dated this 30th day
of April, 1997 and effective as of 12:01 a.m. on April 1, 1997 (as amended or
modified from time to time in accordance with Section 14.9 hereof, this
"Agreement"), is entered into by and between Northern Telecom, Inc. a Delaware
corporation (the "Nortel Member") and Williams Communications Group, Inc., a
Delaware corporation (the "Williams Member").
WHEREAS, the Nortel Member and the Williams Member have formed a
limited liability company under the Delaware Limited Liability Company Act
known as "WilTel Communications, LLC";
WHEREAS, pursuant to an Agreement and Plan of Merger dated as of the
date hereof between Nortel Communications Systems Inc., a Delaware corporation
("NCS"), and the Company, NCS has merged with and into the Company, with the
Company being the surviving entity; and
1
<PAGE> 10
WHEREAS, pursuant to an Agreement and Plan of Merger dated as of the
date hereof between Williams Telecommunications Systems, Inc., a Delaware
corporation ("WilTel"), and the Company, WilTel has merged with and into the
Company, with the Company being the surviving entity;
NOW, THEREFORE, in consideration of the premises and mutual
undertakings contained herein, the parties hereto agree as follows:
ARTICLE I
Construction and Definitions
1.1 Construction. Words used in this Agreement, regardless of the
number or gender specifically used, shall be deemed and construed to include
any other number, singular or plural, and any other gender, masculine, feminine
or neuter, as the context shall require.
1.2 References. As used in this Agreement, unless expressly stated
otherwise, references to "including" mean "including, without limitation."
Unless otherwise specified, all references in this Agreement to Articles,
Sections, Exhibits or paragraphs are deemed references to the corresponding
Articles, Sections, Exhibits or paragraphs in this Agreement.
1.3 Headings. The headings of the Articles, Sections and Exhibits of
this Agreement are included for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction or
interpretation hereof.
1.4 Definitions. The following definitions shall be applicable to the
terms set forth below as used in this Agreement:
"Accepting Offerees" shall have the meaning given that term in Section
19.6(d).
"Act" means the Delaware Limited Liability Company Act, Del. Code Ann.
tit. 6, Section 18-101, et seq. (1996), as amended from time to time (or any
corresponding provisions of any succeeding law).
"Adjusted Capital Account Deficit" means with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant fiscal year, after giving effect to the following adjustments:
(a) Increase such Capital Account by any amounts which such
Member is obligated to restore pursuant to any provision of this Agreement or
is deemed to be obligated to restore pursuant to Regulations section
1.704-1(b)(2)(ii)(c)
2
<PAGE> 11
and the penultimate sentences of Regulations sections 1.704-2(g)(1) and
1.704-2(i)(5); and
(b) Decrease such Capital Account by the items described in
Regulations sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Regulations section 1.704-1(b)(2)(ii)(d) and
shall be interpreted consistently therewith.
"Affiliate" means, when used with respect to a specified Person, such
specified Person's Subsidiaries or other Persons which are or which could be
included on such Person's consolidated income statement for financial reporting
purposes pursuant to GAAP, and/or any third Person which does or which could
include such specified Person in such third Person's consolidated income
statement for financial reporting purposes pursuant to GAAP; provided that the
Company shall not be deemed to be an Affiliate of the Nortel Member, the
Williams Member or any of their respective Subsidiaries or Affiliates; and
provided further that NTL and BCE shall not be deemed to be Affiliates of the
Nortel Member.
"Agreed Allocation" shall have the meaning given that term in Section
10.2(i).
"Agreed Value" means, in the case of any contributions or
distributions of property, the fair market value of such property net of any
indebtedness or other liability either assumed or to which such property is
subject, as such fair market value is determined by the Members using such
reasonable method of valuation as they may mutually agree upon.
"Agreement" shall have the meaning given that term in the preamble
hereof.
"Audit Committee" shall have the meaning given that term in Section
15.10(a) hereof.
"Bankruptcy Code" means Title 11 of the United States Code, as now or
hereafter in effect, or any successor thereto.
"Bankruptcy Event" means, with respect to any Person, the occurrence
of any of the following events: such Person shall commence a voluntary case
concerning itself under the Bankruptcy Code; or an involuntary case under the
Bankruptcy Code is commenced against such Person and the petition is not
dismissed within 60 days after commencement of the case; or a custodian (as
defined in the Bankruptcy Code) is appointed for, or takes charge of, all or
substantially all of the property of such Person; or such Person commences any
other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or
3
<PAGE> 12
liquidation or similar law of any jurisdiction whether now or hereafter in
effect relating to such Person, or there is commenced against such Person any
such proceeding which remains undismissed for a period of 60 days or such
Person is adjudicated insolvent or bankrupt; or any order for relief or other
order approving any such case or proceeding is entered; or such Person suffers
the appointment of any custodian or the like for it or any substantial part of
its property to continue undischarged or unstayed for a period of 90 days; or
such Person makes a general assignment for the benefit of creditors; or any
corporate or similar action is taken by such Person for the purpose of
effecting any of the foregoing.
"BCE" means BCE Inc., a Canadian corporation.
"Built-In Gain" attributable to any Contributed Property means, as of
the date of contribution, the excess of the fair market value of such property
over its adjusted federal income tax basis.
"Built-In Loss" attributable to any Contributed Property means, as of
the date of contribution, the excess of the adjusted federal income tax basis
of such property over its fair market value.
"Business Day" means any day on which federal commercial banks are
open for business for the purpose of sending and receiving wire transfers in
Tulsa, Oklahoma and Houston, Texas.
"Call Closing Date" shall have the meaning given that term in Section
19.5(b).
"Call Notice" shall have the meaning given that term in Section
19.5(b).
"Call Purchase Price" shall have the meaning given that term in
Section 19.5(b).
"Capital Account" shall have the meaning given that term in Section
8.1(a).
"Capital Contribution" means, with respect to any Member, the
contribution of cash and other property with an aggregate Agreed Value as set
forth on Exhibit A, as contributed to the Company by such Member as of the
effective date of this Agreement, and all subsequent contributions of cash and
other property contributed to the capital of the Company.
"Capital Expenditures" means, with respect to any Person, all
expenditures made by such Person which should be capitalized in accordance with
GAAP, including all such expenditures with respect to fixed or capital assets
(including, expenditures for maintenance and repairs which should be
capitalized in accordance with GAAP) and, without duplication, the amount of
all rental obligations incurred by such Person which, under GAAP, are or will
be required to be capitalized on the books of such
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<PAGE> 13
Person, in each case taken at the amount thereof accounted as indebtedness in
accordance with GAAP.
"Carrying Value" means with respect to any Contributed Property, the
Agreed Value of such property reduced as of the time of determination by all
book depreciation, cost recovery and amortization deductions charged to the
Capital Accounts (which reductions are to correspond with the requirements of
the Regulations promulgated from time to time under Section 704(b) of the Code
with respect to such property) and an appropriate amount to reflect any sales,
retirements or other dispositions of assets included in such property and, with
respect to any other Company property, the adjusted basis of such property for
federal income tax purposes as of the time of determination. The Carrying
Values shall be further adjusted as provided in Section 8.4.
"Certificate" means the Certificate of Formation of the Company filed
with the Secretary of State of Delaware in accordance with the Act, as such
Certificate may be amended, restated or corrected from time to time.
"Change of Control" means, with respect to any Member, a change of
control of such Member or of any Person which directly or indirectly controls
such Member (each such Person, a "Parent"), that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A, as in
effect on the date hereof, promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"); provided that, without limitation, such
a Change of Control shall be deemed to have occurred if: (A) any "Person" (as
such term is used in section 13(d) and section 14(d) of the Exchange Act),
except for any employee benefit plan of such Member, any Parent or any
subsidiary or related corporation, or any entity holding voting securities of
such Member or any Parent for or pursuant to the terms of any such plan, is or
becomes the beneficial owner, directly or indirectly, of securities of any
Parent or of such Member representing 25% or more of the combined voting power
of such Parent's or such Member's then outstanding securities (except for, in
the case of any Member or any Parent (other than the Ultimate Parent of any
Member), its respective Parent and in the case of the Nortel Member, a Change
of Control of BCE shall not be deemed to be a Change of Control of the Nortel
Member and further, that for as long as BCE is the largest shareholder of NTL,
no Change of Control shall be deemed to have occurred unless a Person acquires
securities representing a greater share of the combined voting power of NTL
than BCE holds immediately prior to that time); (B) there occurs a contested
proxy solicitation of such Member's or any Parent's shareholders that results
in the contesting party obtaining the ability to vote securities representing
30% or more of the combined voting power of such Member's or such Parent's then
outstanding securities; (C) there occurs a sale, exchange, transfer or other
disposition of substantially all of the assets of such Member or any Parent to
another entity, except to an entity controlled directly or indirectly by such
Member or any Parent, or a merger, consolidation or other reorganization of
such Member or any
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<PAGE> 14
Parent in which such Member or any Parent is not the surviving entity, or a
plan of liquidation or dissolution of such Member or any Parent other than
pursuant to bankruptcy or insolvency laws is adopted; or (D) during any period
of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of such Member or any Parent cease for any
reason to constitute at least a majority thereof unless the election, or the
nomination for election by such Member's or such Parent's shareholders, of each
new director was approved by a vote of at least two-thirds (2/3rds) of the
directors then still in office who were directors at the beginning of the
period. For purposes of this definition "control", when used with respect to
any specified Person, means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract, by family relationship or otherwise; and the terms
"controlling" and "controlled" have the meanings correlative to the foregoing.
"Code" means the Internal Revenue Code of 1986, as amended, or any
amending or superseding tax laws of the United States of America.
"Company" shall have the meaning given that term in the preamble
hereof, and as the context requires for financial reporting or tax purposes
throughout this Agreement, the Company and its Subsidiaries on a consolidated
basis.
"Company Minimum Gain" shall have the meaning set forth with respect
to partnership minimum gain in Regulations sections 1.704-2(b)(2) and
1.704-2(d).
"Competitive Products" means telecommunications products manufactured
or produced by a Person other than the Nortel Member, any Affiliate of the
Nortel Member or NTL which are both like products of, and functionally
equivalent to, Existing Products or Emerging Products.
"Contributed Property" means any property contributed to the capital
of the Company other than cash.
"Covered Person" means any Member, an Affiliate of a Member or any
officer, Representative, director or shareholder of the Company or of a Member
or their respective Affiliates.
"CPE Agreement" means NTI's Customer Premises Equipment
Distributorship Agreement in the form currently in effect, and its subsequent
renewal forms or replacements as offered at or prior to the end of a term to
all United States Distributors (which may not have uniform products or
territory authorizations for all Distributors), but which when applied to the
Company shall be deemed to include (i) all product lines available to any of
the Distributors and (ii) the geographic territories in the United States of
America available to WilTel immediately prior to the date hereof.
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"Current Market Price" means, in respect of any shares of common stock
of any Person on any date, the average of the daily market prices for the 20
consecutive Business Days immediately preceding such date determined as
follows: the daily market price for each such Business Day shall be (i) the
last sale price on such day on the principal stock exchange on which such
common stock is then listed or admitted to trading, (ii) if no sales take place
on such day on any such exchange, the last reported sale price as officially
quoted on any such exchange, (iii) if such common stock is not then listed or
admitted to trading on any stock exchange, the last sale price on such day in
the over-the-counter market, as reported by the National Association of
Securities Dealers Automatic Quotation System ("NASDAQ"), or if such sale price
is not available on such date, the average of the closing bid and ask prices on
such date as reported by NASDAQ, or if not so reported, then as reported by the
National Quotation Bureau, Inc., (iv) if neither such firm at the time is
engaged in the business of reporting such prices, as furnished by any similar
firm then engaged in such business, or (v) if there is no such firm, as
furnished by any member of the National Association of Securities Dealers (the
"NASD") selected mutually by the Williams Member and the Nortel Member or, if
they cannot agree upon such selection, as selected by two such members of the
NASD, one of which shall be selected by the Williams Member and one of which
shall be selected by the Nortel Member.
"Debt" means (i) any indebtedness for borrowed money or the deferred
purchase price of property as evidenced by a note, bonds, or other instruments,
(ii) obligations as lessee under capital leases, (iii) obligations secured by
any mortgage, pledge, security interest, encumbrance, lien, or charge of any
kind existing on any asset owned or held by the Company whether or not the
Company has assumed or becomes liable for the obligations secured thereby, (iv)
any obligation under any interest rate swap agreement, and (v) obligations
under direct or indirect guarantees of (including obligations (contingent or
otherwise) to assure a creditor against loss in respect of) indebtedness or
obligations of the kinds referred to in clauses (i), (ii), (iii), and (iv),
above; provided that Debt shall not include obligations in respect of any
accounts payable that are incurred in the ordinary course of the Company's
business and are not delinquent nor being contested in good faith by
appropriate proceedings.
"Delcorp" shall have the meaning given that term in Section 19.3(e).
"Delcorp Common Stock" shall have the meaning given that term in
Section 19.3(e).
"Distributable Cash" means, at the time of determination, all cash
derived from the conduct of the Company's business activities, other than (i)
Capital Contributions, together with interest earned thereon pending
utilization thereof, (ii) financing proceeds, (iii) reserves for working
capital and (iv) other amounts that the
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<PAGE> 16
Management Committee reasonably determines to be necessary for the proper
operation of the Company's business and its winding up and liquidation.
"Distribution" shall mean the sale of Existing Products by
Distributors under the CPE Agreement; provided, however, that "Distribution"
shall not include sales of such products by Distributors as a reseller or
systems integrator or under an agreement other than the CPE Agreement.
"Distributors" means NTI's authorized distributors which have executed
a CPE Agreement.
"EBIT" means, for any period, net income (or loss) before provision
for income taxes of the Company for such period (i) before the total interest
expense of the Company (calculated without regard to any limitations on the
payment thereof) plus, without duplication, that portion of rental obligations
of the Company which, under GAAP, are or will be required to be capitalized on
the books of the Company, (in each case taken at the amount thereof accounted
for as indebtedness in accordance with GAAP), representing the interest factor
for such period, and (ii) without giving effect to any extraordinary gains or
losses or gains or losses from sales of assets other than in the ordinary
course of business.
"EBITDA" means, for any period, (i) EBIT plus (ii) the amount of all
amortization of intangibles and depreciation which were deducted in arriving at
EBIT.
"Effective Date" means April 1, 1997.
"Emerging Products" means products of NTL or its Affiliates which (i)
are covered by the Systems Integrator Agreement between NTI and WilTel dated
January 1, 1997, or (ii) are, or are being developed to be, sold primarily in
the Enterprise Commercial Market, but have not been put in Distribution by NTL
or its Affiliates.
"Enterprise Commercial Market" means the market for sale of business
telecommunications systems to end-users consisting of commercial for-profit and
not-for-profit corporations, partnerships and companies, educational
institutions, governmental institutions and agencies, and other similar
commercial enterprises purchasing such systems for their internal use and not
for resale, but excluding the sale of systems utilized for or in public
networks or in connection with the public carriage or transmission of local,
interconnect or long distance telecommunications traffic or services as a
carrier or transmission services provider or contractor.
"Existing Products"shall mean the products that are available to be
sold by any or all of the Distributors pursuant to the then current CPE
Agreement (which may include products which were formerly Emerging Products or
Competitive Products),
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<PAGE> 17
excluding such products not originating from NTL's Enterprise Networks Group,
terminals and low-end systems of less than 10 lines;
"Exit Offer" shall have the meaning given that term in Section
19.3(b).
"Exit Purchase Price" shall have the meaning given that term in
Section 19.3(a).
"Firm Offer" shall have the meaning given that term in Section
19.6(b).
"Formation Agreement" means that certain Formation Agreement dated as
of April 1, 1997, by and between the Nortel Member and the Williams Member and
pertaining to the formation and operations of the Company.
"GAAP" shall mean generally accepted accounting principles in the
United States of America.
"Governmental Authority" means any entity of or pertaining to the
government, including any federal, state, local, other governmental or
administrative authority, agency, court, tribunal, arbitrator, commission,
board or bureau.
"Human Resources Committee" shall have the meaning given that term in
Section 15.10(a).
"Intended Listed Affiliate" shall have the meaning given that term in
Section 19.4(h).
"Intended Listed Affiliate Common Stock" shall have the meaning given
that term in Section 19.4(h).
"Leverage Ratio" means, at any time, the ratio of (A) all Long-Term
Debt of the Company (including the current portion thereof) to (B) the sum of
(x) all Long-Term Debt of the Company (including the current portion thereof)
and (y) Tangible Net Worth.
"Liquidating Events" shall have the meaning given that term in Section
22.1.
"Liquidator" shall have the meaning given to that term in Section 23.1.
"Long-Term Debt" means Debt with a remaining maturity of one year or
more.
"Majority in Interest of the Members" means, unless otherwise provided
in this Agreement, the Members whose aggregate Percentage Interest constitutes
more than fifty percent (50%) of the aggregate Percentage Interest of all
Members.
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"Management Committee" means the committee described in Section 15.2.
"Member" means each of the Nortel Member and the Williams Member and
any Person hereafter admitted to the Company as a member as provided in this
Agreement, but does not include any Person who has ceased to be a member in the
Company.
"Member Nonrecourse Debt" shall have the meaning set forth with
respect to partner nonrecourse debt in Regulations section 1.704-2(b)(4).
"Member Nonrecourse Debt Minimum Gain" means an amount, with respect
to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would
result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations section 1.704-2(i)(3).
"Member Nonrecourse Deductions" shall have the meaning set forth with
respect to partner nonrecourse deductions in Regulations sections 1.704-2(i)(1)
and 1.704-2(i)(2).
"Membership Interest" means the interest of a Member in the Company,
including the Member's rights to a share of the profits and losses of the
Company (in accordance with its Percentage Interest or as otherwise provided in
this Agreement), to receive distributions (liquidating or otherwise), to obtain
information and to consent to or approve actions by the Company.
"Merger Agreements" means the Agreement and Plan of Merger dated as of
the date hereof between the Company and NCS and the Agreement and Plan of
Merger dated as of the date hereof between WilTel and the Company, copies of
which are attached hereto as Exhibits B and C.
"Minimum Holding Period" shall have the meaning given that term in
Section 8.2(d).
"NCS" shall have the meaning given that term in the recitals hereto.
"NCS Business" shall have the meaning given that term in the Formation
Agreement.
"Net Purchase Price" means the price paid by the Company, or another
Distributor for purposes of Section 19.4(a), inclusive of all amounts paid to a
supplier or suppliers net of discounts and rebates, plus applicable freight,
duties and taxes.
"Non-Competition Agreement" means that certain Non-Competition
Agreement dated April 30, 1997 by and between The Williams Companies, Inc. and
NTL.
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"Nonrecourse Deductions" shall have the meaning set forth in
Regulations section 1.704-2(b)(1).
"Nonrecourse Liability" shall have the meaning set forth in
Regulations section 1.704-2(b)(3).
"Non-contributing Member" shall have the meaning given that term in
Section 8.6(a).
"Nortel Member" shall have the meaning given that term in the preamble
hereof or any Affiliate transferee of such initial Nortel Member.
"NTI" means Northern Telecom Inc., a Delaware corporation.
"NTL" means Northern Telecom Limited, a Canadian corporation.
"Offered Interest" shall have the meaning given that term in Section
19.6.
"Offeree" shall have the meaning given that term in Section 19.6(b).
"Offer Notice" shall have the meaning given that term in Section
19.6(b).
"Offer Period" shall have the meaning given that term in Section
19.6(c).
"Offer Price" shall have the meaning given that term in Section
19.6(a).
"Operating Budget" shall have the meaning given that term in Section
11.3.
"Percentage Interest" means the percentage interest of a Member in the
distributions, income, gains, losses, deductions, and credits of the Company,
as set forth on Exhibit D, as such percentage may be adjusted from time to time
in accordance with this Agreement.
"Person" means any individual, corporation, partnership, joint
venture, association, limited liability company, joint stock company, trust,
unincorporated organization, Governmental Authority or government (or agency or
political subdivision thereof).
"Product Mix" means, for any period, an amount, expressed as a
percentage, equal to a fraction, the numerator of which shall equal the
aggregate dollar amount of the Net Purchase Price paid to NTI and its
Affiliates during such period for Existing Products and Emerging Products and
the denominator of which shall equal the aggregate dollar amount of the Net
Purchase Price during such period for Existing Products, Emerging Products and
Competitive Products.
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"Product Mix Threshold" means, for any period, a Product Mix of 82.6%
unless the Members shall have agreed pursuant to Section 15.12 (a) (xiii) that
for a specified period the Product Mix Threshold shall be a percentage other
than 82.6% in which event the Product Mix Threshold for such period shall be
such other percentage.
"Purchase Offer" shall have the meaning given that term in Section
19.6(a).
"Purchaser" shall have the meaning given that term in Section 19.6(a).
"Put Closing Date" shall have the meaning given that term in Section
19.5(a).
"Put Notice" shall have the meaning given that term in Section
19.5(a).
"Put Purchase Price" shall have the meaning given that term in Section
19.5(a).
"Registration Notice" shall have the meaning given that term in
Section 19.3(e).
"Regulations" means the Income Tax Regulations, including Temporary
Regulations, promulgated under the Code, as such Regulations may be amended
from time to time (including corresponding provisions of succeeding
Regulations).
"Regulatory Allocations" shall have the meaning given that term in
Section 10.2(i).
"Representative" and "Representatives" shall have the meaning given
those terms in Section 15.2(b).
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations from time to time promulgated thereunder.
"Seller" shall have the meaning given that term in Section 19.6.
"Subsidiary" means, with respect to any Person, a corporation more
than 50% of the combined voting power of the outstanding stock of which is
owned, directly or indirectly, by such Person; provided that the Company shall
not be deemed to be a Subsidiary of The Williams Companies, Inc. or any of its
Subsidiaries or Affiliates.
"Supermajority of the Representatives" means eighty percent (80%) or
more of the Representatives so long as the number of Representatives is ten
(10). If the number of Representatives changes, the number required to
constitute a supermajority shall be a number that assures that at least one
Representative of the Nortel Member is necessary to constitute a supermajority,
provided that the Nortel Member has at least a twenty percent (20%) Percentage
Interest in the Company.
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"Tangible Net Worth" means, at any time, the difference between the
assets (excluding all intangible assets inclusive of goodwill) and liabilities
of the Company, determined in accordance with GAAP, and as set forth in the
most recent audited balance sheet of the Company.
"Technology Committee" shall have the meaning given to that term in
Section 15.10(a).
"TMP" shall have the meaning given that term in Section 10.5(a).
"Transfer" means: (x) as a noun, any voluntary or involuntary
transfer, sale, pledge, hypothecation or other disposition or encumbrance; and
(y) as a verb, voluntarily or involuntarily to transfer, sell, pledge,
hypothecate or otherwise dispose of or encumber.
"TTS Agreement" means that certain Share Purchase Agreement dated
April 30, 1997, between NTL and the Company regarding the purchase of the
shares of TTS.
"Ultimate Parent" means, with respect to any Person, the Person that
directly or indirectly owns or controls such Person and all other Persons with
a direct or indirect controlling interest in such Person, which, on the date
hereof, in the case of the Williams Member is The Williams Companies, Inc. and
in the case of the Nortel Member is NTL.
"Unrealized Gain" attributable to an asset of the Company means, as of
the date of determination, the excess of the fair market value of such asset as
of such date of determination over the Carrying Value of such asset as of such
date of determination.
"Unrealized Loss" attributable to an asset of the Company means, as of
the date of determination, the excess of the Carrying Value of such asset as of
such date of determination over the fair market value of such asset as of such
date of determination.
"Valuation Methodology" shall have the meaning given to that term in
Section 19.3(a).
"Williams Member" shall have the meaning given that term in the
preamble hereof or any Affiliate transferee of such initial Williams Member.
"WilTel" shall have the meaning given that term in the recitals hereto.
"WilTel Business" shall have the meaning given that term in the
Formation Agreement.
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" WilTel Distributorship Agreement" means the Customer Premises
Equipment Distributorship Agreement dated December 15, 1995 between NTI and
WilTel, as amended, restated, renewed, replaced or modified from time to time.
1.5 Accounting Terms. Any accounting terms used in this Agreement that
are not specifically defined herein shall have the meanings customarily given
to them in accordance with GAAP.
ARTICLE II
Organization
2.1 Formation. The Members hereby form a limited liability company
under and pursuant to the Act and agree that the rights, duties and liabilities
of the Members shall be as provided in the Act, except as otherwise provided
herein. The Certificate shall be filed in the office of the Secretary of State
of Delaware in accordance with the provisions of Act. The Management Committee
shall take any and all other action reasonably necessary to perfect and
maintain the status of the Company under the laws of the State of Delaware. The
Management Committee shall cause amendments to the Certificate to be filed
whenever required by the Act. Such amendments as have been agreed to by the
Management Committee may be executed by an officer of the Company.
2.2 Qualification in Other Jurisdictions. The Management Committee
shall cause the Company to be qualified, formed or registered in any
jurisdiction in the United States of America in which the Company transacts
business in which such qualification, formation or registration is required or
desirable including under any assumed or fictitious name statutes or similar
laws. Any member of the Management Committee may execute, deliver and file, or
cause the execution, delivery or filing of, any certificates (and any
amendments or restatements thereof) necessary for the Company to qualify to do
business in a jurisdiction in which the Company may wish to conduct business.
ARTICLE III
Name
The name of the Company is "WilTel Communications, LLC", and all
Company business may be conducted in that name or any other name that complies
with applicable law as the Management Committee may select from time to time.
The Company shall hold all of its property in the name of the Company and not
in the name of any Member.
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ARTICLE IV
Purpose and Powers
4.1 Purpose. The purpose of the Company is to carry on any lawful
business, purpose or activity for which limited liability companies may be
organized under the Act, except as otherwise provided in section 18-106 of the
Act.
4.2 Powers of the Company. Subject to the terms of this Agreement,
the Company shall have the power and authority to take any and all actions
necessary, appropriate, proper, advisable, convenient or incidental to or for
the furtherance of the purposes set forth in Section 4.1, including the power
to conduct the Company's business and to carry on the Company's operations. The
Company shall have and exercise the powers granted to a limited liability
company by the Act in any state, territory, district or possession of the
United States of America, or in any foreign country that may be necessary,
convenient or incidental to the accomplishment of the purposes of the Company.
ARTICLE V
Registered Office; Registered Agent;
Principal Office; Other Offices
The registered office of the Company required by the Act shall be c/o
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801, or any other office (which need
not be a place of business of the Company) as the Management Committee may
designate from time to time in the manner provided by law. The name and address
of the registered agent of the Company in the State of Delaware shall be The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801. The principal office of the
Company shall be at such place as the Management Committee may designate from
time to time, which need not be in the State of Delaware, and the Company shall
maintain records there as required by the Act. The Company may have such other
offices as the Management Committee may designate from time to time.
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ARTICLE VI
Term
The term of the Company shall be deemed to have commenced on April 1,
1997, and shall terminate when dissolved pursuant to Article XXII.
ARTICLE VII
No State Law Partnership
The Members intend that the Company not be a partnership (including a
limited partnership) or joint venture, and that no Member be a partner or joint
venturer of any other Member, for any purposes other than federal, state and
local tax purposes, and this Agreement shall not be construed to suggest
otherwise.
ARTICLE VIII
Capital Contributions; Capital Accounts
8.1 Capital Accounts.
(a) A capital account ("Capital Account") shall be established
for each Member and shall be maintained in such a manner as to correspond with
the requirements of the Regulations promulgated from time to time under section
704(b) of the Code. Subject to the provisions of Section 8.2(a) with respect to
the initial Capital Contribution of each Member, a Member's Capital Account
shall be credited with the amounts of cash and Agreed Value of property
contributed to the Company by such Member and with the amount of any Company
liabilities assumed by such Member or secured by any Company assets distributed
to such Member. A Member's Capital Account shall also be credited or charged,
as the case may be, with such Member's distributive share of Company items of
income, gains, losses, deductions, and credits for each fiscal year of the
Company determined pursuant to Article X below. Each Member's Capital Account
shall be charged with the amount of cash or Agreed Value of property
distributed to it and with the amount of any liabilities of such Member assumed
by the Company.
(b) In the event a Member transfers its Membership Interest in
the Company (or portion thereof) in accordance with the terms of this
Agreement, the transferee shall succeed to the Capital Account of such Member
to the extent such Capital Account relates to the transferred interest (or
portion thereof).
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8.2 Capital Contributions.
(a) Concurrently with the execution of this Agreement, the
Company and the Members are entering into the Merger Agreements. The Company
and the Members shall cause the transactions contemplated by the Merger
Agreements to be consummated as of the Effective Date in accordance with the
terms of the Merger Agreements in order to effectuate the contribution of the
NCS Business and the WilTel Business to the Company. Upon the consummation of
such transactions, the respective Capital Accounts of the Nortel Member and the
Williams Member shall be credited in the amounts of 30% and 70%, respectively,
of the aggregate Agreed Value of the Company (including TTS Meridian Systems,
Inc., which will be purchased by the Company pursuant to the TTS Agreement),
thus reflecting the Agreed Value of the respective initial Capital
Contributions of each Member.
(b) Subject to the provisions of Section 8.2(d), each Member
shall be required during each calendar year to make the additional Capital
Contributions (i) provided for in the Operating Budget for such calendar year
or any amendment thereto, in either case as approved by the Management
Committee pursuant to this Agreement or (ii) otherwise required by the
Management Committee. Unless otherwise provided in the approved Operating
Budget, each such contribution shall be made in cash within ten Business Days
after notice from the Company requesting that such contribution be made.
(c) Except as otherwise agreed to by the Members, any additional
Capital Contributions shall be made in accordance with the then applicable
Percentage Interest of each Member.
(d) The Nortel Member may elect not to participate in all or a
portion of any Capital Contribution that may otherwise be required so long as
after giving effect to the dilution required by Section 8.6(a)(i) the Nortel
Member's Percentage Interest would not fall below 20% during a period of five
(5) years following the earlier of: (i) December 31, 1999 or (ii) the date that
Nortel Member's Percentage Interest first is reduced to 20% (the "Minimum
Holding Period").
8.3 Limitation on Liability of Members. Except as provided in the
Formation Agreement or any other specific agreement between the Company and a
Member, the liability of each Member to the Company shall be limited to the
amount of its Capital Contribution made and required to be made pursuant to
Section 8.2 (subject to the exceptions stated therein) and no Member shall have
any further personal liability to contribute money to, or in respect of, the
liabilities or the obligations of the Company unless it agrees in writing to
make additional Capital Contributions to the Company, nor shall any Member be
personally liable for any obligations of the Company, except as may be provided
in the Act.
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8.4 Adjustment of Capital Accounts. If any additional Membership
Interests are to be issued in consideration for a contribution of property or
cash or if any Company property is to be distributed in liquidation of the
Company or a Membership Interest, the Capital Accounts of the Members (and the
amounts at which all Company properties are carried on its books and records)
shall, immediately prior to such issuance or distribution, as the case may be,
be adjusted (consistent with the provisions of section 704(b) of the Code and
the Regulations promulgated thereunder) upward or downward to reflect any
Unrealized Gain or Unrealized Loss attributable to all Company properties (as
if such Unrealized Gain or Unrealized Loss had been recognized upon actual sale
of such properties upon a liquidation of the Company immediately prior to such
issuance). If the Carrying Value of any property of the Company is properly
reflected on the books of the Company at a value that differs from the adjusted
tax basis of such property, this Section 8.4 shall be applied with reference to
such Carrying Value.
8.5 Return of Contributions. No Member shall be entitled to the return
of any part of its Capital Contribution or to be paid interest in respect of
either its Capital Account or any Capital Contribution made by such Member
except as provided in Section 23.3. No unrepaid Capital Contribution shall be
deemed or considered to be a liability of the Company or any Member. No Member
shall be required to contribute or lend any cash or property to the Company to
enable the Company to return any Member's Capital Contributions to the Member.
8.6 Additional Capital Contributions.
(a) In the event that the Members are required to make
additional Capital Contributions after the Effective Date pursuant to Section
8.2, and any Member (the "Non-contributing Member") does not contribute all or
a portion of such required additional Capital Contribution within the time
specified in Section 8.2:
(i) the Percentage Interests immediately following
the Capital Contribution will be determined for each of the Members by
the following formula, an illustration of the application of which is
set forth on Exhibit E:
R = (P x V + M) / (V + T)
where:
R = such Member's revised Percentage Interest
P = such Member's Percentage Interest as of the last day of the preceding fiscal
quarter
M = the Agreed Value of the Capital Contributions made by such Member since the
last day of the preceding fiscal quarter
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T = the Agreed Value of the Capital Contributions made by all Members
since the last day of the preceding fiscal quarter
V = (0.615 A + 8.53 B + 11.1 C) / 3 - D
where:
A = Total Revenue for the Company for the preceding four (4) fiscal
quarters
B = EBITDA for the preceding four (4) fiscal quarters
C = EBIT for the preceding four (4) fiscal quarters
D = The Debt of the Company as of the last day of the preceding fiscal
quarter.
(ii) the other Member may, without the consent of
the Non-contributing Member or the Management Committee, elect to
advance the portion of the additional Capital Contribution payable by
the Non-contributing Member, which advance shall (1) constitute a loan
by such other Member to the Company in a principal amount equal to the
sum advanced, (2) be due and payable in full (together with all
accrued unpaid interest thereon) upon demand, and (3) bear interest at
a rate per annum equal to the base rate of Citibank, NA as announced
from time to time from the date of the making of such advance to the
date such advance is paid in full.
(b) Notwithstanding subsection 8.6(a), in the event that
after giving effect to the adjustments in the Members' Percentage Interests
provided in subsection 8.6(a) in respect of any additional Capital
Contribution, the Percentage Interest of the Nortel Member shall be less than
20%, the Williams Member may, provided that the Nortel Member has received
adequate notice and the effective opportunity to re-establish its Membership
Interest to 20%, purchase the Nortel Member's Member Interest pursuant to
Section 19.5(b).
ARTICLE IX
Distributions; Repayment of Member Loans
9.1 Distributions. Except as approved by the Management Committee in
accordance with Section 15.12(a)(vi) or as provided in Section 23.3, all
Distributable Cash shall be distributed to the Members in proportion to their
respective Percentage Interests, at such times as the Management Committee may
determine to be appropriate; provided however, subject to availability, the
Management Committee
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shall by March 15 of each year, declare a cash distribution in proportion to
their respective Percentage Interests of 40% of an amount equal to the sum
total of all Members' estimated taxable income for federal income tax purposes
that would result from their allocated shares of estimated income, gains,
losses and deductions (such amount shall be reduced by credits, if any) of the
Company as furnished by the national accounting firm pursuant to Section
10.5(f)(i).
9.2 No Interest on Unwithdrawn Share. If any Member does not withdraw
the whole or any part of his share of any cash distribution made pursuant to
Section 9.1, such Member shall not be entitled to receive any interest thereon.
9.3 Withholding. All amounts withheld pursuant to the Code or any
provision of any state or local law with respect to any payment, distribution
or allocation to the Company or the Members shall be treated as amounts
distributed to the Members pursuant to Section 9.1 for all purposes of this
Agreement. The TMP is authorized to withhold from distributions to the Members
and to pay over to any federal, state or local government any amounts required
to be so withheld pursuant to the Code or any provision of any other federal,
state or local law and shall allocate such amounts to those Members with
respect to which such amounts were withheld.
9.4 Limitations on Distributions. Notwithstanding any provision to the
contrary contained in this Agreement, the Company shall not make a distribution
to a Member to the extent that, at the time of the distribution, after giving
effect to the distribution, all liabilities of the Company, other than
liabilities to Members on account of their Membership Interests and liabilities
for which recourse of creditors is limited to specified property of the
Company, exceed the fair market value of the assets of the Company, provided
that the fair market value of property that is subject to a liability for which
the recourse of creditors is limited shall be included in the assets of the
Company only to the extent that the fair market value of such property exceeds
such liability. A Member who receives a distribution in violation of this
Section 9.4, and who (or whose Representatives) knew at the time of
distribution that the distribution violated this Section 9.4, shall be liable
to the Company for the amount of the distribution. A Member who receives a
distribution in violation of this Section 9.4, and who (or whose
Representatives) did not know at the time of the distribution that the
distribution violated this Section 9.4, shall not be liable for the amount of
the distribution.
9.5 Repayment of Member Loans. After Distributions are made under
Section 9.1, if, with the consent of the Management Committee in accordance
with Section 15.7 or pursuant to Section 8.6(a)(ii), any Member makes a loan to
or on behalf of the Company other than pursuant to the line of credit agreement
contemplated in section 10.1 of the Formation Agreement, all Distributable Cash
shall first be used to repay such loans, together with interest thereon and,
thereafter, any remaining Distributable Cash, if any, shall be distributed in
accordance with the terms
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of Section 9.1. If Distributable Cash is insufficient to repay in full all such
Member loans, the funds available for distribution from time to time shall
first be applied to repay and retire the loan with the highest interest rate
first and, if any funds thereafter remain available, such funds shall be
applied in a similar manner to remaining loans; provided, however, if two or
more loans have the same interest rate, such funds will be applied in
accordance with the order of the dates on which they were made.
ARTICLE X
Allocations of Income, Gains,
Losses, Deductions and Credits
10.1 General. Except as otherwise provided herein or unless another
allocation is required by the Regulations issued under section 704(b) of the
Code, all items of Company income, gains, losses, deductions and credits shall
be allocated among the Members as provided in Section 10.2, provided, however,
that such allocations shall not impact distributions or Membership Interests
except as provided in Section 23.3 or in connection with liquidations
generally. For purposes of computing the amount of each item of income, gains,
losses, deductions or credits to be charged or allocated to the Capital
Accounts of the Members, the determination, recognition and classification of
such item shall be the same as its determination, recognition and
classification for federal income tax purposes, provided that:
(a) Any deductions for depreciation, cost recovery, or
amortization attributable to any Company property shall be determined as if the
adjusted basis of such property were equal to the Carrying Value of such
property. Upon an adjustment to the Carrying Value of any Company property
subject to depreciation, cost recovery, or amortization pursuant to Section
8.4, any further deductions for such depreciation, cost recovery, or
amortization attributable to such property shall be determined as if the
adjusted basis of such property were equal to the Carrying Value of such
property immediately following such adjustment.
(b) Any income, gains, losses, deductions, and credits
attributable to the taxable disposition of any Company property shall be
determined by the Company as if the adjusted basis of such property as of such
date of disposition were equal in amount to the Carrying Value of such property
as of such date.
(c) All fees and other expenses incurred by the Company to
promote the sale of a Membership Interest that can neither be deducted nor
amortized under section 709 of the Code shall be treated as an item of
deduction.
(d) Computation of all items of income, gains, losses,
deductions, and credits shall be made without regard to any election under
section 754 of the Code which may be made by the Company and, as to those items
described in
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section 705(a)(1)(B) or section 705(a)(2)(B) of the Code, without regard to the
fact that such items are not includable in gross income or are neither
currently deductible nor capitalizable for federal income tax purposes.
10.2 Allocations.
(a) The provision of this Section 10.2 shall apply for the
purposes of (i) allocating the income, gains, losses, deductions, and credits
of the Company; (ii) maintaining the Members' Capital Accounts; and (iii)
determining the Members' interests in the liquidation proceeds of the Company.
All income, gains, losses, deductions, and credits of the Company, other than
gain or loss upon the sale of all or substantially all the assets in
dissolution and liquidation of the Company, shall be allocated to the Members
in proportion to their Percentage Interests.
(b) On the sale or distribution of all, or substantially all,
of the assets in connection with the dissolution and liquidation of the Company
or upon dilution as provided in Section 8.6(a) hereof, the gains and losses
resulting therefrom shall be allocated among the Members in the manner
necessary to cause, to the maximum extent possible, the credit balances in
their respective Capital Accounts to equal the respective amounts of
Distributable Cash that would be distributed to the Members under Section 9.1
if that Section applied to distributions in liquidation of the Company.
(c) Notwithstanding any provision set forth in this Section
10.2, no item of loss shall be allocated to a Member to the extent the
allocation would cause a Member to have an Adjusted Capital Account Deficit at
the end of any fiscal year. In the event some but not all of the Members would
have Adjusted Capital Account Deficits as a consequence of an allocation of
loss pursuant to this Section 10.2, the limitation set forth in this Section
10.2(c) shall be applied on a Member by Member basis and items of loss not
allocable to a Member as a result of such limitation shall be allocated to the
other Member in accordance with the positive balance in such Member's Capital
Account so as to allocate the maximum permissible loss to such Member under
Regulations section 1.702-1(b)(2)(ii)(d). In the event any loss shall be
specially allocated to a Member pursuant to either of the two preceding
sentences, an equal amount of income of the Company shall be specially
allocated to such Member prior to any allocation pursuant to Sections 10.2(a)
or (b).
(d) Except as otherwise provided in Regulations section
1.704-2(f), notwithstanding any other provision of this Section 10.2, if there
is a net decrease in Company Minimum Gain during any fiscal year, each Member
shall be specially allocated items of Company income and gain for such fiscal
year (and, if necessary, subsequent fiscal years) in an amount equal to such
Member's share of the net decrease in Company Minimum Gain, determined in
accordance with Regulations section 1.704-2(g). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts
required to be allocated to each Member
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pursuant thereto. The items to be so allocated shall be determined in
accordance with Regulations sections 1.704-2(f)(6) and 1.704-2(j)(2). This
Section 10.2(d) is intended to comply with the minimum gain chargeback
requirement in Regulations section 1.704-2(f) and shall be interpreted
consistently therewith.
(e) Except as otherwise provided in Regulations section
1.704-2(i)(4), notwithstanding any other provision of this Section 10.2 (other
than Section 10.2(d)) if there is a net decrease in Member Nonrecourse Debt
Minimum Gain attributable to a Member Nonrecourse Debt during any fiscal year,
each Member who has a share of the Member Nonrecourse Debt Minimum Gain
attributable to such Member Nonrecourse Debt, determined in accordance with
Regulations section 1.704-2(i)(5), shall be specially allocated items of
Company income and gain for such fiscal year (and, if necessary, subsequent
fiscal years) in an amount equal to such Member's share of the net decrease in
Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse
Debt determined in accordance with Regulations section 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made in proportion to
the respective amounts required to be allocated to each Member pursuant
thereto. The items to be so allocated shall be determined in accordance with
Regulations sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 10.2(e) is
intended to comply with the minimum gain chargeback requirement in Regulations
section 1.704-2(i)(4) of the Regulations and shall be interpreted consistently
therewith.
(f) Notwithstanding anything herein to the contrary, in the
event any Member unexpectedly receives any adjustments, allocations or
distributions described in paragraphs (b)(2)(ii)(d)(4), (5) or (6) of
Regulations section 1.704-1, there shall be specially allocated to such Member
such items of Company income and gain, at such times and in such amounts as
will eliminate as quickly as possible that portion of its Adjusted Capital
Account Deficit caused or increased by such adjustments, allocations or
distributions, provided that an allocation pursuant to this Section 10.2(f)
shall be made only if and to the extent that there would be a deficit in such
Member's Capital Account after all other allocations provided in this Section
10.2 have been tentatively made as if this Section 10.2(f) were not in the
Agreement.
(g) Nonrecourse Deductions for any fiscal year or other
period shall be specially allocated among the Members in proportion to their
Percentage Interests.
(h) Any Member Nonrecourse Deductions for any fiscal year
shall be specially allocated to the Member who bears the economic risk of loss
with respect to the Member Nonrecourse Debt to which such Member Nonrecourse
Deductions are attributable in accordance with Regulations section
1.704-2(i)(1).
(i) The allocations set forth in paragraphs (c) through (h)
of this Section 10.2 shall be referred to as the "Regulatory Allocations" and
paragraphs (a)
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and (b) shall be referred to as the "Agreed Allocations." The Regulatory
Allocations are intended to comply with certain requirements of Regulations
section 1.704-1(b). It is the intent of the Members that, to the extent
possible, all Regulatory Allocations shall be offset either with other
Regulatory Allocations or with special allocations of other items of Company
income, gains, losses, deductions, and credits pursuant to this paragraph.
Notwithstanding any other provisions of this Section 10.2, any Regulatory
Allocations that have taken place shall be taken into account in allocating
other items of income, gains, losses, deductions, and credits, so that, to the
extent possible, the net amount of such other allocations and the Regulatory
Allocations to each Member shall equal the net amount that would have been
allocated to each Member pursuant to the Agreed Allocation if the Regulatory
Allocation had not occurred.
10.3 Allocations for Income Tax Purposes.
(a) The Company shall, except to the extent such item is
subject to allocation pursuant to subsection 10.3(b), allocate each item of
income, gains, losses, deductions, and credits, as determined for federal and
other income tax purposes, in the same manner as such item was allocated under
Sections 10.1 and 10.2.
(b) The Company, for federal and other income tax purposes
shall, in the case of Contributed Properties, allocate items of income, gains,
losses, deductions, and credits, including, without limitation, depreciation
and cost recovery deductions, attributable to those properties with a Built-In
Gain or Built-In Loss pursuant to section 704(c) of the Code utilizing the
traditional method described in Regulations section 1.704-3(b).
10.4 Allocations for Financial Reporting. For purposes of reporting
the financial results of the Company by the Members in accordance with GAAP,
net income or loss shall be allocated in proportion to the Member's Percentage
Interest.
10.5 Tax Matters Partner.
(a) The Williams Member is designated tax matters partner
("TMP") as defined in section 6231(a)(7) of the Code. The TMP and the other
Member shall use their reasonable best efforts to comply with the
responsibilities outlined in this Section 10.5 and in sections 6222 through
6232 of the Code (including any Regulations promulgated thereunder) and in
doing so the TMP shall incur no liability to any other Member except for
instances of gross negligence or willful misconduct.
(b) If any Member intends to file a notice of inconsistent
treatment under section 6222(b) of the Code, such Member shall, prior to the
filing of such notice, notify the TMP of such intent and the manner in which
the Member's intended
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treatment of a partnership item is (or may be) inconsistent with the treatment
of that item by the Company.
(c) No Member other than the TMP shall file a request
pursuant to section 6227 of the Code for an administrative adjustment of
partnership items for any Company taxable year.
(d) No Member other than the TMP shall file a petition under
Code sections 6226, 6228 or other Code sections with respect to any partnership
item, or other tax matters involving the Company provided, however, that if the
TMP fails to file a petition under Code section 6226 within the time provided
in Code section 6226(a), then the Nortel Member may file a petition pursuant to
Code section 6226(b). In the case where the TMP files such a petition, it shall
determine the forum in which such petition will be filed. In carrying out its
duties, the TMP will act in the best interests of both Members and the Company.
(e) Without the prior written consent of the Nortel Member,
the TMP will:(i) not extend any federal statute of limitations with respect to
income taxation of a "partnership item," as defined in Code section 6231(a)(3)
and the Regulations thereunder, or (ii) not agree to the settlement of a tax
controversy concerning a partnership item with any federal, state, or local
taxing authority. At the request of the Nortel Member, the TMP will provide
information concerning federal, state, or local tax audits, appeals or
litigation of the Company.
(f) The TMP shall employ a national public accounting firm,
to be mutually agreed upon by the Nortel Member and the Williams Member to
prepare at the Company's expense the Federal income tax return of the Company.
The TMP shall further cause the accounting firm to:
(i) provide its best estimate of each Member's
distributive share of all income, gains, losses, deductions, and
credits of the Company for each taxable year within sixty (60) days
following the close of each taxable year, and
(ii) prepare and deliver to each Member within 150
days following the close of each taxable year, as set forth in Section
11.2(b), an information reporting return (Form 1065 K-1) reflecting
each Member's distributive share of all income, gains, losses,
deductions, and credits of the Company for each taxable year.
(g) No later than thirty (30) days prior to the filing of the
Company's federal income tax return (Form 1065), the TMP will furnish a draft
of such return and a list of all elections made on such return for which a
specific declaration is not required to the Nortel Member. Within fifteen (15)
days after receipt of the draft, the Nortel Member will provide notice to the
TMP as to whether the Nortel Member
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consents to the filing of the return consistent with the draft or objects to
the manner in which one or more partnership items are reflected in the return.
The Williams Member and the Nortel Member will jointly resolve any differences.
10.6 Tax Elections.
(a) The Company shall elect to use the calendar year as its
taxable year, and to report profit and loss under the accrual method of
accounting.
(b) The Company shall elect to deduct expenses incurred in
organizing the Company ratably over a sixty-month period as provided in section
709 of the Code.
(c) If requested by any Member, the TMP shall cause the
Company at the time and in the manner provided in Regulations section
1.754-1(b) (or any like statute or regulation then in effect), to make an
election to adjust the basis of the Company's property in the manner provided
in sections 734(b) and 743(b) of the Code (or any like statute or regulation
then in effect).
ARTICLE XI
Books of Account, Records and Financial Information
11.1 Books and Records. Proper and complete records and books of
account (including those required by the Act) shall be kept by the Company in
which shall be entered all transactions and other matters relative to the
Company's business as are usually entered into records and books of account
maintained by persons engaged in businesses of like character. The Company
books and records shall be maintained in accordance with GAAP, and shall be
kept on the accrual basis. The books and records shall at all times be made
available and shall be open to the reasonable inspection and examination by the
Members or their duly authorized representatives during the business hours of
the Company for any purpose reasonably related to the interest of such Member
as a Member in the Company.
11.2 Financial Information. The following financial information shall
be transmitted to each Member:
(a) as soon as available, but in any event within 60 days
after the end of each fiscal year of the Company, a copy of the balance sheet
of the Company as at the end of such fiscal year and the related statements of
income and cash flow and Members' capital and changes in Members' capital for
such fiscal year, setting forth, after fiscal year 1996, in each case in
comparative form, the figures for the previous
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year, reported on without qualification, or exception, as to the scope of the
audit, by the Company's auditors;
(b) as soon as available, but in any event not later than 10
Business Days after the end of each calendar month a report setting forth the
year-to-date revenues, operating expenses, general and administrative expenses,
Capital Expenditures of the Company, together with a comparison of the
Operating Budget for such period, and a projection of revenues and expenses for
the remainder of the Company's fiscal year, the unaudited balance sheet of the
Company as at the end of each such month and the related unaudited statements
of income and cash flow and Members' capital and changes in Members' capital of
the Company for such month and the portion of the fiscal year through such
date, setting forth, after fiscal year 1996, in each case in comparative form,
the figures for the previous year;
(c) not later than 30 days prior to the end of each fiscal
year of the Company, a copy of the preliminary annual operating plan (the
"Operating Budget") for the next fiscal year. Such plan shall contain, but not
be limited to, a complete set of financial statements including a balance
sheet, statements of income and cash flow and changes in Member's capital by
month in appropriate detail for Member review, a summary of Capital
Expenditures, the Product Mix, a human resources discussion summarizing
staffing level assumptions and an overall management summary addressing the
business operations and related strategic business assumptions;
(d) within a reasonable time, any other financial information
that may be reasonably requested from time to time by a Member.
11.3 1997 Provisional Operating Budget. The Provisional Operating
Budget for the Company's 1997 fiscal year is attached as Exhibit F.
ARTICLE XII
Fiscal Year
The fiscal year of the Company shall end on the thirty-first (3lst)
day of December in each calendar year.
ARTICLE XIII
Company Funds
The funds of the Company shall be deposited in such bank accounts, or
invested in such interest-bearing or non-interest-bearing accounts, as shall be
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designated by the Management Committee. All withdrawals from any such bank
accounts shall be made by the officers or other agent or agents duly authorized
by the Management Committee. Company funds shall not be commingled with those
of any other Person.
ARTICLE XIV
Meetings of Members
14.1 Annual Meeting. The annual meeting of the Members shall be held
each year at the place, time and date, as may be fixed by the Management
Committee. Members of the Company may participate in a meeting by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting. At the
annual meeting the Members will ratify the appointment of a national public
accounting firm as the Company's independent auditor to serve until the next
annual meeting. The initial independent auditors shall be Ernst & Young, LLP.
14.2 Special Meetings. A meeting of the Members for any purpose or
purposes may be called at any time by the Management Committee and shall be
called at any time by the Management Committee upon the written request of any
Member entitled to vote at such meeting. Such request shall state the purpose
for which such meeting is to be called.
14.3 Notice of Meeting. Every Member shall furnish the Company through
the Management Committee an address at which notices of meetings and all other
notices may be served on or mailed to it. Notice of each meeting of the Members
shall be given to each Member entitled to vote at such meeting not less than
ten (10) nor more than sixty (60) days before the date on which the meeting is
to be held, either by facsimile or by delivering written notice thereof by
mailing such notice in a first-class postage prepaid envelope addressed to such
member at its facsimile number or post-office address furnished by it to the
Company, or if it shall not have furnished to the Company its address, then at
its post-office address last known to the Company, or, in the absence of
knowledge on the part of the Company of any such post-office address, then at
the office of the Company. Notice of a meeting of the Members shall provide the
place, date and hour of the meeting, indicate that it is being issued by or at
the direction of the Person or Persons calling the meeting, and provide an
agenda which describes in detail the matters proposed to be considered at such
meeting. An affidavit of any Representative that notice has been given shall,
in the absence of fraud, be prima facie evidence of the facts stated therein.
When a meeting is adjourned to another time and place, it shall not be
necessary to give any notice, except for twenty-four hours notice to any absent
Member, of the adjourned meeting if the time and place to which the meeting is
adjourned are announced at the meeting
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at which the adjournment is taken, and at the adjourned meeting any business
may be transacted that might have been transacted at the original date of the
meeting but shall be limited to the items listed with specificity on the agenda
for the original date.
14.4 Waiver of Notice. Notice of a meeting need not be given to any
Member who submits a signed waiver of notice, in person or by proxy, whether
before or after the meeting. The attendance of any Member at a meeting, in
person or by proxy, without protesting prior to the conclusion of the meeting
the lack of notice of such meeting, shall constitute a waiver of notice by it.
14.5 Quorum. A Majority in Interest of the Members of the Company
entitled to vote at a meeting shall constitute a quorum for the transaction of
business when present at such meeting either in person or by proxy, provided
that for a meeting to be validly convened, at least one Representative of each
of the Members must be present at such meeting. If a Representative of one or
more of the Members is not present, a second meeting for which due notice has
been given may be validly held to address the same matters of business in which
a Majority in Interest of the Members of the Company entitled to vote at the
meeting shall constitute a quorum when present at such meeting either in person
or by proxy, irrespective of whether or not each Member is represented.
14.6 Voting.
(a) When voting on any matter that requires the vote at a
meeting of the Members pursuant to the Act, the Certificate or this Agreement,
each Member shall vote in proportion to such Member's Percentage Interest.
(b) Whenever any action is to be taken under the Act by the
Members, such action shall be authorized by a vote of the Majority in Interest
of the Members cast at a meeting of Members entitled to vote thereon.
14.7 Proxies. Each Member entitled to vote at any meeting of Members
may authorize another Person or Persons to act as its proxy by an instrument in
writing signed by such Member or its attorney-in-fact.
14.8 Action Without a Meeting. Whenever Members of the Company are
required or permitted to take any action by vote, such action may be taken
without a meeting, without prior notice and without a vote, if consent or
consents in writing, setting forth the action so taken shall be signed by all
the Members and shall be delivered to the office of the Company by hand or by
certified or registered mail, return receipt requested.
14.9 Member's Power. A Majority in Interest of the Members may amend
or modify this Agreement from time to time by a written agreement signed by
them, and
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any such action shall be binding on all Members and be as effective as if taken
by all Members, except that:
(a) at any time the Nortel Member, the Williams Member or an
Affiliate of either of them is a Member, this Agreement may not be amended or
modified without the consent of such Member or Members, as the case may be, but
the foregoing requirement shall not inure to the benefit of an assignee of
either the Nortel Member's or the Williams Member's Membership Interest other
than an Affiliate of the assignor;
(b) Articles VII, XIV, XV, and XX and Sections 2.1, 8.3, 9.1,
17.1, 19.2, 19.3, 19.4, 19.5 and 23.3 may be amended only if recommended for
approval by the affirmative vote of a Supermajority of the Representatives; and
(c) no amendment or modification of this Agreement shall
adversely affect any payments accrued and due or to be come due to any Member
or to the legal representative of a former Member or of its estate or
successor-in-interest, without the consent of such Member or such legal
representative.
The effective date of an amendment or modification, unless otherwise specified
therein, shall be the first day of the fiscal year in which such amendment or
modification was adopted.
14.10 Contracts. No Member will have the right to enter into contracts
or other commitments binding upon the Company.
ARTICLE XV
Management; Management Committee
15.1 Management by Management Committee. The business and affairs of
the Company shall be managed under the direction of the Management Committee in
accordance with the terms and provisions of this Agreement. Approval by or
action taken by the Management Committee in accordance with this Agreement
shall constitute approval or action by the Company and shall be binding on the
Members. No Member shall bind the Company or otherwise act on its behalf and no
Representative shall bind the Company or otherwise act on its behalf without
the prior authorization of the Management Committee to take such action. If any
Member breaches or threatens to breach the covenant provided in the preceding
sentence, the Company and the other Member may exercise any remedies available
to them in law or in equity, including seeking an injunction restraining such
Member from breaching such covenant.
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15.2 Organization of Management Committee.
(a) The Management Committee shall be composed of ten (10)
individuals.
(b) Each Member shall have the right to appoint an individual
or individuals to represent it on the Management Committee (individually, such
Member's "Representative" and collectively, such Member's "Representatives") in
accordance with this Section 15.2(b). The Nortel Member shall have the right to
appoint to the Management Committee three (3) Representatives so long as its
Percentage Interest is 20.0% or more, two (2) Representatives so long as its
Percentage Interest is equal to or more than 15.0% and one (1) Representative
so long as its Percentage Interest is equal to or more than 5.0%. The Williams
Member shall have the right to appoint the remaining Representatives of the
Management Committee. No individual may serve as the Representative of more
than one Member. As of the date hereof, each Member's Representatives are those
individuals listed on Exhibit G.
(c) Each Member reserves the right to remove any one or more
of its Representatives and to appoint successors and substitutes therefor, from
time to time, and any such change shall be effective upon such Member
delivering a written notice of such change to the other Member. Unless
otherwise removed in accordance with this Section 15.2(c), each Representative
shall serve until the earliest of such Representative's resignation, death, or
inability to serve. Any Representative may resign upon ten (10) business days
written notice to the Company.
(d) The individual serving as the Chairman of the
Management Committee of the Company shall be a member of the Management
Committee.
15.3 Third Parties Dealing with the Company
(a) To expedite the handling of Company business, it is
understood and agreed that any document executed by a Representative of a
Member shall, as to any third parties, be deemed to be the action of the Member
appointing such Representative. Further, any Person dealing with the Company
may rely upon a certificate signed by a Representative of each Member as to:
(b) the identity of the Members and their Representatives;
(c) the existence or nonexistence of any fact or facts that
constitute conditions precedent to acts by the Company or are in any other
manner related to the affairs of the Company;
(d) the Persons who are authorized to execute and deliver any
instrument or document of the Company;
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(e) any act or failure to act by the Company or the Management
Committee; or
(f) any other matter whatsoever involving the Company or the
Management Committee.
15.4 Duties and Powers of Management Committee. Subject to the terms
of this Agreement, the property, business and affairs of the Company will be
managed, and the conduct of its business will be controlled by, the Management
Committee. Except as otherwise provided hereunder, the Management Committee
shall have all of the rights, powers and obligations of a class of managers as
provided in the Act and as otherwise provided by law. Without limiting the
generality of the foregoing, the Management Committee shall have the following
powers and the Representatives are authorized on behalf of the Company to do or
cause to be done the following:
(a) to supervise the property, business and affairs of the
Company and hire, on behalf of the Company, such professionals or other experts
as may be necessary or desirable in connection therewith;
(b) to determine, in their sole judgment, the amount, manner
of payment and date of any distributions to be made to the Members hereunder
subject to the provisions of Article IX hereof;
(c) to approve the annual Operating Budget; and,
(d) to make the elections requested by a Member pursuant to
Section 10.6(c).
15.5 Duties of Representatives.
(a) Each Representative shall perform his duties in good faith
and with that degree of care that an ordinarily prudent person in a like
position would use under similar circumstances. In performing his duties, each
Representative shall be entitled to rely on information, opinions, reports or
statements, including financial statements and other financial data, in each
case prepared or presented by: (1) one or more agents or employees of the
Company, or (2) counsel, accountants or other Persons as the matters that such
Representative believes to be within such Person's professional or expert
competence, provided such Representative has no knowledge concerning the matter
in questions that would cause such reliance to be unwarranted. A Person who so
performs his duties in accordance with this Section 15.5(a) shall have no
liability by reason of being or having been a Representative of the Company.
(b) Notwithstanding Section 15.5(a), the liability of a
Representative shall not be eliminated or limited if a judgment or other final
adjudication adverse to
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him establishes that his acts or omissions were in bad faith or involved
intentional misconduct or a knowing violation of law or that he personally
gained in fact a financial profit or similar advantage to which he was not
legally entitled.
(c) The Representatives do not in any way guarantee the return
of any Member's Capital Contribution or a profit for the Members from the
Company's business.
15.6 Qualification of Representatives. Each Representative shall be an
employee, officer or director of a Member or of an Affiliate thereof or an
employee or officer of the Company.
15.7 Action by Management Committee. Except as otherwise provided in
this Agreement, the Management Committee shall manage the Company by the
affirmative vote of a majority of the Representatives. Any action required or
permitted to be taken by the Management Committee may be taken without a vote
if all of the Representatives consent thereto in writing and such writings are
filed with the records of the Company. The Representatives may participate in a
meeting by means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting hear each other. Such
participation shall constitute presence in person at such meeting.
15.8 Meetings of the Management Committee. Regular meetings of the
Management Committee shall be held periodically, but no less frequently than
every second month, on such dates, at such times and at such locations as the
Management Committee shall from time to time determine, taking into account the
convenience of all parties. The individual then serving as the Chairman of the
Management Committee or any Representative may call a special meeting of the
Management Committee. Notice of any meeting shall include an agenda which
describes in detail the matters proposed to be considered at such meeting
(including, without limitation, whether such matters require the approval of a
Supermajority of the Representatives in accordance with Section 15.12(a))and
shall be given to all participants by the Person calling the meeting, under
normal circumstances at least ten (10) days prior to the meeting, although
shorter notice of a meeting (but not less than seventy-two hours) may be given
if the circumstances of urgency so require provided, however, that when a vote
of a Supermajority of the Representatives is required, ten (10) days notice
must be given. All notices of Management Committee meetings shall be given
either in writing, or by telephone if immediately followed by written
confirmation. Each Member agrees to use reasonable efforts to cause at least
one of its Representatives to attend, in the manner provided for herein, all
Management Committee meetings.
15.9 Quorum. A majority of the Representatives of the Management
Committee including at least one Representative of each of the Members shall
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constitute a quorum for the transaction of business when present at a meeting
in person (including by means of telephone conference or similar equipment). If
a Representative of one or more of the Members is not present, a second meeting
for which forty-eight hours notice has been given may be validly held to
address the same matters of business in which a majority of the Representatives
of the Management Committee shall constitute a quorum when present at such
meeting either in person (including by means of telephone conference or similar
equipment) or by proxy, irrespective of whether or not each Member is
represented.
15.10 Technology, Human Resources and Audit Committees.
(a) The Management Committee shall establish a Technology
Committee (the "Technology Committee"), a Human Resources Committee (the "Human
Resources Committee") and an Audit Committee (the "Audit Committee"). The
Technology Committee and Human Resources Committee both shall have four (4)
members, two of which shall be appointed by the Williams Member and two of
which shall be appointed by the Nortel Member. The Audit Committee shall have
four (4) members, two of which shall be appointed by the Williams Member and
two of which shall be appointed by the Nortel Member.
(b) The functions and scope of the Technology Committee shall
be as set forth on Exhibit H.
(c) The functions and scope of the Human Resources Committee
shall be as set forth on Exhibit I.
(d) The functions and scope of the Audit Committee shall be as
set forth on Exhibit J.
15.11 Other Committees. The Management Committee may establish other
committees from time to time as may be required by the operation of the
business of the Company whose functions shall be set forth in the resolutions
establishing such committees. The number of members of any such committee shall
be determined by the Management Committee and the individual members shall be
designated by the Management Committee from time to time.
15.12 Supermajority Approval by the Representatives.
(a) Notwithstanding any other provisions of this Agreement to
the contrary, for so long as either the Nortel Member's or the Williams
Member's Percentage Interest is not less than 20%, as the case may be, the
affirmative vote or written consent of a Supermajority of the Representatives,
shall be required to do or permit to be done any of the following acts with
respect to the Company, its business or assets:
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(i) Approve the first Annual Budget;
(ii) Approve or authorize any material act or
material activity of the Company not consistent with or outside the
scope of the business of the Company as described on Exhibit K hereto;
(iii) Dissolve or liquidate the Company or appoint a
Liquidator other than the Members; cause the Company to commence a
voluntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or of any
other voluntary case or proceeding to be adjudicated a bankrupt or
insolvent; cause the Company to make an assignment for the benefit of
creditors, or admit in writing its inability to pay its debts
generally as they become due, or to take action in furtherance of any
such action; cause the Company to consent to (1) the entry of a decree
or order for relief against the Company in an involuntary case or
proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law, (2) the commencement
of any bankruptcy or insolvency case or proceeding against the
Company, (3) the filing of a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law,
(4) the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or similar official of any
substantial part of the Company's property; cause the Company to file
a petition or answer or consent seeking reorganization or relief under
any applicable federal or state law, or (5) fail to pursue or decide
not to pursue an indemnity against a Member or any of its respective
Affiliates.
(iv) (A) Approve a merger or consolidation of the
Company with or into another Person if the surviving entity of such
merger or consolidation is not the Company, or (B) if the surviving
entity is the Company and (x) the consideration for such merger or
consolidation is in excess of $20,000,000 and (y) such merger or
consolidation was not included in the Operating Budget for the then
current fiscal year;
(v) Except as provided in Section 19.3(e), approve a
recapitalization or any change in the legal structure of the Company;
(vi) Approve any distribution of cash to the Members
if such distribution is not to be made in proportion to their
Percentage Interests;
(vii) Approve any distribution of assets or property
of the Company, other than cash, to the Members;
(viii) Approve (A) the Capital Expenditures of the
Company and (B) the purchases, acquisitions or investments of the type
described in
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paragraph (ix) below, or the mergers or consolidations of the type
described in clause (B) of paragraph (iv) above, set forth in the
Operating Budget for any fiscal year of the Company if the aggregate
amount of such Capital Expenditures, purchases, acquisitions including
any Debt assumed as part of an acquisition and any investments
required to sustain operations where cash flow deficiencies are
anticipated on a go-forward basis over the next three (3) years,
investments (including, without limitation, joint ventures), mergers
and consolidations for such fiscal year, as set forth in the Operating
Budget, is to be greater than EBITDA of the Company as set forth in
the most recent audited financial statements of the Company;
(ix) Purchase or otherwise acquire, or agree to
purchase or otherwise acquire, all or any part of the property, assets
or capital stock of any Person (other than purchases or other
acquisitions of inventory, materials, equipment and intangible assets
in the ordinary course of business) in one or a series of related
transactions, or make any investment (including, without limitation,
joint ventures) in any Person, or incur any other obligations (e.g.
guarantees) excluding those arising from the incurrence of Debt, in
each case involving in excess of $20,000,000, if such purchase,
acquisition, investment or obligation, as the case may be, was not
included in the Operating Budget for the then current fiscal year;
(x) Make or agree to make any individual Capital
Expenditure in excess of $5,000,000 if such Capital Expenditure was
not included in the Operating Budget for the then current fiscal year;
(xi) Sell or otherwise dispose of, or agree to sell
or otherwise dispose of, any of the assets of the Company (other than
sales of inventory, materials, equipment and intangible assets in the
ordinary course of business) in one or a series of related
transactions the aggregate of the greater of book or fair market value
of which is greater than $20,000,000, if such sale or other
disposition was not specifically identified in the Operating Budget
for the then current fiscal year;
(xii) Incur additional Long-Term Debt if, after
giving affect to such incurrence, the Leverage Ratio would be greater
than 1:2 for a period of greater than 30 days;
(xiii) Approve the Product Mix set forth in the
Operating Budget if it is less than the Product Mix Threshold; or
(xiv) Cause the Company to enter into any contract
to do any of the foregoing.
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The supermajority items set forth above shall apply individually, each one
irrespective of the other.
(b) Notwithstanding any other provisions of this Agreement to
the contrary and without prejudice to Sections 19.2, 19.3, and 19.6 hereof, for
so long as the Nortel Member's Percentage Interest or the Williams Member's
Percentage Interest is not less than 10%, the consent of the Nortel Member or
the Williams Member, as the case may be, shall be required to accept any
additional Members pursuant to Articles XIX or XXI, such consent not to be
unreasonably withheld; provided however, that (i) the Nortel Member may
withhold its consent in its sole discretion in the event that such proposed
additional Member is a competitor in the primary line(s) of business of the
Nortel Member or its Ultimate Parent, and (ii) the Williams Member may withhold
its consent in its sole discretion in the event that such proposed additional
Member is a competitor in the primary line(s) of business of the Williams
Member or its Ultimate Parent. The foregoing provision shall not inure to the
benefit of any assignee of the Nortel Member's Membership Interest other than
the Nortel Member, NTL or their Affiliates or any assignee of the Williams
Member's Percentage Interest other than an Affiliate of the Williams Member.
15.13 Affiliated Transactions. The Members agree that the Management
Committee may, from time to time, enter into arm's-length transactions on
behalf of the Company with the Williams Member, the Nortel Member, a new
Member, any substituted Member, and their respective Affiliates. "Arms-length
transaction" for purposes of this section shall mean market conditions or
better from the Company's perspective for services or products of the same or
better quality with a Member having the right to match any offer from a third
party vendor. The Williams Member or the Nortel Member shall be entitled to
charge the Company prices for those operating, management, and administrative
services utilized by the Company which are competitive with what the Company
could have obtained in similar transactions with unrelated third parties. In
addition, the Williams Member or the Nortel Member shall be entitled to charge
the Company for reasonable allocations of overhead from its parent company
directly applicable to the provision of operating, management, and
administrative services to the Company. Subject to the foregoing provisions of
this Section 15.13, the terms of any such arrangement and of other transactions
with the Williams Member, the Nortel Member, or their Affiliates, shall be as
determined by the Company, acting through the Management Committee, and the
other party. The Williams Member shall, not more than 30 days after the end of
each fiscal year of the Company, provide to the Audit Committee a description,
in reasonable detail, of the terms of each transaction between the Williams
Member or any of its Affiliates and the Company if the expenditure by the
Company related thereto will be in excess of $1,000,000 in any fiscal year. All
such transactions shall be reviewed as to appropriateness by the Audit
Committee, though such review may take place after the transaction has
occurred. The Audit Committee shall provide a summary report to the Management
Committee of all such transactions.
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ARTICLE XVI
Officers
16.1 Appointment and Tenure.
(a) Subject to the provisions hereof, the Management
Committee, shall from time to time designate officers of the Company to carry
out the day-to-day business of the Company.
(b) Subject to the provisions of Section 16.1(c), the officers
of the Company shall be comprised of one or more individuals designated from
time to time by the Management Committee. No officer need be a resident of the
State of Delaware. Each officer shall hold his offices for such terms and shall
have such authority and exercise such powers and perform such duties as shall
be determined from time to time by the Management Committee. Any number of
offices may be held by the same individual. The salaries or other compensation,
if any, of the officers and agents of the Company shall be fixed from time to
time by the Management Committee.
(c) The officers of the Company will include a Chairman of the
Management Committee, a Chief Executive Officer, a President, a Chief Financial
Officer, and a Secretary. The officers may also include a Treasurer, one or
more Vice Presidents, Assistant Secretaries and Assistant Treasurers. The
Management Committee may designate such other officers and assistant officers
and agents as the Management Committee shall deem necessary.
16.2 Removal. Any officer may be removed as such at any time by the
Management Committee, either with or without cause, in the discretion of the
Management Committee; provided, that such removal shall be without prejudice to
the contract rights, if any, of the Person so removed. Designation of an
officer shall not of itself create contract rights.
16.3 Chairman of the Management Committee. The Chairman of the
Management Committee shall direct the policy of the Company, subject, however,
to the control of the Management Committee. The Chairman shall, if present,
preside at all meetings of the Management Committee and of the Members. The
Chairman may sign and execute in the name of the Company deeds, mortgages,
bonds, contracts and other instruments, except in cases where the signing and
execution thereof shall be expressly delegated by the Management Committee to
some other officer or agent of the Company, or shall be required by law
otherwise to be signed or executed. The Chairman shall have the power to
appoint, determine the duties and fix the compensation of such agents and
employees as in the Chairman's judgment may be
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necessary or proper for the transaction of the business of the Company,
including the right of removal of any officer, with or without cause, and the
termination of employment of any employee. In general, the Chairman shall
perform all duties incident to the office of Chairman of the Management
Committee, and such other duties as may from time to time be assigned by the
Management Committee. The initial Chairman of the Management Committee shall be
Howard E. Janzen who shall serve until his successor is appointed by the
Management Committee or until his earlier resignation or removal.
16.4 Chief Executive Officer. The Chief Executive Officer may sign
and execute in the name of the Company deeds, mortgages, bonds, contracts and
other instruments, except in cases where the signing and execution thereof
shall be expressly delegated by the Management Committee to some other officer
or agent of the Company, or shall be required by law otherwise to be signed or
executed. The Chief Executive Officer shall have the power to appoint,
determine the duties and fix the compensation of such agents and employees as
in the judgment of the Chief Executive Officer may be necessary or proper for
the transaction of the business of the Company, including the right of removal
of any officer (other than the Chairman of the Management Committee), with or
without cause, and the termination of employment of any employee. In general,
the Chief Executive Officer shall perform all duties incident to the office and
such other duties as may from time to time be assigned by the Management
Committee or the Chairman of the Management Committee. The initial Chief
Executive Officer shall be Howard E. Janzen who shall serve until his successor
is appointed by the Management Committee or until his earlier resignation or
removal.
16.5 President. The President shall have general supervision of the
business of the Company. During the absence or disability of the Chairman of
the Management Committee and the Chief Executive Officer, the President shall
exercise all the powers and discharge all the duties of the Chairman of the
Management Committee and the Chief Executive Officer. The President may sign
and execute in the name of the Company deeds, mortgages, bonds, contracts and
other instruments, except in cases where the signing and execution thereof
shall be expressly delegated by the Management Committee to some other officer
or agent of the Company, or shall be required by law otherwise to be signed or
executed. The President shall have the power to appoint, determine the duties
and fix the compensation of such agents and employees as in the judgment of the
President may be necessary or proper for the transaction of the business of the
Company, including the right of removal of any officer (other than the Chairman
of the Management Committee and the Chief Executive Officer), with or without
cause, and the termination of employment of any employee. In general, the
President shall perform all duties incident to the office of President, and
such other duties as may from time to time be assigned by the Management
Committee or the Chairman of the Management Committee. The initial
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President shall be Garry K. McGuire who shall serve until his successor is
appointed by the Management Committee or until his earlier resignation or
removal.
16.6 Chief Financial Officer. The Chief Financial Officer shall
perform such duties and have such authority and powers as the Management
Committee may from time to time prescribe.
16.7 Vice Presidents. The Vice Presidents, if any are designated, in
the order of their seniority, unless otherwise determined by the Management
Committee, shall, in the absence or disability of the President, perform the
duties and have the authority and exercise the powers of the President. They
shall perform such other duties and have such other authority and powers as the
Management Committee may from time to time prescribe.
16.8 Secretary; Assistant Secretaries. The Secretary, if one is
designated, shall attend all meetings of the Management Committee and record
all of the proceedings of the meetings in a minute book to be kept for that
purpose and shall perform like duties for any committees that might be formed
by the Management Committee. The Secretary shall perform such other duties and
have such other powers as the Management Committee may from time to time
prescribe. The Assistant Secretaries, if any are designated, in the order of
their seniority, unless otherwise determined by the Management Committee,
shall, in the absence or disability of the Secretary, perform the duties and
exercise the powers of the Secretary. They shall perform such other duties and
have such other powers as the Management Committee may from time to time
prescribe.
16.9 Treasurer; Assistant Treasurers. The Treasurer, if one is
designated, shall have custody of the Company's funds and securities and shall
keep full and accurate accounts and records of receipts, disbursements and
other transactions in books belonging to the Company, and shall deposit all
moneys and other valuable effects in the name and to the credit of the Company
in such depositories as may be designated from time to time by the Management
Committee. The Treasurer shall disburse the funds of the Company as may be
ordered by the Management Committee, taking proper vouchers for such
disbursements, and shall render to the Chief Executive Officer, the President
and the Members, when so directed, an account of all his transactions as
Treasurer and of the financial condition of the Company. The Treasurer shall
perform such other duties and have such other powers as the Management
Committee may from time to time prescribe. If required by the Management
Committee, the Treasurer shall give the Company a bond of such type, character
and amount as the Management Committee may require. The Assistant Treasurers,
if any are designated, in the order of their seniority, unless otherwise
determined by the Management Committee, shall, in the absence or disability of
the Treasurer, perform the duties and exercise the powers of the Treasurer.
They shall
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perform such other duties and have such other powers as the Management
Committee may from time to time prescribe.
16.10 Vacancies. In case of a vacancy in any of the offices set forth
in Sections 16.3, 16.4 and 16.5, a successor officer shall be elected by the
Management Committee. The Management Committee may also elect a successor to
any other vacant office.
ARTICLE XVII
Liability and Exculpation
17.1 Liability.
(a) To the fullest extent permitted under the Act or any other
applicable law in effect on the date of this Agreement or hereafter in effect,
no Member or any agent acting on behalf of such Member or the Company
(including a Person having more than one such capacity) shall be liable for any
debts, obligations or liabilities of the Company or of each other, whether
arising in tort, contract or otherwise, solely by reason of being a Member or
agent or acting (or omitting to act) in such capacities or participating (as an
employee, consultant, contractor or otherwise) in the conduct of the business
of the Company. Each of the Members shall be liable only to make payment of its
respective initial Capital Contribution hereunder and other payments as
expressly provided in this Agreement. No Member shall be required to lend any
funds to the Company or, after such Member's initial Capital Contribution has
been made, except as provided by the provisions of section 18-607 of the Act
and Section 8.2(b), to make any further Capital Contribution or pay any
assessment or payment to the Company.
(b) No Member shall be liable for the return of any portion of
the Capital Contribution of any other Member. The return of Capital
Contributions shall be made solely from the assets of the Company. No Member
shall be required to pay the Company or any other Member any deficit in any
Member's Capital Account upon dissolution or otherwise.
17.2 Exculpation.
(a) No Covered Person shall be liable to the Company or any
Member under any theory of law, including tort, contract or otherwise,
including a Covered Person's own negligence, for any loss, damage or claim
incurred by reason of any act or omission (including decisions to vote for or
against any matter) performed or omitted by such Covered Person in good faith
on behalf of the Company and in a manner reasonably believed to be within the
scope of authority conferred on such
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Covered Person by this Agreement, except that a Covered Person shall be liable
for any such loss, damage or claim incurred by reason of such Covered Person's
gross negligence or willful misconduct.
(b) A Covered Person shall be fully protected in relying in
good faith upon the records of the Company and upon such information, opinions,
reports or statements presented to the Company by any Person as to matters the
Covered Person reasonably believes are within such other Person's professional
or expert competence and who has been selected with reasonable care by or on
behalf of the Company, including information, opinions, reports or statements
as to the value and amount of the assets, liabilities, profits, losses, or any
other facts pertinent to the existence and amount of assets from which
distributions to Members might properly be paid.
17.3 Duties and Liabilities of Covered Persons.
(a) To the extent that, at law or in equity, a Covered Person
has duties (including fiduciary duties) and liabilities relating thereto to the
Company or to any other Covered Person arising under this Agreement, a Covered
Person acting under this Agreement shall not be liable to the Company or to any
other Covered Person for actions (including decisions to vote for or against
any matter) taken by it in good faith reliance on the provisions of this
Agreement. The provisions of this Agreement, to the extent that they restrict
the duties and liabilities of a Covered Person otherwise existing at law or in
equity, are agreed by the parties hereto to replace such other duties and
liabilities of such Covered Person.
(b) Unless otherwise expressly provided herein, whenever a
conflict of interest exists or arises between a Covered Person and the Company
or a Member, the Covered Person shall disclose such conflict to the Management
Committee and shall resolve such conflict of interest, taking such action or
providing such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any
customary or accepted industry practices, and any applicable generally accepted
accounting practices or principles. In the absence of bad faith by the Covered
Person and subject to such disclosure, the resolution, action or term so made,
taken or provided by the Covered Person shall not constitute a breach of this
Agreement or any other agreement contemplated herein or of any duty or
obligation of the Covered Person at law or in equity or otherwise.
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ARTICLE XVIII
Indemnification
18.1 Power to Indemnify in Actions, Suits or Proceedings Other Than
Those by or in the Right of the Company. Subject to Section 18.3 of this
Agreement, the Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Company) by reason of the fact
that such person is or was a Representative, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding if 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 Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which such person reasonably believed to be
in or not opposed to the best interests of the Company, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
conduct was unlawful.
18.2. Power to Indemnify in Actions, Suits or Proceedings by or in the
Right of the Company. Subject to Section 18.3 of this Agreement, the Company
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Company to procure a judgment in its favor by reason of the fact that
such person is or was a Representative, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a
Representative, officer, employee or agent of another Company, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred in connection with the defense or
settlement of such action or suit if 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 Company; except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Company unless and only to the extent that the
Court of Chancery of the State of Delaware or the court in which such action or
suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnify for such expenses
which the Court of Chancery of the State of Delaware or such other court shall
deem proper.
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18.3. Authorization of Indemnification. Any indemnification under this
Agreement (unless ordered by a court) shall be made by the Company only as
authorized in the specific case upon a determination that indemnification of
the Representative, officer, employee or agent is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section 18.1 or Section 18.2 of this Agreement, as the case may be. Such
determination shall be made (a) by the Management Committee by a majority vote
of a quorum consisting of Representatives who were not parties to or
financially interested in such action, suit or proceeding, or (b) if such a
quorum is not obtainable, or, even if obtainable a quorum of disinterested
Representatives so directs, by independent legal counsel in a written opinion,
or (c) by the Members. To the extent, however, that a Representative, officer,
employee or agent of the Company has been successful on the merits or otherwise
in defense of any action, suit or proceeding described above, or in defense of
any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred in
connection therewith, without the necessity of authorization in the specific
case.
18.4. Good Faith Defined. For purposes of any determination under
Section 18.3 of this Agreement, a person shall be deemed to have acted in good
faith and in a manner such person reasonably believed to be in or not opposed
to the best interests of the Company, or, with respect to any criminal action
or proceeding, to have had no reasonable cause to believe such person's conduct
was unlawful, if such person's action is based on the records or books of
account of the Company or another enterprise, or on information supplied to
such person by the officers of the Company or another enterprise in the course
of their duties, or on the advice of legal counsel for the Company or another
enterprise or on information or records given or reports made to the Company or
another enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Company or
another enterprise. The term "another enterprise" as used in this Section 18.4
shall mean any other Company or any partnership, joint venture, trust or other
enterprise of which such person is or was serving at the request of the Company
as a Representative, officer, employee or agent. The provision of this Section
18.4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Sections 18.1 or 18.2 of this Agreement, as
the case may be.
18.5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 18.3 of this Agreement, and
notwithstanding the absence of any determination thereunder, any
Representative, officer, employee or agent may apply to any court of competent
jurisdiction in the State of Delaware for indemnification to the extent
otherwise permissible under Sections 18.1 and 18.2 of this Agreement. The basis
of such indemnification by a court shall be a determination by such court that
indemnification of the Representative, officer, employee or agent is proper in
the circumstances because such person has met the applicable standards
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of conduct set forth in Sections 18.1 or 18.2 of this Agreement, as the case
may be. Notice of any application for indemnification pursuant to this Section
18.5 shall be given to the Company promptly upon the filing of such
application.
18.6. Expenses Payable in Advance. Expenses incurred by an officer or
Representative in defending a civil or criminal action, suit or proceeding may
be paid by the Company in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the
Representative or officer to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified by the Company as
authorized in this Article XVIII. Such expenses incurred by other employees and
agents shall be so paid upon such terms and conditions, if any, as the
Management Committee deems appropriate.
18.7. Nonexclusivity of Indemnification and Advancement of Expenses.
The indemnification and advancement of expenses provided by or granted pursuant
to this Agreement shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any By-law, agreement, contract, vote of Members or disinterested
Representatives or otherwise, both as to action in such person's official
capacity and as to action in another capacity while holding such office, it
being the policy of the Company that indemnification of the persons specified
in Sections 18.1 and 18.2 of this Agreement shall be made to the fullest extent
permitted by law. The provisions of this Agreement shall not be deemed to
preclude the indemnification of any person who is not specified in Sections
18.1 and 18.2 of this Agreement but whom the Company has the power or
obligation to indemnify under the provisions of the General Company Law of the
State of Delaware, or otherwise.
18.8. Insurance. The Company may purchase and maintain insurance on
behalf of any person who is or was a Representative, officer, employee or agent
of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another Company, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Company would have the power or the
obligation to indemnify such person against such liability under the provisions
of this Article XVIII.
18.9. Meaning of "Company" and "Other Enterprises" for the Purposes of
Article XVIII. For purposes of this Article XVIII, references to "the Company"
shall include, in addition to the resulting Company, any constituent Company
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its Representatives, officers, employees or agents so
that any person who is or was a director, officer, employee
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or agent of such constituent Company, or is or was serving at the request of
such constituent Company as a director, officer, employee or agent of another
Company, partnership, joint venture, trust or other enterprise, shall stand in
the same position under the provisions of this Article XVIII with respect to
the resulting or surviving Company as such person would have with respect to
such constituent Company if its separate existence had continued.
For purposes of this Article XVIII, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Company" shall include any service
as a Representative, officer, employee or agent of the Company which imposes
duties on, or involves services by, such Representative, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Company" as referred to in this Article
XVIII.
18.10. Survival of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses provided by, or granted pursuant
to, this Article XVIII shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a Representative,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
ARTICLE XIX
Transfer of Interests by Members
19.1 Restrictions on Transfers.
(a) Without prejudice to Section 15.12(b), no Member shall
have the right, directly or indirectly, to Transfer its interest in the
Company, or any portion thereof, without the prior written consent of the other
Member except as specifically provided in this Article XIX; provided however,
that no Member may unreasonably withhold its consent as to a proposed
transferee so long as Section 19.6 has been complied with and the terms of
Sections 19.2 and 19.3 would not be breached; and, provided further, that (i)
the Nortel Member may withhold its consent in its sole discretion in the event
that such proposed transferee is a competitor in the primary line(s) of
business of the Nortel Member or its Ultimate Parent, and (ii) the Williams
Member may withhold its consent in its sole discretion in the event that such
proposed transferee is a competitor in the primary line(s) of business of the
Williams Member or its Ultimate Parent. Any attempted transfer or assignment of
any interest in the Company in violation of the provisions of this Article XIX
shall be void and of no force and effect. Any permitted transferee of a
Membership Interest shall agree, prior to any sale, transfer, assignment or
conveyance, to become a party to this Agreement and agree to be bound by all
applicable terms and conditions, including this Article
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XIX. Upon becoming a party to this Agreement, each such purchaser or transferee
shall be substituted fully for, and shall enjoy the same rights and be subject
to the same duties and obligations as its predecessor hereunder.
(b) Either Member may Transfer all, but not less than all, of
its Membership Interest, and each Member's Ultimate Parent may Transfer, or
cause to be Transferred, all, but not less than all, of the capital stock of
such Member, to an Affiliate of such Member provided that (i) all the capital
stock or other equity interest of such Affiliate is owned, directly or
indirectly, by such Members' Ultimate Parent and (ii) each such purchaser or
transferee, prior to such sale, assignment or transfer, becomes a party to this
Agreement and agrees to be bound by all applicable terms and conditions,
including this Article XIX.
19.2 Prohibitions on Transfer by Williams Member. Subject to Section
19.4, the Williams Member shall not, during the Minimum Holding Period, but
only for so long as the Nortel Member's Percentage Interest is not less than
20%, Transfer all or a portion of its Membership Interest, if, after giving
effect to such Transfer, the Williams Member's Percentage Interest shall be 50%
or less.
19.3 Prohibitions on Transfer by Nortel Member.
(a) Subject to Section 19.4, the Nortel Member shall not
Transfer all or a portion of its Membership Interest other than pursuant to
Section 19.1(b) if, after giving effect to such Transfer, the Nortel Member's
Percentage Interest shall be less than 20%; provided, however, in the event
that the Nortel Member's Percentage Interest shall have been reduced to 20%,
the Nortel Member may, subject to the terms and conditions of this Article XIX,
Transfer all but not less than all of its Membership Interest at any time after
the date that is five (5) years after the date its Percentage Interest shall
have been reduced to 20%, to the Williams Member (or, in the sole discretion of
the Williams Member, an Affiliate of the Williams Member or the Company), for a
purchase price (the "Exit Purchase Price") equal to the fair market value of
such Membership Interest as determined by an investment banking firm of
international reputation mutually agreed upon by the Williams Member and the
Nortel Member using the valuation methodology set forth on Exhibit L (the
"Valuation Methodology"). The cost incurred by the engagement of such
investment banking firm shall be divided equally between the Williams Member
and the Nortel Member.
(b) If the Nortel Member shall determine to sell its
Membership Interest pursuant to Section 19.3(a), the Nortel Member shall
provide the Williams Member with a written offer (the "Exit Offer") to purchase
such Membership Interest on the terms and conditions set forth in this Section
19.3. The Williams Member shall, within sixty (60) days of receipt of the Exit
Offer, deliver written notice to the Nortel Member of its intention to accept
or reject the Exit Offer. Failure by the Williams Member to
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accept or reject the Exit Offer within such sixty-day period shall be deemed a
rejection of such offer.
(c) In the event that the Williams Member shall accept the
Exit Offer, the closing of the purchase by the Williams Member of the Nortel
Member's Membership Interest shall take place on the date that is ninety (90)
days after the date of such acceptance. At such closing, the Nortel Member
shall deliver to the Williams Member such instruments, documents and agreements
to evidence such Transfer as the Williams Member may reasonably request and the
Williams Member shall pay to the Nortel Member the Exit Purchase Price by, at
the sole option of the Williams Member, (x) wire transfer to the Nortel Member
of immediately available funds in an amount equal to the Exit Purchase Price or
(y) delivery to the Nortel Member of that number of shares of common stock, of
the class currently outstanding, of the Williams Member's Ultimate Parent (or
any Affiliate of the Williams Member's Ultimate Parent) the common stock of
which is unrestricted (subject to compliance with the Securities Act and
applicable state securities laws), actively traded on a national securities
exchange and registered under the Securities Act, the aggregate Current Market
Price of which shall equal the Exit Purchase Price, together with such
instruments of transfer or conveyance as the Nortel Member may reasonably
request.
(d) In the event that the Williams Member rejects the Exit
Offer, the Nortel Member may, at its sole option, (x) sell its Membership
Interest without regard to the restrictions set forth in this Section 19.3 (but
subject to the terms and conditions of this Article XIX, including Section
19.6, but only if the Williams Member reimburses the Nortel Member for all of
its expenses incurred in connection with the proposed sale pursuant to Section
19.6) or (y) cause the Company to convert to corporate form and register the
Nortel Member's resulting equity interest under the Securities Act as set out
in Section 19.3(e).
(e) If the Nortel Member elects to cause the Company to
convert to corporate form and register the Nortel Member's resulting equity
interest under the Securities Act pursuant to Section 19.3(d), the Nortel
Member shall provide written notice of such election (a "Registration Notice")
to the Williams Member and the Company. Within ninety (90) days of receipt of
the Registration Notice, the Company shall, and each Member shall cause the
Company to, organize under the Delaware General Corporation Law a wholly-owned
subsidiary ("Delcorp") and merge with and into Delcorp pursuant to Section 264
of the Delaware General Corporation Law and Section 18-209 of the Act, with
Delcorp being the surviving entity of such merger. Immediately upon the
consummation of such merger, the Members' Membership Interest shall be
converted into shares of common stock (the "Delcorp Common Stock") in such
amounts as shall reflect each Member's Percentage Interest immediately prior to
the consummation of such merger. The Members shall cause Delcorp to effect
registration under the Securities Act of the Delcorp Common Stock
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held by the Nortel Member as expeditiously as possible after such merger in
accordance with the registration procedures set forth on Exhibit M.
19.4 Purchase and Sale Rights.
(a) In the event that the Product Mix for any two (2)
consecutive fiscal years of the Company (the "Reference Period") shall be less
than the Product Mix Threshold by more than 5%, then, at any time during the
period commencing on the first day after the Product Mix numbers first become
available of the fiscal year immediately succeeding the second of such fiscal
years and ending on the date that is six (6) months thereafter, (i) the
Williams Member or the Company may purchase the Nortel Member's Membership
Interest in accordance with Section 19.5(b); or (ii) the Nortel Member may sell
its Membership Interest to the Williams Member or the Company in accordance
with Section 19.5(a); provided however, that the provisions of this Section
19.4(a) shall not apply in the event that the rate of growth for the Reference
Period, of the aggregate Net Purchase Price paid by the Company to NTI and its
Affiliates for Nortel's PBX and Key system products only of the Existing
Products (the "Voice Product Purchases"), is equal to or greater than (x) the
rate of growth for the Reference Period, of the aggregate Voice Product
Purchases by each and every Distributor which has a territory under its CPE
Agreement encompassing the entire United States of America whose Voice Product
Purchases per annum are greater than $50,000,000 and (y) the rate of growth for
the Reference Period of the aggregate Voice Product Purchases by all
non-national territory, regional Distributors measured as a whole; provided
further that both (x) and (y) in the preceding proviso will be subject to
certification at the request of the Company by the independent auditors of NTI.
(b) In the event of a Change of Control of the Williams
Member, the Nortel Member may sell its Membership Interest to the Williams
Member at any time during the period commencing on the date of such Change of
Control and ending on the date that is 180 days after such date in accordance
with the terms of Section 19.5(a).
(c) In the event of a Change of Control of the Nortel Member,
the Williams Member may purchase the Membership Interest of the Nortel Member
at any time during the period commencing on the date of such Change of Control
and ending on the date that is 180 days after such date in accordance with the
terms of Section 19.5(b).
(d) In the event that the Williams Member or any of its
Affiliates shall fail to perform or observe any material agreement contained in
the Formation Agreement or the Non-Competition Agreement or in the event that
the Company shall fail to perform or observe any material agreement contained
in the WilTel Distributorship Agreement or its then current successor
agreement, the guarantee
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given pursuant to Section 6.3(p) of the Formation Agreement, or this Agreement
which failure shall remain unremedied for a period of 60 days after notice
thereto shall have been given to the Williams Member by the Nortel Member, the
Nortel Member may sell its Membership Interest to the Williams Member at any
time during the period commencing on the date that is 61 days after the giving
of such notice and ending on the date that is 30 days thereafter in accordance
with Section 19.5(a).
(e) In the event that the Nortel Member or any of its
Affiliates shall fail to perform or observe any material agreement of the
Nortel Member contained in the Formation Agreement, the TTS Share Purchase
Agreement, the WilTel Distributorship Agreement, the Non-Competition Agreement,
or this Agreement, which failure shall remain unremedied for a period of 60
days after notice thereof shall have been given to the Nortel Member by the
Williams Member, the Williams Member may purchase the Nortel Member's
Membership Interest at any time during the period commencing on the date that
is 61 days after the giving of such notice and ending on the date that is 30
days thereafter in accordance with Section 19.5(b).
(f) At any time after the Nortel Member's Percentage Interest
shall be less than 20%, the Williams Member may purchase the Nortel Member's
Membership Interest in accordance with Section 19.5(b).
(g) On or after December 31, 1999, the Nortel Member will
have the right to sell to the Williams Member, the portion of the Nortel
Member's Membership Interest in the Company necessary to reduce the Nortel
Member's Percentage Interest down to 20% in accordance with the terms of
Section 19.5(a).
(h) In the event that registration and, if applicable,
admission to listing on a stock exchange, is planned for the common stock of an
Affiliate of the Williams Member, fifty percent (50%) or more of the value of
which consists of an interest in the Company (such Affiliate hereinafter
referred to as the "Intended Listed Affiliate"), the Nortel Member shall be
given the opportunity to exchange its interest in the Company for shares of
common stock of the Intended Listed Affiliate ("Intended Listed Affiliate
Common Stock"), and to have the Nortel Member's ensuing interest in the
Intended Listed Affiliate included in such registration and, if applicable,
listing application and, as the case may be, public offering, subject to any
statutory or reasonably agreed restrictions, provided, that the exchange
involved shall be carried through on the basis of (a) the fair market valuation
of the Company, as determined by an investment banking firm mutually agreed
upon by the Williams Member and the Nortel Member using the Valuation
Methodology (the cost of such valuation to be borne by the Nortel Member), and
(b) the initial public offering price (giving full effect to any discounts on a
pro rata basis) of the shares of common stock of the Intended Listed
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Affiliate. Upon the consummation of such exchange, this Agreement shall
terminate except for Article XVII, Article XVIII, Article XX, and Section 25.2
herein. The Williams Member shall use its reasonable best efforts to cause the
Intended Listed Affiliate to effect registration under the Securities Act of
the Intended Listed Affiliate Common Stock held by the Nortel Member as
expeditiously as possible after such exchange in accordance with the
registration procedures set forth in Exhibit N. In the event that (i) such
registration is not effected within a reasonable time after such exchange shall
have occurred; or (ii) after such exchange shall have occurred, the Intended
Listed Affiliate elects, in its sole discretion, not to effect such
registration; then the Nortel Member shall be entitled to return its Intended
Affiliate Common Stock in exchange for the interest in the Company previously
exchanged therefor, and this Agreement shall continue in full force and effect
as if the exchange provided for in this Section 19.4(h) had never occurred.
19.5 Terms of Purchase and Sale.
(a) In the event that the Nortel Member shall desire to sell
all of its Membership Interest to the Williams Member pursuant to Sections
19.4(a), 19.4(b), 19.4(d), or a portion of its Membership Interest pursuant to
Section 19.4(g) the Nortel Member may, by written notice (the "Put Notice") to
the Williams Member, demand that the Williams Member purchase all, but not less
than all (except in the case of a sale pursuant to Section 19.4(g)) of the
Nortel Member's Membership Interest for a purchase price (the "Put Purchase
Price") equal to the fair market value of the Nortel Member's Membership
Interest or such portion of the Nortel Member's Interest, as the case may be,
as determined by an investment banking firm of international reputation
mutually agreed upon by the Williams Member and the Nortel Member using the
Valuation Methodology the cost of such valuation to be borne by (i) the Company
if pursuant to Sections 19.4(a), (ii) the defaulting entity if pursuant to
Section 19.4(d), (iii) the Williams Member if pursuant to Section 19.4(b), or
(iv) as provided by the last sentence of Section 19.3(a) if pursuant to Section
19.4(g). The Nortel Member may withdraw its Put Notice after the determination
of the Put Purchase Price; provided, however, that in such event the Nortel
Member will pay the fees and expenses of the investment banking firm; and
provided, further, that the Nortel Member may not make another Put Notice
arising from the same event or based on the same provision hereof until a
period of six months has elapsed from the time of giving the previous Put
Notice. The Put Notice shall set forth the date (the "Put Closing Date") on
which such purchase shall occur, which date shall be not less than 120 days
after the date of the Put Notice. On the Put Closing Date, the Williams Member
(or in the sole discretion of the Williams Member, an Affiliate of the Williams
Member or the Company) shall purchase all, but not less than all (except in the
case of a sale pursuant to Section 19.4(g)), the Nortel Member's Membership
Interest and shall pay to the Nortel Member the Put Purchase Price as provided
in Section 19.5(c) and the Nortel Member shall execute and deliver to the
Williams Member (or such Affiliate or the Company) such instruments, documents
and agreements as the Williams Member may reasonably request to effectuate such
Transfer.
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(b) In the event that the Williams Member shall desire to
purchase the Nortel Member's Membership Interest pursuant to Sections 8.6(b),
19.4(a), 19.4(c), 19.4(e) or 19.4(f), the Williams Member may, by written
notice (the "Call Notice") to the Nortel Member, demand that the Nortel Member
sell all, but not less than all, of the Nortel Member's Membership Interest for
a purchase price (the "Call Purchase Price") equal to the fair market value of
the Nortel Member's Membership Interest as determined by an investment banking
firm of international reputation mutually agreed upon by the Williams Member
and the Nortel Member using the Valuation Methodology, the cost of such
valuation to be borne by (i) the Company if pursuant to Sections 19.4(a), (ii)
the defaulting entity if pursuant to Section 19.4(e), (iii) the Nortel Member
if pursuant to Section 19.4(c), or (iv) as provided by the last sentence of
Section 19.3(a) if pursuant to Sections 8.6(b) or 19.4(f). The Williams Member
may withdraw its Call Notice after the determination of the Call Purchase
Price; provided, however, that in such event the Williams Member will pay the
fees and expenses of the investment banking firm; and provided, further, that
the Williams Member may not make another Call Notice arising from the same
event or based on the same provision hereof until a period of six months has
elapsed from the time of giving the previous Call Notice. The Call Notice shall
set forth the date (the "Call Closing Date") on which such purchase shall
occur, which date shall be not less than 120 days after the date of the Call
Notice. On the Call Closing Date, the Williams Member shall tender the Call
Purchase Price as provided in Section 19.5(c) and the Nortel Member shall sell
to the Williams Member (or in the sole discretion of the Williams Member an
Affiliate of the Williams Member or the Company), all, but not less than all,
of the Nortel Membership Interest and shall execute and deliver to the Williams
Member (or such Affiliate or the Company), such instruments, documents and
agreements as the Williams Member may reasonably require to effectuate such
Transfer.
(c) The payment of the Put Purchase Price under Section
19.5(a) or the Call Purchase Price under Section 19.5(b) may be, at the sole
option of the Williams Member, paid in the same manner as the Exit Purchase
Price as provided in Section 19.3(c).
19.6 Right of First Refusal. Except as permitted by Section 19.1(b)
and without prejudice to Sections 19.2 or 19.3 hereof, no Member shall Transfer
its Membership Interest or any portion thereof (the "Offered Interest") to a
Person who is not a Member at the time of such proposed Transfer unless such
Member (the "Seller") first offers to sell the Offered Interest pursuant to the
terms of this Section 19.6.
(a) Limitation on Transfers. No Transfer may be made under
this Section 19.6 unless the Seller has received a bona fide written offer (the
"Purchase Offer") from a Person (the "Purchaser") to purchase the Offered
Interest for a purchase price (the "Offer Price"), which the Seller is prepared
to accept and which
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is denominated and payable in United States dollars at closing and which
requires the Purchaser to undertake no obligations nor assume any liabilities
other than payment of the Offer Price, the filing and prosecution of any
necessary notices to and applications for any necessary approvals of,
regulatory authorities, which offer shall be in writing signed by the Purchaser
and shall be irrevocable for a period ending no sooner than the Business Day
following the end of the Offer Period, as hereinafter defined.
(b) Offer Notice. Prior to making any Transfer that is
subject to the terms of this Section 19.6, the Seller shall give to the Company
and the other Member written notice (the "Offer Notice") which shall include a
copy of the Purchase Offer and an offer (the "Firm Offer") to sell the Offered
Interest to the Company or to the other Member (the "Offeree") for the Offer
Price, payable according to the same terms as those contained in the Purchase
Offer, provided that the Firm Offer shall be made without regard to the
requirement of any earnest money or similar deposit required of the Purchaser
prior to closing and without regard to any security (other than the Offered
Interest) to be provided by the Purchaser for any deferred portion of the Offer
Price.
(c) Offer Period. The Firm Offer shall be irrevocable for a
period (the "Offer Period") ending at 11:59 p.m., local time at the Company's
principal place of business, on the forty-fifth (45th) day following the date
of the Offer Notice.
(d) Acceptance of Firm Offer. At any time during the Offer
Period, the Offeree may accept the Firm Offer as to all of the Offered
Interest, by giving written notice of such acceptance to the Seller and to the
Company or the other Member, as the case may be, which notice shall indicate
the Membership Interest or any portion thereof that such Offeree is willing to
purchase. In the event that the Offerees ("Accepting Offerees"), in the
aggregate, accept the Firm Offer with respect to all of the Offered Interest,
the Firm Offer shall be deemed to be accepted and the Offered Interest shall be
apportioned pro rata according to the Percentage Interests of the Accepting
Offerees. If the Offerees do not accept the Firm Offer as to all of the Offered
Interest during the Offer Period, the Firm Offer shall be deemed to be rejected
in its entirety.
(e) Closing of Purchase Pursuant to Firm Offer. In the event
that the Firm Offer is accepted, the closing of the sale of the Offered
Interest shall take place within thirty (30) days after the Firm Offer is
accepted or, if later, the date of closing set forth in the Purchase Offer. The
Seller and all Accepting Offerees shall execute such documents and instruments
as may be necessary or appropriate to effect the sale of the Offered Interest
pursuant to the terms of the Firm Offer and this Section 19.6.
(f) Sale Pursuant to Purchase Offer If Firm Offer Rejected.
If the Firm Offer is declined or is not accepted in the manner provided in
Section 19.6(d), the
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Seller may sell the Offered Interest to the Purchaser at any time within sixty
(60) days after the last day of the Offer Period, provided that such sale shall
be made at the price and on the terms contained in the Purchase Offer and
provided further that such sale complies with other terms, conditions, and
restrictions of this Agreement that are not expressly made inapplicable to
sales occurring under this Section 19.6, including the consent requirement of
Section 19.1(a). In the event that the Offered Interest are not sold in
accordance with the terms of the preceding sentence, the Offered Interest shall
again become subject to all of the conditions and restrictions of this Section
19.6.
19.7 Recognition of Members. The Company shall not recognize for any
purpose any purported Transfer of all or part of a Membership Interest unless
such Transfer is made pursuant to the provisions of this Article XIX or Article
XXI and unless and until the provisions of Section 19.9 have been satisfied and
the Management Committee has received, on behalf of the Company, a document
that:
(a) is executed by both the Member effecting the disposition
and the Person to whom the Membership Interest or part thereof is transferred;
(b) includes the notice address of any Person to be admitted
to the Company as a Member and its agreement to be bound by this Agreement; and
(c) contains a representation and warranty in favor of the
other Member that the disposition was made in accordance with all material and
applicable laws and regulations including the Regulations.
19.8 Prohibited Transfers. Any purported Transfer of a Membership
Interest that is not made in accordance with the terms of this Article XIX
shall be null and void and of no force or effect whatever; provided that, if
the Company is required to recognize any such Transfer that is not made in
accordance with the terms of this Article XIX, the Membership Interest or any
portion thereof Transferred shall be strictly limited to the transferor's
rights to allocations and distributions as provided by this Agreement with
respect to the transferred Membership Interest or any portion thereof, which
allocations and distributions may be applied (without limiting any other legal
or equitable rights of the Company) to satisfy any debts, obligations, or
liabilities for damages that the transferor or transferee of such interest may
have to the Company. In the case of a Transfer or attempted Transfer of
Membership Interest or any portion thereof that is not made in accordance with
the terms of this Article XIX, the parties engaging or attempting to engage in
such Transfer shall indemnify and hold harmless the Company and the other
Members against all claims, costs, liabilities, and damages that any of such
indemnified Members may incur (including, incremental tax liabilities,
reasonable lawyers' fees, and expenses) as incurred as a result of such
Transfer or attempted Transfer and efforts to enforce the indemnity granted
hereby.
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19.9 Admission of Substituted Members. Subject to the other provisions
of this Article XIX, a transferee of a Membership Interest or any portion
thereof may be admitted to the Company as a substituted Member only upon
satisfaction of the conditions set forth in this Section 19.9 and Section
15.12(b):
(a) the Membership Interest or any portion thereof with
respect to which the transferee is being admitted was acquired in compliance
with the provisions of this Article XIX;
(b) the transferee of a Membership Interest or any portion
thereof (other than, with respect to clauses (i) and (ii) below, a transferee
that was a Member prior to the Transfer) shall, by written instrument in form
and substance reasonably satisfactory to the Management Committee (and, in the
case of clause (iii) below, the transferor Member), (i) make representations
and warranties to each nontransferring Member equivalent to those set forth in
Article XXV hereof, (ii) accept and adopt the terms and provisions of this
Agreement, including this Article XIX, and (iii) assume the obligations of the
transferor Member under this Agreement with respect to the transferred
Membership Interest or any portion thereof.
(c) the transferee shall pay or reimburse the Company for all
reasonable legal, filing, and publication costs that the Company incurs in
connection with the admission of the transferee as a Member with respect to the
transferred Membership Interest or any portion thereof;
(d) except in the case of an involuntary Transfer by
operation of law, if required by the Management Committee, the transferee
(other than a transferee that was a Member prior to the Transfer) shall deliver
to the Company evidence of the authority of such Person to become a Member and
to be bound by all of the terms and conditions of this Agreement, and the
transferee and transferor shall each execute and deliver such other instruments
as Management Committee reasonably deems necessary or appropriate to effect,
and as a condition to, such Transfer, including amendments to the Certificate
of Formation or any other instrument filed with the state of Delaware or any
other state or governmental authority; and
(e) approval of all the other Members subject, always to
Sections 15.12(b) and 19.1(a) hereof.
19.10 Compliance with Securities Laws. All Members acknowledge that
the Membership Interests have not been registered under (i) the Securities Act,
in reliance on the exemptions afforded by Section 4(2) of the Securities Act,
or (ii) applicable state securities laws in reliance on exemptions under such
laws. Therefore, to preserve said exemptions and notwithstanding anything
contained herein to the contrary, the Members hereby agree that interests of
the Members shall be nontransferable and nonassignable, except in compliance
with the registration
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provisions of the Securities Act and applicable state securities laws, or an
exemption or exemptions therefrom, and any attempted or purported transfer or
assignment in violation of the foregoing shall be void and of no effect.
Accordingly, as an additional condition precedent to any assignment or other
transfer of any interest in the Company, the Company may require an opinion of
counsel satisfactory to the Company that such assignment or transfer will be
made in compliance with the registration provisions of the Securities Act and
applicable state securities laws or exemption(s) therefrom, and such transferor
or assignor shall be responsible for paying said counsel's fee for the opinion.
The foregoing shall not limit the restrictive legend set forth at the beginning
of this Agreement.
19.11 Representations Regarding Transfers; Legend.
(a) Each Member hereby covenants and agrees with the Company
for the benefit of the Company and all Members, that (i) it is not currently
making a market in Membership Interests or any portion thereof and will not in
the future make a market in Membership Interests or any portion thereof, (ii)
it will not Transfer its Membership Interest or any portion thereof on an
established securities market, a secondary market (or the substantial
equivalent thereof) within the meaning of Code section 7704(b) (and any
Regulations, revenue rulings, or other official pronouncements of the Internal
Revenue Service or Treasury Department that may be promulgated or published
thereunder), and (iii) in the event such Regulations, revenue rulings, or other
pronouncements treat any or all arrangements which facilitate the selling of
Company interests and which are commonly referred to as "matching services" as
being a secondary market or substantial equivalent thereof, it will not
Transfer any Membership Interest or any portion thereof through a matching
service that is not approved in advance by the Company. Each Member further
agrees that it will not Transfer any Membership Interest or any portion thereof
to any Person unless such Person agrees to be bound by this Section 19.11(a)
and to Transfer such Membership Interest or any portion thereof only to Persons
who agree to be similarly bound.
(b) Each Member hereby represents and warrants to the Company
and the Members that such Member's acquisition of Membership Interest hereunder
is made as principal for such Member's own account and not for resale or
distribution of such Membership Interest or any portion thereof. Each Member
further hereby agrees that the following legends may be placed upon any
counterpart of this Agreement and shall be placed on any document or instrument
evidencing Membership Interests or any portion thereof:
"The Membership Interest or any portion thereof represented
by this document has not been registered under any securities
laws and the transferability of such Membership Interest or
any portion thereof is restricted. Such Membership Interest
or any portion thereof may not be
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sold, assigned, or transferred, nor will any assignee,
vendee, transferee, or endorsee thereof be recognized as
having acquired any such Membership Interest or any portion
thereof by the issuer for any purposes, unless (1) a
registration statement under the Securities Act of 1933, as
amended, with respect to such Membership Interest or any
portion thereof shall then be in effect and such transfer has
been qualified under all applicable state securities laws, or
(2) the availability of an exemption from such registration
and qualification shall be established to the satisfaction of
counsel to the Company."
"The Membership Interest or any portion thereof represented
by this document are subject to further restriction as to
their sale, transfer, hypothecation, or assignment as set
forth in the Limited Liability Company Agreement between
Northern Telecom Inc. and Williams Communications Group,
Inc., dated as of April 1, 1997, and agreed to by each
Member. Said restriction provides, among other things, that
no Membership Interest or any portion thereof may be
transferred without first offering such Membership Interest
or any portion thereof to the other Members, and that no
Membership Interest or any portion thereof may be transferred
except in accordance with the terms of said agreement."
19.12 Distributions and Allocations in Respect of Transferred
Membership Interest. If any Membership Interest or any portion thereof is
Transferred during any fiscal year in compliance with the provisions of this
Article XIX, items of income, gains, losses, deductions, and credits and all
other items attributable to the transferred Membership Interest or any portion
thereof for such fiscal year shall be divided and allocated between the
transferor and the transferee by taking into account their varying Membership
Interests during such fiscal year in accordance with Code section 706(d), using
any conventions permitted by law and selected by the Management Committee. All
distributions on or before the date of such Transfer shall be made to the
transferor, and all distributions thereafter shall be made to the transferee.
Solely for purposes of making such allocations and distributions, the Company
shall recognize such Transfer not later than the end of the calendar month
during which it is given notice of such Transfer, provided that, if the Company
is given notice of Transfer at least ten (10) days prior to the Transfer, the
Company shall recognize such Transfer as of the date of such Transfer, and
provided further that if the Company does not receive a notice stating the date
such Membership Interest or any portion thereof was transferred and such other
information as the Management Committee may reasonably require within thirty
(30) days after the end of the fiscal year during which the Transfer occurs,
then all such items shall be allocated, and all distributions shall be made, to
the Person who, according to the books and records of the Company, was the owner
of such Membership Interest or any portion thereof on the last day of such
fiscal year. Neither the Company, the Management Committee, any
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other committee of the Company, nor any Member shall incur any liability for
making allocations and distributions in accordance with the provisions of this
Section 19.12, whether or not any member of the Management Committee, Member, or
the Company has knowledge of any Transfer of ownership of any Membership
Interest or any portion thereof.
ARTICLE XX
Distributorship Agreement
20.1 Company Right of Renewal. For so long as the Nortel Member owns a
Membership Interest and subject to the condition that the Company shall not be
in material breach of any of its obligations under the WilTel Distributorship
Agreement or its then current successor agreement, the Nortel Member shall offer
to renew or cause to be renewed, and the Company shall renew, the WilTel
Distributorship Agreement or in the Nortel Member's discretion, offer such other
CPE Agreement as is offered to all other Distributors for successive terms of
years of as long a term as offered at the time to all other Distributors and on
terms and conditions such that the Company shall not be at a disadvantage to any
other Distributor; provided, however, that the Company shall not be deemed to be
at a disadvantage to any other Distributor solely by reason of differences in
treatment between Distributors (including the Company) arising out of the terms
and conditions of the CPE Agreement and the policies implemented pursuant
thereto so long as such agreement and policies are uniformly applied and made
available to all Distributors (including the Company) and so long as any and all
products that are made available to other Distributors have been offered to the
Company on a basis at least as favorable as offered to such other Distributors,
and the Territory provided for therein shall be the United States of America;
and provided further, that the Company shall not be deemed to be at a
disadvantage and shall derive no rights as a result of or in connection with the
transition arrangements offered to Bell Atlantic Federal Integrated Systems,
Inc. (including its Affiliates) in connection with the purchase by NCS of Bell
Atlanticom Systems, Inc.'s interest in BA Meridian as provided in the Purchase
and Sale Agreement and Amendment to Partnership Agreement dated March 4, 1997, a
copy of which has been provided to the Williams Member. The parties hereto
acknowledge that the provisions of this Article XX are not intended to be part
of or an amendment or supplement to the CPE Agreement, but are intended to be
separate and distinct agreements between the parties.
20.2 Company Right of Renewal after Put or Call. In the event of a
Transfer of a Member's Membership Interest pursuant to Sections 8.6(b), 19.3,
19.4 or 19.5, the Nortel Member shall offer to renew or cause to be renewed the
WilTel Distributorship Agreement or in the Nortel Member's discretion, offer
such other CPE Agreement as is offered to all other Distributors for an
additional term of years of as
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long a term as offered at the time to all other Distributors but such renewal
rights shall be extended for not less than three (3) years and on the expiration
of the then current term (or, in the event that the WilTel Distributorship
Agreement shall have been renewed prior to such Transfer but such renewal term
shall not have commenced, such additional term shall commence on the expiration
of such renewal term) on terms and conditions such that the Company shall not be
at a disadvantage to any other Distributor; provided, however, that the Company
shall not be deemed to be at a disadvantage to any other Distributor solely by
reason of differences in treatment between Distributors (including the Company)
arising out of the terms and conditions of the CPE Agreement and the policies
implemented pursuant thereto so long as such agreement and policies are
uniformly applied and made available to all Distributors (including the Company)
and so long as any and all products that are made available to other
Distributors have been offered to the Company on a basis at least as favorable
as offered to such other Distributors, and the Territory provided for therein
shall be the United States and Canada; and provided further, that the Company
shall not be in material breach of its obligations under the WilTel
Distributorship Agreement or its then current successor.
20.3 Company Right to Distribute Products Not Covered by the
Distributorship Agreement. For so long as both Parties are Members of the
Company, the Company, as a technology partner of NTI, will participate in the
technology (alpha) trials and field (beta) trials of any Emerging Products,
and will act as a reseller of such Emerging Products prior to Distribution
thereof upon such terms and conditions as NTI and the Company mutually agree,
the Parties having an obligation to negotiate in good faith toward commercially
reasonable terms and conditions.
ARTICLE XXI
Additional Members
No new Members having a Membership Interest or any portion thereof
shall be entitled to any retroactive allocation of any items of income, gains,
losses, deductions, and credits incurred by the Company. The TMP may, at the
time a Member is admitted, close the Company books (as though the Company's tax
year had ended) or make pro rata allocations of any items of income, gains,
losses, deductions, and credits to a new Member for that portion of the
Company's tax year in which a Member was admitted in accordance with the
provisions of section 706(d) of the Code and the Regulations promulgated
thereunder.
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ARTICLE XXII
Dissolution
22.1 Liquidating Events. The Company shall dissolve, without judicial
decree, upon the first to occur of any of the following ("Liquidating Events"):
(a) the sale of all or substantially all of the real and
personal property (tangible and intangible) of the
Company;
(b) the written consent of all Members;
(c) the happening of any event that makes it unlawful or
impossible to carry on the business of the Company; or
(d) the occurrence of a Bankruptcy Event with respect to any
Member.
22.2 Judicial Dissolution. On application by or for a Member or a
Representative, the Chancery Court of Delaware may decree dissolution of the
Company in accordance with section 18-802 of the Act.
22.3 Continuation of Business.
(a) In the event of the occurrence of any Liquidating Event
described in clauses (a) or (d) of Section 22.1, the Majority in Interest of
the Members and the Member(s) whose Capital Accounts constitute more than fifty
percent (50%) of the total combined Capital Accounts of the Company (in each
case excluding the Member involved in the Bankruptcy Event, if any), may
jointly decide to continue the business of the Company, in which event the
Company shall not dissolve upon the occurrence of the events specified in
clauses (a) or (d) of Section 22.1.
(b) Notwithstanding any provision of the Act, the Company
shall not dissolve prior to the occurrence of one or more Liquidating Events or
the entry by the Chancery Court of Delaware of a decree of dissolution.
22.4 Covenants Concerning Early Dissolution; Remedies Upon Breach. Each
Member agrees that without the prior written consent of all other Members it
shall not resign, retire or withdraw from the Company or voluntarily dissolve.
Any breach of this covenant shall be a material default under this Agreement.
The other Member may, as a result of such breach and without the consent of the
Management Committee, elect within 90 days of the occurrence of such breach to
continue the business of the Company and purchase the Membership Interest of
such breaching
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Member for a purchase price determined pursuant to the procedures set forth in
Section 19.5(a).
22.5 Option to Purchase Membership Interest of Bankrupt Member. If
within 60 days of the occurrence of a Bankruptcy Event with respect to any
Member, the other Member elects to continue the business of the Company, the
Bankruptcy Event shall be deemed to be an offer by the bankrupt Member of its
Membership Interest to the other Member at a price equal to the fair market
value of such bankrupt Member's Membership Interest determined by agreement
between the bankrupt Member (or its legal representative) and the other Member;
provided, however, if those Persons do not agree on the fair market value on or
before the 30th day following the election of the other Member to continue the
business of the Company, such value shall be determined pursuant to the
procedures set forth in Section 19.5(a).
ARTICLE XXIII
Winding Up and Termination of the Company
23.1 Liquidator. If the Company is dissolved for any reason, and the
business of the Company is not continued as provided in Sections 22.3, 22.4 and
22.5, a liquidator (the "Liquidator") shall commence to wind up the affairs of
the Company and to liquidate and sell its assets. The Members shall serve as the
Liquidator unless the dissolution occurred as a result of an event described in
subsection 22.1(d), in which case a Person designated by the Member who did not
cause the dissolution described in subsection 22.1(d) shall serve as the
Liquidator. The Liquidator shall have full right and discretion to determine the
time, manner and terms of sale or sales of Company property pursuant to such
liquidation having due regard to the activity and condition of the relevant
market and general financial and economic conditions. The Liquidator appointed
in the manner provided herein shall have and may exercise, without further
authorization or consent of any of the parties hereto or their legal
representatives or successors in interest, all of the powers conferred upon the
Members and the Management Committee under the terms of this Agreement to the
extent necessary or desirable in the good faith judgment of the Liquidator to
carry out the duties and functions of the Liquidator hereunder for and during
such period of time, not to exceed two (2) years after the date of dissolution
of the Company, as shall be reasonably required in the good faith judgment of
the Liquidator to complete the liquidation and dissolution of the Company as
provided for herein, including, without limitation, the following specific
powers:
(a) The power to continue to manage and operate any business
of the Company during the period of such liquidation or dissolution
proceedings, excluding, however, the power to make and enter into contracts
which may extend beyond the period of liquidation.
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(b) The power to make sales and incident thereto to make
deeds, bills of sale, assignments and transfers of assets and properties of the
Company; provided, that the Liquidator may not impose personal liability upon
any of the Members under any such instrument.
(c) The power to borrow funds as may, in the good faith
judgment of the Liquidator, be reasonably required to pay debts and obligations
of the Company or operating expenses, and to execute and/or grant deeds of
trust, mortgages, security agreements, pledges and collateral assignments upon
and encumbering any of the Company properties as security for repayment of such
loans or as security for payment of any other indebtedness of the Company;
provided, that the Liquidator shall not have the power to create any personal
obligation on any of the Members to repay such loans or indebtedness other than
out of available proceeds of foreclosure or sale of the properties or assets as
to which a lien or liens are granted as security for payment thereof.
(d) The power to settle, release, compromise or adjust any
claims asserted to be owing by or to the Company, and the right to file,
prosecute or defend lawsuits and legal proceedings in connection with any such
matters.
23.2 Liquidation Reserves. After making payment or provision for
payment of all debts and liabilities of the Company and all expenses of
liquidation, the Liquidator may set up, for a period not to exceed the aforesaid
two (2) years, such cash reserves as the Liquidator may deem reasonably
necessary for any contingent liabilities or obligations of the Company. Upon the
satisfaction or other discharge of such contingency, the amount of the reserves
not retired, if any, will be distributed in accordance with this Article XXIII.
23.3 Liquidating Distributions. Upon the winding up and termination of
the business and affairs of the Company, its assets (other than cash) shall be
sold as promptly as is consistent with obtaining the fair value thereof, and,
the net proceeds from such sales (after deducting all selling costs and expenses
in connection therewith), together with (at the expiration of the two (2) year
period referred to therein) the balance of the reserve account referred to in
Section 23.2, shall be applied and distributed:
(a) to creditors, including Members and Representatives who
are creditors, to the extent otherwise permitted by law, in satisfaction of
liabilities of the Company (whether by payment or the making of reasonable
provision of payment thereof) other than liabilities for which reasonable
provision for payment has been made and liabilities for distributions to
Members and former Members under sections 18-601 or 18-604 of the Act;
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(b) unless otherwise provided in this Agreement, to Members
and former Members in satisfaction of liabilities for distributions under
sections 18-601 or 18-604 of the Act; and
(c) unless otherwise provided in this Agreement, to Members
in accordance with the Members' respective positive balances in their Capital
Accounts as maintained in accordance with Section 8.1 and adjusted pursuant to
Section 10.2.
23.4 Accounting. Within a reasonable time following the completion of
the liquidation of the Company's properties, the Liquidator shall supply to each
of the Members a statement prepared by the Company's accountants prepared in
accordance with GAAP which shall set forth the assets and the liabilities of the
Company as of the date of complete liquidation, each Members's pro rata portion
of distributions pursuant to Section 23.3, and the amount retained as reserves
by the Liquidator pursuant to Section 23.2.
23.5 Recourse to Company Assets. Upon liquidation, each holder of a
Membership Interest in the Company shall look solely to the assets of the
Company for all distributions with respect to the Company and its Capital
Contribution thereto (including the return thereof) and share of profits or
losses thereof, and shall have no recourse therefor (upon dissolution or
otherwise) against the Company, the Members or the Liquidator. Upon liquidation,
reasonable efforts will be made to return tangible and intangible assets to the
extent feasible to the Member which contributed such assets upon such Member's
election.
23.6 Cancellation of Certificate.
(a) The Certificate shall be canceled upon the dissolution
and the completion of winding up the Company, or at any other time there are no
Members, or pursuant to section 18-104(d) of the Act, if the Company fails to
obtain and designate a new registered agent within 120 days after the existing
registered agent files a certificate of resignation, or pursuant to section
18-1108 of the Act, the Company fails to pay the annual tax due under section
18-1107 of the Act for a period of three (3) years from the date it is due, or
upon the filing of a certificate of merger or consolidation if the Company is
not the surviving or resulting entity in a merger or consolidation.
(b) A certificate of cancellation shall be filed in the
office of the Secretary of State of Delaware to accomplish the cancellation of
the Certificate upon the dissolution and the completion of winding up the
Company or at any other time there are no members and shall set forth:
(i) the name of the Company,
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(ii) the date the Certificate was filed;
(iii) the reason for filing the certificate of
cancellation,
(iv) the future effective date or time (which shall
be a date or time certain) of cancellation if it is not to be effective
upon the filing of the certificate; and
(v) any other information the person filing the
certificate of cancellation determines.
ARTICLE XXIV
Notices
All notices, requests, demands and other communications required or
permitted to be given under this Agreement shall be deemed to have been duly
given if in writing and delivered personally or sent via first-class, postage
prepaid, registered or certified mail (return receipt requested), or by
overnight delivery service or facsimile transmission (with confirmation notice
by registered or certified mail or overnight delivery service) addressed as
follows:
If to the Company:
One Williams Center
Tulsa, Oklahoma 74172
Attention: Howard Janzen, CEO
Facsimile Number: (918) 561-6024
and copy to:
One Williams Center, 41-3
Tulsa, Oklahoma 74172
Attention: David P. Batow, General Counsel
Facsimile Number: (918) 588-3005
If to the Nortel Member:
Northern Telecom Inc.
2221 Lakeside Boulevard
Richardson, Texas 75082
(Attention: Richard T. Faletti, Vice President)
Facsimile: (972) 684-3999
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and copy to:
Northern Telecom Inc.
2221 Lakeside Boulevard
Richardson, Texas 75082
(Attention: Richard R. Standel, Vice President,
Secretary and General-Counsel)
Facsimile: (972) 685-3011
If to the Williams Member:
One Williams Center
Tulsa, Oklahoma 74172
Attention: Howard Janzen, CEO
Facsimile Number: (918) 561-6024
and copy to:
One Williams Center, 41-3
Tulsa, Oklahoma 74172
Attention: David P. Batow, General Counsel
Facsimile Number: (918) 588-3005
Any Person may change the address to which the communications are to
be directed to it by giving notice to the other Persons listed above in the
manner provided in this Article XXIV. Notice by mail shall be deemed to have
been given and received on the third calendar day after posting. Notice by
overnight delivery service, facsimile transmission or personal delivery shall
be deemed given on the date of actual delivery.
ARTICLE XXV
Representations, Warranties and Covenants
25.1 Representations and Warranties. Each Member hereby respectively
represents and warrants to the other that (i) it is duly organized, validly
existing and in good standing under the jurisdiction of its organization, with
full power and authority to enter into and perform its obligations under this
Agreement; (ii) it has validly executed this Agreement, and upon delivery, this
Agreement shall be a binding obligation of such party, enforceable against such
party in accordance with its terms; and (iii) its entry into this Agreement and
the performance of its obligations hereunder will not require the approval of
any governmental body or regulatory authority and will
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not violate, conflict with or cause a default under, any of its organizational
documents, any contractual covenant or restriction by which such party is bound,
or any applicable law, regulation, rule, ordinance, order, judgment or decree.
25.2 Nondisclosure of Proprietary Information. Each of the Members
agrees that it and its Affiliates will apply the same standards and treat (i)
the Company's confidential or proprietary information and (ii) the terms and
conditions of this Agreement as it does its Affiliates' confidential or
proprietary information with respect to maintaining the confidentiality
thereof. Notwithstanding the foregoing, each Member and its Affiliates may
disclose information which (A) is required to be disclosed by applicable state
or federal tax or securities laws to the extent, and only to the extent, the
laws require the disclosure and such Member provides the Company and the other
Member prior written notice of its intent to provide the disclosure and the
general text of the disclosure, and the disclosure is consented to by the
Company and the other Member, which consent shall not be unreasonably withheld,
or (B) is required to be disclosed by a court or administrative body of
competent jurisdiction; provided that, if a Member or its Affiliates are served
or threatened with litigation that would require such Member or its Affiliate
to disclose the information, such Member or the Affiliate shall tender to the
Company or the other Member the opportunity to defend, at its cost, against the
disclosure.
ARTICLE XXVI
Dispute Resolution
Except as otherwise specifically provided in this Agreement, all
disputes under this Agreement shall be resolved in accordance with the
procedures set forth in Exhibit O hereto.
ARTICLE XXVII
Miscellaneous
27.1 No Partition. The Members agree that the Company properties are
not and will not be suitable for partition. Accordingly, each of the Members
hereby irrevocably waives any and all rights that he may have to maintain any
action for partition of any of the Company property.
27.2 Entire Agreement. This Agreement and the additional documents and
agreements referred to herein constitute the entire agreement among the parties.
It supersedes any prior agreement or understandings among them, and it may not
be modified or amended in any manner other than as set forth herein.
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27.3 Governing Law. This Agreement and the rights of the parties
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware.
27.4 Binding Effect. Except as herein otherwise specifically provided,
this Agreement shall be binding upon and inure to the benefit of the parties and
their legal representatives, heirs, administrators, executors, successors and
assigns.
27.5 Effect of Invalid Provision. If any provision of this Agreement,
or the application of such provision to any person or circumstance, shall be
held invalid, the remainder of this Agreement, or the application of such
provision to persons or circumstances other than those to which it is held
invalid, shall not be affected thereby.
27.6 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument. It shall not be necessary for all
Members to execute the same counterpart hereof.
27.7 Negotiated Transaction. The provisions of this Agreement were
negotiated by the parties hereto, and this Agreement shall be deemed to have
been drafted by all of the parties hereto.
SIGNATURE PAGE TO FOLLOW
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
April 30, 1997, to be effective as of the time, day and in the year first above
written.
WILLIAMS COMMUNICATIONS GROUP, INC.
By: /s/ S. MILLER WILLIAMS
---------------------------------
Its: Senior Vice President
---------------------------------
NORTHERN TELECOM INC.
By: /s/
---------------------------------
Its: Vice President Distributor Sales
--------------------------------
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EXHIBIT K
INITIAL SCOPE OF BUSINESS
The Company will operate initially in the United States and Canada. The
Company's initial scope of business will include the businesses conducted by
WilTel and NCS and TTS today, which may include, without limitation, offering
its customers a full array of data, voice and video products and services
including digital key systems (generally designed for voice applications with
fewer than 100 lines), private branch exchange (PBX) systems (generally designed
for voice applications with greater than 100 lines), voice processing systems,
enterprise network monitoring and management systems, desktop video, routers,
channel banks, intelligent hubs and cabling and networks systems integration
activities. The Company shall focus on sales of Existing and Emerging Products
at or above the Product Mix Threshold as a key focus of its business. The
Company's services will also include the design, configuration and installation
of voice and data networks and the management of customers' telecommunications
operations and facilities. The Company's National Technical Resource Center may
provide customers with on-line order entry and trouble reporting services,
advanced technical assistance and training; other service capabilities of The
Company may include local area network remote monitoring, wide area network
remote monitoring and PBX remote monitoring and toll fraud detection and acting
as an agent for the sale of all forms of local, value added and long distance
telecommunications services. The Company will not enter into the
telecommunications product manufacturing business except that it may manufacture
voice and data application software only.
<PAGE> 1
Redacted portions have been marked with asterisks (****). Confidential treatment
has been requested for the redacted portions. The confidential redacted portions
have been filed separately with the Securities and Exchange Commission.
CONFIDENTIAL TREATMENT
EXHIBIT 10.33
================================================================================
SHARE PURCHASE AGREEMENT
FOR TTS MERIDIAN SYSTEMS INC.
BY AND AMONG
NORTHERN TELECOM LIMITED,
WILTEL COMMUNICATIONS, LLC
AND
1228966 ONTARIO INC.
DATED APRIL 30, 1997
================================================================================
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SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (this "Agreement") dated April 30, 1997,
by and among Northern Telecom Limited, a Canadian corporation ("NTL"), WilTel
Communications, LLC, a Delaware limited liability company, and 1228966 Ontario
Inc., an Ontario corporation, its designee approved by NTL (the two latter
entities are referred to herein collectively as "Newco").
W I T N E S S E T H:
WHEREAS, (A) Northern Telecom Inc. ("NTI") and Williams Communications
Group, Inc. ("WCG") have entered into a Formation Agreement (the "Formation
Agreement") dated as of April 1, 1997, whereby Williams Telecommunications
Systems, Inc. ("WilTel") and Nortel Communications Systems Inc. ("NCS") will be
merged into Newco, which will be jointly owned by NTI and WCG, or a subsidiary
of each; and
(B) The Formation Agreement requires that Newco will purchase
the stock of TTS Meridian Systems, Inc., a Canadian corporation and wholly-owned
subsidiary of NTL ("TTS"), from NTL immediately after the merger of WilTel and
NCS into Newco, all as hereinafter provided.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and obligations contained herein and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, NTL
and Newco agree as follows:
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 DEFINED TERMS. The capitalized terms used in this Agreement shall
have the meanings ascribed to them as follows:
"Affiliates" means, when used with respect to a specified
Person, such specified Person's Subsidiaries or other Persons which are
or which could be included on such Person's consolidated income
statement for financial reporting purposes pursuant to United States
generally accepted accounting principles, and/or any third Person which
does or which could include such specified Person in such third
Person's consolidated income statement for financial reporting purposes
pursuant to United States generally accepted accounting principles;
provided that Newco shall not be deemed to be an Affiliate of NTL, WCG
or any of their respective Subsidiaries or Affiliates;
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"Authority" means any governmental, regulatory or
administrative body, agency or authority, any court or judicial
authority, any arbitrator or any public, private or industry regulatory
authority, whether foreign, federal, state or local;
"Benefit Programs or Agreements" shall have the meaning given
that term in Section 3.12(f);
"Business Day" means any day on which federal commercial banks
are open for business for the purpose of sending and receiving wire
transfers in Tulsa, Oklahoma, Houston, Texas and Toronto, Ontario;
"Claim" means any demand, demand letter, claim or notice of
noncompliance or violation, in each case made in writing, or any
Proceeding;
"Claim Notice" shall have the meaning given that term in
Section 11.2(a);
"Closing" shall have the meaning given that term in Article
VII;
"Closing Date" means the date of Closing;
"Designee" shall have the meaning given that term in Section
2.1;
"Effective Date" shall mean April 1, 1997;
"Employment and Tax Representations and Covenants" shall have
the meaning given that term in Section 11.4;
"Environmental Law" shall have the meaning given that term in
Section 3.10(a)(i);
"Environmental Representations" shall have the meaning given
that term in Section 11.4;
"Formation Agreement" shall have the meaning given that term
in the preamble;
"Former TTS Real Property" shall have the meaning given that
term in Section 3.10(b);
"GAAP" means generally accepted accounting principles in
Canada;
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"General Deductible" shall have the meaning given that term in
Section 11.1(e);
"Hazardous Substance" shall have the meaning given that term
in each of Section 3.10(a)(ii);
"Indemnified Party" and "Indemnifying Party" shall have the
respective meanings given those terms in Section 11.1(d);
"Intellectual Property" means Canadian and foreign patents,
patent applications, patent rights, trademarks, trademark applications,
trademark rights, service marks, service mark applications, service
mark rights, registered or common law copyrights, service names and
trade names;
"Intellectual Property License Agreement" shall have the
meaning given that term in the Formation Agreement;
"Income Tax Act" means the Income Tax Act of Canada, as
amended;
"Leases" shall have the meaning given that term in Section
3.9;
"Lien" means any mortgage, deed of trust, pledge, security
interest, encumbrance, lien or charge of any kind (including any
agreement to give any of the foregoing), any conditional sale or other
title retention agreement, any lease in the nature of any of the
foregoing, and the filing of or agreement to give any financing
statement under the personal property security legislation of any
jurisdiction;
"Litigation Claim" shall have the meaning given in Section
2.4(ii);
"Litigation Deductible" shall have the meaning given that term
in Section 11.1(f);
"LLC Agreement" means the Limited Liability Company Agreement
of Newco;
"Loss" or "Losses" means any and all damages, losses,
liabilities, judgments, payments, obligations, penalties, assessments,
costs, disbursements or expenses (including reasonable fees,
disbursements and expenses of attorneys, accountants and other
professional advisors and of expert witnesses and costs of
investigation and preparation of any kind or nature whatsoever) but
excluding indirect and consequential damages;
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"Material Adverse Change" means an event, circumstance,
condition or change that has a material adverse impact on the business
prospects, operations or financial condition of the affected Person, it
being understood that such event, circumstance, condition or change
shall be considered material only if (i) it has an impact on assets or
liabilities of Ten Million Dollars ($10,000,000) or more, before tax
effect; or (ii) it has a net negative impact on the profit and loss
statement of such Person for a fiscal year of Four Million Dollars
($4,000,000) or more and is the result of a single event, circumstance
or condition specific to such Person (excluding results from such
person's general economic environment).
"Material Adverse Effect" means, an effect that results in or
causes, or has a reasonable likelihood of resulting in or causing an
adverse impact in the business, assets, results of operations (before
tax effect) or financial condition of such Person and its Subsidiaries,
taken as a whole, in an amount, individually equal to or greater than
$1,000,000;
"NCS" shall have the meaning given that term in the preamble.
"NCS Adjusted Effective Date Balance Sheet" shall have the
meaning given that term in the Formation Agreement;
"Newco" shall have the meaning given that term in the
preamble;
"NTI" shall have the meaning given that term in the preamble
and any successor or assign permitted by the Formation Agreement;
"NTL Retained Assets" shall have the meaning given that term
in Section 2.3;
"NTL Retained Liabilities" shall have the meaning given that
term in Section 2.4;
"NTL/TTS Distributor Agreement" shall have the meaning given
that term in Section 8.1;
"Order" means any decree, order, judgment, writ, award,
injunction, stipulation or consent of or by an Authority;
"Party" means NTL or Newco, as the case may be, and "Parties"
means NTL and Newco;
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"Party Indemnitees" means a Party's Affiliates and the
officers, directors, shareholders, agents, employees, representatives,
successors and assigns of each of them;
"Permit" means any license, permit, concession, warrant,
franchise or other governmental authorization or approval of any
Authority;
"Permitted Encumbrances" means (a) Liens for current taxes and
assessments not yet due, (b) inchoate mechanics and materialmen liens
for construction in progress, (c) inchoate workmen, repairmen,
warehousemen, customer, employee and carrier liens arising in the
ordinary course of business, (d) sellers' liens (on condition that the
payable involved is not overdue), or (e) other minor imperfections in
title that do not affect marketability or use;
"Person" means any individual, corporation, partnership, joint
venture, association, limited liability company, joint stock company,
trust, unincorporated organization, Authority or government (or agency
or political subdivision thereof);
"Pre-Effective Period" shall have the meaning given that term
in Section 10.5(a).
"Proceeding" means any action, suit, claim, investigation,
review or other judicial or administrative proceeding, at law or in
equity, before any Authority;
"Purchase Price" shall have the meaning given that term in
Section 2.2;
"Purchased Shares" means all of the issued and outstanding
shares of TTS;
"Records" means all material agreements, documents, books,
records and files relating to TTS, TTS Assets, TTS Business or the TTS
Contracts;
"Release" shall have the meaning given that term in Section
3.10(a)(iii);
"Relevant Adverse Effect" means an effect that results in or
causes, or has a reasonable likelihood of resulting in or causing, an
adverse impact in the business, assets, results of operations (before
tax effect) or financial condition of such Person and its subsidiaries,
taken as
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a whole, in an amount, individually or in the aggregate, equal to or
greater than $150,000;
"Revenue Canada" means the Canadian government income tax
department;
"Software" means computer programs, including, object code and
source code (except in the case of software licensed to TTS, WilTel or
Newco with respect to which the source code is not included in the
applicable license), input and output formats, control programs,
program listings, general application and special application, system
and communications programs, routines, sub-routines, translations,
diagnostic activities, narrative descriptions, flow charts and
operating instructions, as well as any modifications relating thereto;
"Subsidiary" means, with respect to any Person, a corporation
more than 50% of the combined voting power of the outstanding stock of
which is owned, directly or indirectly, by such Person;
"Tax" or "Taxes" means any Canadian, U.S. or other foreign
federal, state, provincial or local income tax, ad valorem tax, excise
tax, sales tax, use tax, value added tax, franchise tax, real or
personal property tax, transfer tax, gross receipts tax, wage tax,
payroll tax, employer health tax, capital tax, stamp duty, withholding
tax, or other tax, social security and unemployment insurance charges,
assessment, duty, fee, levy or other governmental charge, together with
and including, any and all interest, fines, penalties, assessments,
reassessments, and additions to tax resulting from, relating to, or
incurred in connection with any of those or any contest or dispute
thereof;
"Tax Return" means any report, statement, form, return or
other document or information required to be supplied to a taxing
authority in connection with Taxes;
"Title Representations" shall have the meaning given that term
in Section 11.4;
"TTS" shall have the meaning given that term in the preamble;
"TTS Accounts Receivable Note" shall have the meaning given
that term in Section 2.2;
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"TTS Active Employees" shall have the meaning given that term
in Section 3.12(a);
"TTS Assets" means the rights, properties, assets, claims,
contracts and businesses of TTS of every kind, character or
description, whether tangible or intangible, wherever located,
excluding the NTL Retained Assets;
"TTS Business" means the business currently and heretofore
carried on by TTS, consisting of the sale, installation, servicing and
maintenance of business communications systems;
"TTS Contracts" means all agreements, contracts, licenses,
indentures, notes, including any instrument relating to the borrowing
of money, guarantee or commitment to which TTS is a party or by which
it or any of TTS Assets are bound, whether in writing or oral, but
excluding Benefit Programs or Agreements;
"TTS Employees" shall have the meaning given that term in
Section 3.12(a);
"TTS Licensed Intellectual Property and Software" shall have
the meaning given that term in Section 3.4(c);
"TTS Owned Intellectual Property and Software" shall have the
meaning given that term in Section 3.4(b);
"TTS Real Property" shall have the meaning given that term in
Section 3.10(b);
"WCG" shall have the meaning given that term in the preamble
and any successor or assign permitted by the Formation Agreement;
"WCG Retained Assets" shall have the meaning given that term
in Section 2.4(b) of the Formation Agreement;
"Williams" means The Williams Companies, Inc., a Delaware
corporation;
"WilTel" shall have the meaning given that term in the
preamble and any successor or assign permitted by the Formation
Agreement;
"WilTel Assets" means the rights, properties, assets, Claims,
contracts and businesses of WilTel and the WilTel Subsidiaries of every
kind, character
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or description, whether tangible or intangible, wherever located, but
excluding the WCG Retained Assets;
"WilTel Business" shall have the meaning given that term in
the Formation Agreement; and
"WilTel Subsidiaries" means WCS Microwave Services, Inc., a
Delaware corporation, and WCS, Inc., a Delaware corporation.
1.2 ACCOUNTING TERMS. Any accounting terms used in this Agreement that
are not specifically defined herein shall have the meanings customarily given to
them in accordance with GAAP as of the date of this Agreement.
1.3 REFERENCES. As used in this Agreement, unless expressly stated
otherwise, references to (a) "including" mean "including, without limitation",
and the words "hereof", "herein", and "hereunder", and similar words, refer to
this Agreement as a whole and not to any particular Article, provision, section
or paragraph of this Agreement, (b) "or" means "either or both", and (c)
"Dollar" or "$" means U.S. Dollars. Unless otherwise specified, all references
in this Agreement to Articles, Sections, paragraphs, Exhibits or Schedules are
deemed references to the corresponding Articles, Sections, paragraphs, Exhibits
or Schedules in this Agreement.
1.4 HEADINGS. The headings of the Articles and Sections of this
Agreement and of the Schedules and Exhibits are included for convenience only
and shall not be deemed to constitute part of this Agreement or to affect the
construction or interpretation hereof or thereof.
ARTICLE II
PURCHASE AND SALE OF PURCHASED SHARES
2.1 PURCHASE AND SALE OF PURCHASED SHARES. Subject to the terms and
conditions of this Agreement, NTL shall sell, assign and transfer to 1228966
Ontario Inc., Newco's designee approved by NTL (Newco's "Designee"), and Newco's
Designee shall purchase from NTL, the Purchased Shares on the Closing Date, but
effective on the Effective Date.
2.2 PURCHASE PRICE. The purchase price payable to NTL at Closing for
the Purchased Shares (the "Purchase Price") shall consist of **** by wire
transfer and **** by promissory note payable ninety (90) days after Closing
substantially in the form attached to the Formation Agreement as Exhibit G
thereto (the "TTS Accounts Receivable Note").
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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2.3 RETAINED ASSETS. On or prior to the Closing, NTL shall cause TTS
to execute such documents as are necessary to assign, transfer or convey to NTL
or an Affiliate of NTL the following assets in order to exclude such assets from
the merger: (i) any rights in, to and under the trademarks, servicemarks and
tradenames Nortel, Nortel and Design(TM), Meridian, Meridian 1 and Meridian SL
(subject to Section 8.3) or any other trademark, servicemark or tradenames,
whether registered or otherwise, of NTL or their Affiliates, excluding, however,
the TTS trademarks listed in Schedule 2.3(i) and (ii) any intercompany notes
payable to, or to the order of, TTS listed on Schedule 2.3(ii) hereto
(collectively, the "NTL Retained Assets").
2.4 RETAINED LIABILITIES. Newco shall not assume, and on or prior to
the Closing Date NTL (or an Affiliate of NTL reasonably satisfactory to Newco)
shall assume and agree to pay, perform and discharge, the following liabilities
of TTS (the "NTL Retained Liabilities"):
(i) any liability, Claim or obligation (whether actual,
contingent, known or unknown) of TTS arising out of any Claim in
connection with facts, events or circumstances occurring on or
before the Effective Date or relating to periods ending on or
before such date (a "Litigation Claim") to the extent the Losses
(after deducting any specific liability amounts reflected on the
NCS Adjusted Effective Date Balance Sheet, as it pertains to TTS)
in the aggregate resulting therefrom exceed the amount of the
Litigation Deductible excluding, for the avoidance of all doubt,
TTS' performance obligations from and after the Effective Date
under TTS Contracts disclosed under Article III of this Agreement
or not required to be disclosed under express terms of Article III
of this Agreement;
(ii) any liability, Claim or obligation (whether actual,
contingent, known or unknown), arising out of or relating to the
NTL Retained Assets; and
(iii) any liability, Claim or obligation (whether actual,
contingent, known or unknown) arising out of any occurrence or
incident happening on or before the Closing Date and arising from
any: (x) bodily injury, including death therefrom, personal injury,
or property damage (other than claims covered by warranty or
maintenance provisions of TTS Contracts with customers), including
loss of use thereof, to third parties; and (y) any injuries,
including death therefrom, to any current or prior employees of
TTS.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NTL
NTL hereby makes the following representations and warranties to Newco,
each and all of which are true and correct on the Closing Date, except as set
forth in the disclosure schedule attached pertaining to such representation and
warranty:
3.1 CORPORATE MATTERS.
(a) Each of NTL and TTS is a corporation duly organized,
validly existing and in good standing under the laws of Canada having all
requisite corporate power and authority to own, operate and lease its properties
and assets and to carry on its business in the places and in the manner
currently conducted. Newco has been provided with a true and correct copy of the
Certificate of Incorporation and Bylaws, or other charter documents, of TTS as
currently in effect. NTL has all requisite corporate power and authority to
enter into this Agreement and to perform its obligations hereunder.
(b) All of the outstanding shares of capital stock of TTS have
been legally and validly authorized and issued, and are fully paid and
nonassessable. NTL is the sole stockholder of TTS holding the number and type of
shares set forth on Schedule 3.1(b). None of the capital stock of TTS is subject
to any option, warrant, right of conversion, exchange or purchase, or any
similar right.
(c) Except where the failure would not affect the validity of
this Agreement or have a Relevant Adverse Effect on the TTS Business or TTS
Assets, TTS is qualified to transact business as an extra-provincial corporation
and is in good standing in the jurisdictions, if any, specified in Schedule
3.1(c) attached hereto, and, to NTL's knowledge, there is no other jurisdiction
in which the nature or extent of the TTS Business or the character of the TTS
Assets makes such qualification necessary.
3.2 VALIDITY OF AGREEMENT; NO CONFLICT.
(a) This Agreement has been duly authorized, executed and
delivered by NTL and is a legal, valid and binding obligation of NTL enforceable
against it in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
from time to time in effect that affect creditors' rights generally and by legal
and equitable limitations on the availability of specific remedies.
(b) The execution, delivery and performance of this Agreement
by NTL or TTS, as the case may be, and the other agreements and documents to be
delivered by NTL or TTS to Newco or WCG hereunder, the consummation of the
transactions
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contemplated hereby or thereby, and the compliance with the provisions hereof or
thereof, by NTL or TTS will not, with or without the passage of time or the
giving of notice or both:
(i) except in the absence of required consents as set
forth on Schedules 3.3(a) or 3.5(d), conflict with, constitute a breach,
violation or termination of any provision of, or give rise to any right of
termination, cancellation or acceleration, or loss of any right or benefit or
both, under, any of the TTS Contracts listed in Schedule 3.5(a) or Schedule
3.5(b), TTS Permits, the TTS Owned Intellectual Property and Software or the TTS
Licensed Intellectual Property and Software;
(ii) conflict with or violate the Certificate of
Incorporation or Bylaws of NTL or TTS;
(iii) result in the creation or imposition of any
Lien or Claim on any of the TTS Assets; or
(iv) except as provided in Schedules 3.3(a), 3.4(b),
3.4(c) or 3.4(d), violate any law, statute, ordinance, regulation, judgment,
writ, injunction, rule, decree, order or any other restriction of any kind or
character applicable to NTL, TTS or the TTS Assets.
3.3 GOVERNMENTAL AND OTHER CONSENTS, APPROVALS AND AUTHORIZATIONS.
(a) Except as set forth in Schedule 3.3(a) or Schedule 3.5(d)
attached hereto or as would not significantly adversely impact Newco, the
transactions contemplated hereby, or any other agreement contemplated hereby, no
order, license to conduct or operate its business, consent, waiver,
authorization or approval of, or exemption by, or the giving of notice to, or
the registration with, or the taking of any other action in respect of, any
Person not a Party, including any Authority, and no filing, recording,
publication or registration in any public office or any other place is necessary
on behalf of TTS (i) to authorize the execution, delivery and performance of
this Agreement, or any other agreement contemplated hereby to be executed and
delivered by it, and the consummation of the transactions contemplated hereby or
thereby (including assignment of the NTL Retained Assets), or (ii) to effect the
legality, validity, binding effect or enforceability thereof.
(b) Except as set forth in Schedule 3.3(b), all Permits
required or necessary for TTS to own the TTS Assets or carry on the TTS Business
in the places and in the manner currently conducted have been duly obtained,
except where a failure to obtain any such Permit (considered individually) would
not have a Relevant Adverse Effect on the TTS Assets or the TTS Business, and
such Permits are in full force and effect. Except as set forth in Schedule
3.3(b), no violations are in existence or have been recorded with respect to
those Permits and no proceeding is pending or,
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to the knowledge of NTL, threatened with respect to the revocation or limitation
of any of such Permits, except where such violations, revocations or limitations
considered per permit would not result in a Relevant Adverse Effect on the TTS
Assets or the TTS Business. Except as set forth in Schedule 3.3(b) or as
otherwise described in the Schedules to this Agreement, TTS has complied in all
respects with all laws, rules, regulations and orders applicable to the TTS
Business, except where a failure to comply with such laws, rules, regulations
and orders would not result in a Relevant Adverse Effect on the TTS Assets or
the TTS Business.
3.4 TITLE TO AND CONDITION OF TTS ASSETS.
(a) A listing of substantially all of the items of equipment,
furniture or fixture, with an initial purchase price of One Thousand Dollars
($1,000) or more and a remaining useful life of more than one year, owned by TTS
as of March 31, 1997, constituting a part of the TTS Assets, is set forth in
Schedule 3.4(a) attached hereto. Substantially all of the assets are located at
the locations set forth in Schedule 3.4(a) or are in TTS' possession and
control. TTS has title to all such assets, free and clear of all Liens and
Claims, except for Permitted Encumbrances.
(b) Schedule 3.4(b) sets forth all Intellectual Property and
Software owned by TTS (the "TTS Owned Intellectual Property and Software").
Except as set forth on Schedule 3.4(b), TTS owns, free and clear from any claims
or rights of others, all TTS Owned Intellectual Property and Software. Except as
set forth on Schedule 3.4(b), none of the TTS Owned Intellectual Property and
Software has been declared invalid, or been limited in any respect by order of
any court or by agreement, or, to the best knowledge of NTL, is the subject of
any infringement, interference or similar proceeding or challenge. Except as set
forth on Schedule 3.4(b), neither TTS nor NTL has received any notice of
infringement, misappropriation or conflict from any other Person with respect to
the TTS Owned Intellectual Property and Software, and, to the best knowledge of
NTL, the conduct of the TTS Business has not infringed, misappropriated or
otherwise conflicted with any Intellectual Property or Software of any other
Person. To the best knowledge of NTL, each of the registrations for the patents,
trademarks and registered copyrights included in the TTS Owned Intellectual
Property and Software has been validly issued. All TTS Owned Intellectual
Property and Software that is licensed to a third party by TTS or in which TTS
has otherwise transferred an interest to a third party has been licensed or
transferred on a non-exclusive basis pursuant to valid and existing license
agreements. Except as set forth on Schedule 3.4(b), the transactions
contemplated by this Agreement will not result in any loss of any TTS Owned
Intellectual Property and Software or the loss of any right residing in TTS to
use, exploit or receive benefits with respect to such TTS Owned Intellectual
Property and Software.
(c) Schedule 3.4(c) sets forth all material Intellectual
Property and Software licensed to TTS (the "TTS Licensed Intellectual Property
and Software").
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Except as set forth on Schedule 3.4(c), TTS has the right to use, free and clear
from any claims or rights of others, except as reflected in the applicable
license, all TTS Licensed Intellectual Property and Software. Except as set
forth on Schedule 3.4(c), to the best knowledge of NTL, none of the TTS Licensed
Intellectual Property and Software has been declared invalid, or been limited in
any respect by order of any court or by agreement, or, is the subject of any
infringement, interference or similar proceeding or challenge. Except as set
forth on Schedule 3.4(c), neither TTS nor NTL has received any notice of
infringement, misappropriation or conflict from any other Person with respect to
the TTS Licensed Intellectual Property and Software. Except as set forth on
Schedule 3.4(c), the transactions contemplated by this Agreement will not result
in any loss of any TTS Licensed Intellectual Property and Software or the loss
of any right residing in TTS to use, exploit or receive benefits with respect to
such TTS Licensed Intellectual Property and Software, except to the extent that
any such loss would not have a Relevant Adverse Effect on the TTS Assets or the
TTS Business
(d) Except as set forth on Schedule 3.4(d), the TTS Assets
constitute substantially all of the assets (i) necessary for the conduct of the
TTS Business in the ordinary course consistent with past practices or (ii)
currently used by TTS in connection with the TTS Business. Except as set forth
on Schedule 3.4(d), the conduct of the TTS Business in the ordinary course is
not dependent upon the right to use the property of Persons other than TTS,
except such property as is leased or licensed to TTS pursuant to any of the TTS
Contracts or the absence of which would not have a Relevant Adverse Effect on
TTS. Except as set forth on Schedule 3.4(d), neither NTL nor any Affiliate of
NTL (other than TTS) owns or has any interest in any TTS Asset or any asset
currently used by TTS in the TTS Business, except the NTL Retained Assets, or
such assets as are leased or licensed to TTS pursuant to any of the TTS
Contracts or the loss of which would not have a Relevant Adverse Effect on TTS
or Newco.
(e) Except as set forth on Schedule 3.4 (e), the TTS Owned
Intellectual Property and Software, the TTS Licensed Intellectual Property and
Software, and the Intellectual Property and Software licensed pursuant to the
Intellectual Property License Agreement constitute all of the material
intellectual property rights used in the conduct of the TTS Business as
currently conducted.
3.5 CONTRACTS, COMMITMENTS AND CUSTOMERS.
(a) Set forth in Schedule 3.5(a) attached hereto is a list of
each of the following agreements between TTS and its customers: (i) service or
maintenance contracts with an annual revenue commitment of $500,000 or greater,
and (ii) purchase, lease or rental agreements for the installation or upgrade of
a PBX for which the customer has not been sent the final invoice with a total
purchase price of $1,000,000 or greater.
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(b) Set forth in Schedule 3.5(b) attached hereto is a list of
each TTS Contract, other than agreements with customers, which would create a
monetary obligation of TTS, or a right to receive funds by TTS, of greater than
$300,000 in the aggregate. Also set forth on Schedule 3.5(b) is a list of all
guarantees of the obligations of TTS by NTL or any NTL Affiliate.
(c) To the best knowledge of NTL and TTS, except as provided
in Schedule 3.5(c), TTS is not in breach of any provision of, or in default (or
knows of any event or circumstance that with notice or lapse of time or both
would constitute an event of default) under the terms of, any TTS Contract
except to the extent the loss of such TTS Contract would not have a Relevant
Adverse Effect on TTS. Except as set forth in Schedule 3.5(c), all of the TTS
Contracts listed in Schedule 3.5(a) and Schedule 3.5(b) are in full force and
effect, and neither NTL nor TTS is aware of any pending or overtly threatened
Claims or disputes with respect thereto. None of the customers or counterparties
under the TTS Contracts listed in Schedule 3.5(a) and Schedule 3.5(b) has
notified NTL or TTS in writing that it intends to discontinue its relationship
with TTS.
(d) Except as set forth on Schedule 3.5(d), or except where
the failure to obtain a consent or waiver would not have a Relevant Adverse
Effect on the TTS Business, the TTS Contracts listed in Schedule 3.5(a) and
Schedule 3.5(b) do not require the consent or waiver of any Person or Authority
prior to the consummation of the transactions contemplated by this Agreement.
(e) Except as set forth on Schedule 3.5(e), true and complete
copies of the TTS Contracts listed in Section 3.5(a) and Section 3.5(b) have
been made available to Newco prior to the date of this Agreement.
3.6 [This Section Intentionally Left Blank].
3.7 TAXES. Except as set forth in Schedule 3.7, TTS has timely
filed all Tax Returns with the appropriate federal, provincial or municipal
government agencies or instrumentalities required to be filed by it and has
timely paid, has caused to be timely paid, or has had timely paid on its behalf,
all Taxes which are due (whether or not shown on a Tax Return). Each of the Tax
Returns filed or as amended by TTS is accurate and complete in all material
respects. Except as described on Schedule 3.7, no material deficiencies
exceeding $1,000,000 for a single Tax or any Taxes have been proposed, asserted,
assessed or reassessed against TTS, and no requests for waivers of the time to
assess any such Taxes have been granted or are pending. Except as set forth in
Schedule 3.7, there are no current examinations of any Tax Return of TTS being
conducted, and there are no settlements or other agreements with any federal,
provincial or municipal taxing Authority or any prior examinations which could
reasonably be expected to have a Material Adverse Effect on TTS.
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3.8 NO VIOLATIONS OR LITIGATION.
(a) To the best knowledge of NTL, TTS has not violated, and,
except as provided in Schedule 3.3(a), the consummation of the transactions
contemplated hereby will not cause any violation of, any Permit, any order of
any Authority or any law, ordinance, regulation, order, requirement, statute,
rule, permit, concession, grant, franchise, license or other governmental
authorization relating or applicable to the TTS Business or any of TTS Assets or
that could have a Relevant Adverse Effect on the TTS Assets or the TTS Business.
(b) Except as set forth in Schedule 3.8(b) and except for
Claims and examinations relating to Taxes, to the best knowledge of NTL, there
is no Claim, or examination (including, without limitation, any change in any
zoning or building ordinance) pending or, to the best knowledge of NTL,
threatened against or affecting TTS, the TTS Business or any of the TTS Assets,
at law or in equity, before or by any Authority or any third party that could
have a Relevant Adverse Effect on TTS, the TTS Assets or the TTS Business.
(c) This Section 3.8 does not address environmental matters
within the scope of 3.10.
3.9 PROPERTY LEASES. Schedule 3.9 is a complete list of all real
property leases and those personal property leases with annual rental payments
equal to or greater than Three Hundred Thousand Dollars ($300,000) per annum to
which TTS is a party (the "Leases"). Each of the Leases is a valid and existing
lease, enforceable in accordance with its terms, and, to the best knowledge of
NTL, there are no existing defaults, events of default or events, occurrence or
acts that, with the giving of notice or lapse of time or both, would constitute
defaults, in each case by TTS and, to the best knowledge of NTL, by any other
party thereto, under any of the Leases.
3.10 ENVIRONMENTAL.
(a) Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:
(i) The term "Environmental Law(s)" means each and
every law, Order, Permit, or similar requirement of each and every Authority,
pertaining to (A) the protection of human health, safety, the environment,
natural resources and wildlife, (B) the protection or use of surface water,
groundwater, rivers, and other bodies of water, (C) the management, manufacture,
possession, presence, use, generation, transportation, treatment, storage,
disposal, Release, threatened Release, abatement, removal, remediation or
handling of, or exposure to, any Hazardous Substance or (D) pollution.
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(ii) The term "Hazardous Substance" means any
substance which is (A) defined as a hazardous substance, hazardous material,
hazardous waste, pollutant or contaminant under any Environmental Laws, (B) a
petroleum hydrocarbon, including crude oil or any fraction thereof, (C)
hazardous, toxic, corrosive, flammable, explosive, infectious, radioactive or
carcinogenic or (D) regulated pursuant to any Environmental Laws.
(iii) The term "Release" means any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping, or disposing into the environment (including without
limitation the abandonment or discarding of barrels, containers, and other
receptacles containing any Hazardous Substance).
(b) compliance with Environmental Laws. Except as disclosed on
Schedule 3.10(b), with respect to both (i) the operations conducted at and
conditions present at the real property currently used or occupied by TTS in
connection with the TTS Business (the "TTS Real Property"), and (ii) the
operations conducted at and the conditions present at any real property formerly
used or occupied by TTS in connection with the TTS Business (the "Former TTS
Real Property"), during the period of such use or occupancy by TTS, TTS was and
is in compliance with applicable Environmental Laws, except for such failures to
comply that, individually and in the aggregate, have not had and could not
reasonably be expected to have, a Material Adverse Effect on TTS.
(c) Environmental Liabilities. Except as disclosed on Schedule
3.10(c), there are no past or present conditions, circumstances, events,
activities, practices, or agreements arising out of, or related either to the
TTS Real Property or to the Former TTS Real Property, including but not limited
to any on-site or off-site Release of any Hazardous Substances, which have given
rise to or could reasonably be expected to give rise to: (i) liabilities or
obligations of TTS, NTL or its Affiliates for any clean-up, corrective action or
remedial activity under any Environmental Law; (ii) any Claim against TTS, NTL
or its Affiliates under any Environmental Law for personal injury, property
damage, or damage to natural resources, or (iii) the imposition of fines or
penalties on TTS, NTL or its Affiliates under any Environmental Law, where such
liabilities, obligations, Claims, fines or penalties, either individually or in
the aggregate, have had or could reasonably be expected to have a Material
Adverse Effect on TTS.
(d) Permits. Schedule 3.10(d) sets forth an accurate and
complete list of all material Permits issued to TTS, NTL or its Affiliates under
any Environmental Law for the operation of the TTS Business. Except as disclosed
on Schedule 3.10(d), TTS, NTL or its Affiliates have made all filings necessary
to request the timely renewal or issuance of all Permits necessary under
Environmental Laws for the continued use and operation of the TTS Real Property
and to conduct the TTS Business as it is presently being conducted.
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(e) Proceedings. Except as disclosed in Schedule 3.10(e),
there is no Claim or Proceeding pending or threatened against TTS, NTL or its
Affiliates, under or in connection with any Environmental Law, which could
reasonably be expected to result in a fine, penalty or other obligation, cost or
expense, except for such obligations, costs, or expenses that, individually or
in the aggregate, have not had and could not reasonably be expected to have a
Material Adverse Effect on TTS.
(f) Transfer Restrictions and Liens. Except as disclosed in
Schedule 3.10(f), neither the TTS Real Property nor the TTS Business (i) is
subject to, or would as a result of this transaction be subject to, applicable
Environmental Laws which would impose restrictions, such as notice, disclosure
or obtaining approval prior to this transaction, or (ii) is subject to, or could
reasonably be expected to become subject to, any Liens under any applicable
Environmental Laws.
(g) Documents. TTS, NTL or its Affiliates will have made
available by Closing to WCG any and all pleadings, reports, assessments,
analytical results, permits, and other material documents, correspondence and
records in their possession concerning Environmental Laws, Hazardous Substances,
or other environmental subjects in each case relating to the operation of the
TTS Business.
3.11 INSURANCE. Schedule 3.11 sets forth a complete and accurate
list of all policies (including their respective expiration dates) of property,
general liability, automobile liability, and other forms of insurance presently
in effect with respect to TTS, the TTS Business or any of the TTS Assets, its
operations, and its employees, excluding those policies relating to Benefit
Programs or Agreements. Such insurance will be terminated with respect to TTS,
the TTS Business and the TTS Assets as of Closing.
3.12 EMPLOYMENT AND LABOR MATTERS.
(a) Attached hereto as Schedule 3.12(a)(i) is a true and
complete list of the employees of the TTS Business as of December 31, 1996
(including regular full and part-time employees and employees seconded or
otherwise provided to TTS by NTL or any of its Affiliates) (the "TTS Active
Employees"), identified by name and employee number, together with job titles,
compensation and service information concerning such employees. Except as set
forth on Schedule 3.12(a)(ii), TTS is not a party to any employment contract
with and will not have any liability (other than accrued salary, commissions,
bonuses, draws, allowances, overtime, vacation pay and other statutory amounts,
or as described in Schedule 3.8(b)) to any TTS Active Employees or any other
employees, any former employees, or any independent and dependent contractors of
the TTS Business (collectively, "TTS Employees"). Attached hereto as Schedule
3.12(a)(iii) is a true and complete list of the independent and dependent
contractors of the TTS Business.
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(b) Except as set forth on Schedule 3.12(b), TTS is not a
party to any collective bargaining agreement or union contract with respect to
TTS Employees and no collective bargaining agreements are being negotiated by
TTS with respect to any of the TTS Employees; and no notice of a proposed union
certification or recognition election has been received by TTS.
(c) No trade union, council of trade unions, employee
bargaining agency or Affiliated bargaining agent:
(i) holds bargaining rights with respect to any
TTS Employees by way of certification,
interim certification, voluntary
recognition, designation or successor
rights;
(ii) has applied to be certified as the
bargaining agent of any TTS Employees; or
(iii) has applied to have TTS declared a related
employer or successor employer pursuant to
applicable labor legislation.
(d) Except as otherwise set forth on Schedule 3.12(d), no TTS
Employees are currently on a leave of absence for any reason, including without
limitation sickness or disability, maternity/paternity and workers'
compensation, and no Claim is pending and, to the best knowledge of NTL, no
Claim is expected to be made by any TTS Employees for workers? compensation
benefits.
(e) TTS has complied in all material respects with all laws
relating to the employment of TTS Employees.
(f) Attached hereto as Schedule 3.12(f) is a true and complete
list of each of the following which is, or has been, sponsored, maintained or
contributed to by TTS, NTL or any of its Affiliates in respect of TTS Employees:
each personnel policy, stock option plan, bonus plan or arrangement, incentive
award plan or arrangement, vacation policy, severance pay plan and/or golden
parachute agreement, policy, program or agreement, pension, retirement,
supplementary retirement, deferred compensation agreement or arrangement,
retiree benefit plan or arrangement, fringe benefit program or practice (whether
or not taxable), employee loan, consulting agreement, employment agreement and
each other employee benefit plan, agreement, arrangement, program, practice or
understanding ("Benefit Programs or Agreements").
(g) True, correct and complete copies or descriptions of all
Benefit Programs or Agreements and all amendments thereto along with the related
funding agreements, as amended, have been furnished or made available to WCG by
TTS.
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(h) TTS has no knowledge of any fact, condition or
circumstance since the date of the documents provided in accordance with Section
3.12(f) which would materially affect the information contained therein and, in
particular, and without limiting the generality of the foregoing, no promises or
commitments have been made by TTS to amend any Benefit Program or Agreement or
to provide increased benefits thereunder to any employee, dependant or
independent contractor, except as required by law.
(i) All Benefit Programs or Agreements have been maintained in
compliance with their respective terms and with the requirements prescribed by
any and all applicable statutes, orders, rules and regulations. Notice has not
been received of any pending investigations by any Authority involving or
relating to any Benefit Program or Agreement, there are no threatened or pending
Claims (except for Claims for benefits payable in the normal operation of the
Benefit Programs or Agreements), suits or proceedings against any Benefit
Program or Agreement or asserting any rights or claims to benefits under any
Benefit Program or Agreement that could give rise to a liability nor, to the
best knowledge of NTL, are there any facts that could give rise to any liability
in the event of such investigation, claim, suit or proceeding. No notice has
been received by TTS, NTL or its Affiliates of any complaints or other
proceedings of any kind involving TTS or, to the best knowledge of NTL, any TTS
Employees before any Authority relating to any Benefit Program or Agreement.
(j) Each investment held in respect of a Benefit Program or
Agreement is a qualified or eligible investment, no investment held in respect
of a Benefit Program or Agreement is a prohibited investment under the terms of
the Benefit Program or Agreement and all supporting documents or any applicable
legislation, and each Benefit Program or Agreement has or had the power and
authority to make each investment and is permitted under all applicable
legislation and the terms of the Benefit Programs or Agreements and all
supporting documents to continue to hold such investments.
(k) Except as permitted by the Benefit Program or Agreement
and applicable legislation, there has been no withdrawal of assets or any other
amounts from any of the Benefit Programs or Agreements other than proper
payments of benefits to eligible beneficiaries, refunds of over-contributions to
plan members and permitted payments of reasonable expenses incurred by or in
respect of such Benefit Program or Agreement.
(l) All employer and, if applicable, employee contributions
under the Benefit Programs or Agreements have been remitted in a timely manner
(other than current contributions not in arrears), and the Benefit Programs or
Agreements have been funded in accordance with their respective terms.
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(m) All returns, filings, reports and disclosures relating to
the Benefit Programs or Agreements required pursuant to the terms of the Benefit
Programs or Agreements, applicable legislation or any Authority, have been filed
or distributed in accordance with all requirements, all filing fees and levies
imposed on the Benefit Programs or Agreements by the applicable Authorities or
applicable legislation have been made on a timely basis and the funds of the
Benefit Programs or Agreements are not exposed to any late filing fees that have
not been remitted.
(n) No event has occurred and there has been no failure to act
on the part of TTS, any funding agent or any administrator of any of the Benefit
Programs or Agreements that could subject TTS or the fund of any Benefit Program
or Agreement to the imposition of any tax, penalty or other disability with
respect to any Benefit Programs or Agreements, whether by way of indemnity or
otherwise.
(o) No insurance contract or any other contract or agreement
affecting a Benefit Program or Agreement requires or permits a retroactive
increase in premiums or payments, loss sharing arrangement or other actual or
contingent liability due thereunder. The level of insurance reserves under each
insured Benefit Program or Agreement is reasonable and sufficient to provide for
all incurred but unreported claims.
(p) None of the Benefit Programs or Agreements provides
benefit increases or payments of any kind that are contingent upon or that will
become effective upon entering into this Agreement or the completion of the
transactions contemplated hereby.
(q) Attached hereto as Schedule 3.12(q) is a list of all
employee terminations and transfers out of the TTS Business since September 1,
1996.
3.13 FINDER'S FEE. Other than Smith Barney, Inc., no investment
banker, broker, finder or other Person is entitled to any brokerage or finder's
fee or similar commission from NTL or TTS in respect of the transactions
contemplated by this Agreement. NTL shall indemnify and hold Newco harmless from
and against any and all Claims, liabilities and obligations with respect to any
such fees, commissions or expenses asserted by any such Person on the basis of
any act, statement, agreement or commitment alleged to have been made by TTS,
NTL or any of its Affiliates with respect thereto.
3.14 MINUTE BOOKS. The minute books of TTS, copies of which have
heretofore been made available to Newco, contain true and complete minutes and
records of all meetings, proceedings and other actions of shareholders and the
Board of Directors of TTS, none of which have been amended to the best knowledge
of NTL (except as set forth in such copies) and are in full force and effect as
of the date hereof.
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3.15 ABSENCE OF CERTAIN CHANGES. Except as described in Schedule
3.15 and except for the consummation of the transactions contemplated by Article
II, since December 31, 1996, there has not been:
(a) Any mortgage, encumbrance or Lien placed on any of the TTS
Assets by or as a result of any act or omission of TTS which remains in
existence on the date hereof and remains in existence on the Closing Date,
except for Permitted Encumbrances;
(b) Any obligation or liability in excess of Two Hundred Fifty
Thousand Dollars ($250,000) incurred by TTS other than obligations and
liabilities incurred in accordance with past practice in the ordinary course of
business;
(c) Any purchase, sale or other disposition, or any agreement
or other arrangement for the purchase, sale or other disposition of any of the
TTS Assets for an amount in excess of One Hundred Thousand Dollars ($100,000),
other than in accordance with past practice in the ordinary course of business;
(d) Any damage, destruction or Loss in excess of One Hundred
Thousand Dollars ($100,000) per single event, whether or not covered by
insurance, affecting the TTS Assets or the TTS Business;
(e) Any strike, work stoppage, concerted work slow down,
grievance or arbitration proceeding, unfair labor practice charge or complaint
involving the TTS Business;
(f) Any material change in the Benefit Programs or Agreements
listed (or required to be listed) on Schedule 3.12(f) or any change in the
compensation payable or to become payable with respect to the TTS Business to
any present or former director, officer, employee, dependent or independent
contractor listed on Schedule 3.12(a)(iii) or agent of NTL or TTS, except
changes in compensation which occurred in the ordinary course of business and
which did not involve, in any case, an increase in compensation in excess of
Twenty Thousand Dollars ($20,000) per annum for any one employee.
(g) A cancellation of any debt in excess of One Hundred
Thousand Dollars ($100,000) owed to or a claim of TTS, or waiver of any right of
TTS, other than in accordance with past practice in the ordinary course of
business;
(h) Any extraordinary Losses of Fifty Thousand Dollars
($50,000) or more individually aggregating in excess of Seven Hundred Fifty
Thousand Dollars ($750,000) or more suffered by the TTS Business;
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(i) Any change in any method of accounting or accounting
practice by the TTS Business, except as may be required by GAAP; or
(j) Any other change in the financial condition, properties,
assets, liabilities, business or operations of the TTS Business which change, by
itself or in conjunction with all other such changes, whether or not arising in
the ordinary course of business, has been or is reasonably likely to have a
Material Adverse Effect with respect to the TTS Business or Newco.
3.16 NO UNTRUE STATEMENTS. This Agreement, the Exhibits and
Schedules hereto, and any certificate delivered to Newco or its representatives
in connection with this Agreement or the transactions contemplated hereby, do
not and will not contain when delivered any untrue statement of any material
fact and do not and will not omit to state a material fact necessary to make the
statements contained herein and therein taken as a whole not misleading. To the
best knowledge of NTL, there is no material fact that has not been disclosed in
writing to Newco by NTL or TTS that has or is expected to have a Material
Adverse Effect on TTS or Newco.
3.17 DISTRIBUTORSHIP TERMS. To the best knowledge of NTL, all of the
terms of the current distributorship agreements between NTL and TTS have been
substantially complied with by the parties.
3.18 RESIDENT STATUS. NTL is not a non-resident person within the
meaning of Section 116 of the Income Tax Act (Canada).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco hereby makes the following representations and warranties to NTL,
each and all of which are true and correct on the signing date hereof and on the
Closing Date, except as set forth in the disclosure schedule attached pertaining
to such representation and warranty:
4.1 CORPORATE MATTERS. WilTel Communications LLC and its Designee
each is duly organized, validly existing and in good standing under the laws of
the State of Delaware and of the Province of Ontario, respectively, having all
requisite power and authority to own, operate and lease its properties and
assets and to carry on its business in the places and in the manner currently
conducted. NTL has been provided with a true and correct copy of the charter
documents of Newco and its Designee as currently in effect. Newco and its
Designee each has all requisite power and authority to enter into this Agreement
and to perform its obligations hereunder.
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4.2 VALIDITY OF AGREEMENT; NO CONFLICT.
(a) This Agreement has been duly authorized, executed and
delivered by Newco and is a legal, valid and binding obligation of Newco
enforceable against it in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws from time to time in effect that affect creditors' rights
generally and by legal and equitable limitations on the availability of specific
remedies.
(b) The execution, delivery and performance of this Agreement
by Newco and the other agreements and documents to be delivered by Newco to NTL
hereunder, the consummation of the transactions contemplated hereby or thereby,
and the compliance with the provisions hereof or thereof by Newco, will not,
with or without the passage of time or the giving of notice or both:
(i) except in the absence of required consents as set
forth on Schedule 4.3(a), conflict with, constitute a breach, violation or
termination of any provision of, or give rise to any right of termination,
cancellation or acceleration, or loss of any right or benefit or both, under any
contract to which Newco is a party;
(ii) conflict with or violate the charter documents
of Newco;
(iii) result in the creation or imposition of any
Lien or Claim on any assets of Newco, except as contemplated herein; or
(iv) violate any law, statute, ordinance, regulation,
judgment, writ, injunction, rule, decree, order or any other restriction of any
kind or character applicable to Newco.
4.3 GOVERNMENTAL AND OTHER CONSENTS, APPROVALS AND AUTHORIZATIONS.
Except as set forth in Schedule 4.3 attached hereto or as would not
significantly adversely impact Newco, the transactions contemplated hereby or by
any other agreement contemplated hereby, no order, license to conduct or operate
its business, consent, waiver, authorization or approval of, or exemption by, or
the giving of notice to, or the registration with, or the taking of any other
action in respect of, any Person not a Party, including any Authority, and no
filing, recording, publication or registration in any public office or any other
place is necessary on behalf of Newco (i) to authorize the execution, delivery
and performance of this Agreement or any other agreement contemplated hereby to
be executed and delivered by it and the consummation of the transactions
contemplated hereby or thereby, or (ii) to effect the legality, validity,
binding effect or enforceability thereof.
4.4 ACQUISITION OF PURCHASED SHARES. The Purchased Shares are being
acquired by Newco or its Designee for its own account and not with a view to or
in
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connection with any disposition thereof in violation of the Securities Act of
1933, as amended, or the relevant regulations thereunder, or any state
securities or "blue sky" laws.
4.5 FINDER'S FEE. No investment banker, broker, finder or other Person
is entitled to any brokerage or finder's fee or similar commission from Newco in
respect of the transactions contemplated by this Agreement. Newco shall
indemnify and hold NTL and its Affiliates harmless from and against any and all
Claims, liabilities and obligations with respect to any such fees, commissions
or expenses asserted by any such Person on the basis of any act, statement,
agreement or commitment alleged to have been made by Newco or any of its
Affiliates with respect thereto.
4.6 NO UNTRUE STATEMENTS. This Agreement, the Exhibits and Schedules
hereto, and any certificate delivered to NTL and its representatives in
connection with this Agreement or the transactions contemplated hereby, do not
and will not contain when delivered any untrue statement of any material fact
and do not and will not omit to state a material fact necessary to make the
statements contained herein and therein taken as a whole not misleading. To the
best knowledge of Newco, there is no material fact that has not been disclosed
in writing to NTI or NTL by Newco that has or is expected to have a Material
Adverse Effect on Newco.
ARTICLE V
MATTERS PENDING CLOSING
[THIS ARTICLE INTENTIONALLY LEFT BLANK.]
ARTICLE VI
CONDITIONS TO CLOSING
6.1 CONDITIONS TO OBLIGATION OF THE PARTIES The obligations of the
Parties to effect the Closing shall be subject to the following conditions
unless waived in writing by all Parties:
(a) Formation Agreement. The transactions contemplated by
Sections 2.2 and 2.3 of the Formation Agreement shall have been consummated.
(b) Approvals and Consents. Any required consents, approvals
or authorizations of any Authority to the transfer or change in control
contemplated by this Agreement shall have been obtained or required statutory
waiting periods therefor shall have expired.
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(c) No Litigation. No Proceeding shall have been initiated by
any Authority or third party seeking to enjoin or otherwise restrain the
consummation of the transactions contemplated by this Agreement.
6.2 CONDITIONS TO OBLIGATION OF NEWCO. The obligation of Newco to
consummate the transactions contemplated hereby is subject to the satisfaction
on or prior to the date of the Closing of the following conditions, any one or
more of which may be waived in writing, in whole or in part, by Newco:
(a) Representations, Warranties and Covenants. NTL shall have
performed, satisfied, and complied with, in all material respects, all covenants
and agreements required by this Agreement to be performed, satisfied, or
complied with by it on or before the date of the Closing. All representations
and warranties of NTL contained in this Agreement or in any certificate,
document, instrument or writing delivered to Newco by or on behalf of NTL under
this Agreement shall be true and correct, in all material respects, on the date
of this Agreement and as of the date of the Closing with the same force and
effect as though they had been made on such date.
(b) No Material Adverse Change. From the date of this
Agreement to and including the Closing Date, there shall not have occurred any
Material Adverse Change in or with respect to the prospects of the TTS Business
or the TTS Assets, whether or not disclosed in any supplement or amendment to
the schedules to this Agreement.
(c) Good Standing. NTL shall have delivered to Newco
certificates issued by appropriate Authorities evidencing the good standing and
existence of each of NTL and TTS, as of a date not more than ten calendar days
prior to the date of Closing, in the jurisdictions in which it was organized.
(d) Consents of Third Persons. All consents from Persons that
are listed and identified in Schedule 3.3(a) attached hereto shall have been
obtained by TTS including by lapse of a contractual or statutory waiting period
and copies thereof shall have been delivered to Newco.
(e) Delivery of Other Agreements. NTL shall have executed and
delivered to Newco or its Designee the other agreements contemplated by this
Agreement.
(f) Review of Certain Contracts. NTL shall have made available
for review by Newco the contracts identified on Schedule 3.5(a).
(g) Secretary's Certificate. NTL shall have delivered to Newco
a certificate dated the Closing Date executed by the secretary or assistant
secretary of
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TTS certifying that attached thereto is: (1) a true, correct and complete
certified copy of the certificate of incorporation of TTS and all amendments
thereto; and (2) a true, correct and complete copy of the by-laws of TTS, and
all amendments thereto.
(h) Resolutions. NTL shall have delivered to Newco certified
resolutions of the Board of Directors of NTL approving the consummation of the
transactions contemplated hereby.
(i) NTL Retained Liabilities. NTL (or an Affiliate of NTL
reasonably acceptable to Newco) shall have assumed and agreed to pay, perform
and discharge the NTL Retained Liabilities pursuant to an assumption agreement
in form and substance satisfactory to Newco.
(j) Transfer of Purchased Shares. NTL shall have delivered to
Newco or its Designee all necessary transfers, assignments and other
documentation reasonably required to transfer the Purchased Shares to Newco or
its Designee with a good title, free and clear of all encumbrances.
(k) Officers and Directors Resignations. All directors and
officers of TTS shall have resigned in favor of nominees of Newco effective as
of the Closing.
6.3 CONDITIONS TO OBLIGATION OF NTL. The obligation of NTL to
consummate the transactions contemplated hereby is subject to the satisfaction
on or prior to the date of the Closing of the following conditions, any one or
more of which may be waived in writing, in whole or in part, by NTL:
(a) Representations, Warranties and Covenants. Newco shall
have performed, satisfied, and complied with, in all material respects, all
covenants and agreements required by this Agreement to be performed, satisfied,
or complied with by it on or before the date of the Closing. All representations
and warranties of Newco contained in this Agreement or in any certificate,
document, instrument or writing delivered to NTL by or on behalf of Newco under
this Agreement shall be true and correct, in all material respects, on the date
of this Agreement and as of the date of the Closing with the same force and
effect as though they had been made on such date.
(b) No Material Adverse Change. From the date of this
Agreement to and including the Closing Date, there shall not have occurred any
Material Adverse Change in or with respect to the prospects of the WilTel
Business or the WilTel Assets, whether or not disclosed in any supplement or
amendment to the schedules to this Agreement.
(c) Purchase Price. Newco shall have paid to NTL the Purchase
Price.
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(d) Officer's Certificate. Newco shall have delivered to NTL a
certificate dated the Closing Date executed by an officer of Newco certifying
that attached thereto is: (1) a true, correct and complete copy of the
certificate of formation of Newco certified by the Secretary of State of
Delaware and all amendments thereto; and (2) a true, correct and complete copy
of the LLC Agreement.
(e) Resolutions. Newco shall have delivered to NTL certified
resolutions of the management committee of Newco approving the consummation of
the transactions contemplated hereby.
(f) Insurance. Newco shall have provided evidence to NTL that
the insurance policies set forth on Schedule 4.11 of the Formation Agreement
have been amended to include Newco and TTS.
(g) Competition Bureau. WCG, WilTel or Newco shall have
proposed the transactions contemplated by this Agreement to the Canadian
Competition Bureau for its approval or advice that it will not oppose such
transactions.
ARTICLE VII
CLOSING
7.1 The consummation of the transactions provided for in Article II
(the "Closing") shall take place at the offices of The Williams Companies, Inc.,
One Williams Center, Suite 4100, Tulsa, Oklahoma 74172 on April 30, 1997, or at
such other time as the parties mutually agree.
ARTICLE VIII
DISTRIBUTORSHIP AGREEMENT
8.1 TTS RIGHT OF RENEWAL. At the time of Closing, NTL and TTS shall
enter into a new distributorship agreement with TTS to replace the current
distributorship agreements between NTL and TTS, substantially on the terms and
conditions attached hereto as Schedule 8.1 (the "NTL/TTS Distributor
Agreement").
8.2 TTS RIGHT OF RENEWAL AFTER TRANSFER. In the event of a Transfer of
a Member's Membership Interest (as defined in the LLC Agreement) pursuant to
Sections 8.6(b), 19.3, 19.4 or 19.5 of the LLC Agreement, NTL shall not
terminate the NTL/TTS Distributor Agreement for a period of three (3) years
after such Transfer unless (i) TTS is in material breach of the NTL/TTS
Distributor Agreement, (ii) Newco is in material breach of its distributorship
agreement with NTL, or (iii) control of TTS or a substantial interest in TTS is
sold, transferred or assigned by Newco to a competitor of NTL.
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8.3 USE OF MARKS. Newco acknowledges that NTL is the registered owner
of the following trademarks:
Meridian reg. no. 319540
Meridian 1 reg. no. 387807
Meridian SL reg. no. 383716
In addition to any trademark licenses granted pursuant to the terms of
the NTL/TTS Distributor Agreement, Nortel agrees that it will permit TTS to
continue using "Meridian" (the "Trademark") as part of its corporate name and as
otherwise used in the TTS Business in Canada prior to the date hereof but not
otherwise, until December 31, 1997.
Newco shall cause TTS to comply with NTL's instructions as to the form
and manner in which the Trademark shall be used and agrees that its use of the
Trademark shall conform in all respects to NTL's policies and guidelines in
place from time to time respecting the use of the Trademark.
Newco shall cause TTS to ensure that products sold by TTS in respect of
which the Trademark is used comply with all specifications and standards set
forth by NTL. NTL shall have the right to monitor and inspect products sold by
TTS at reasonable times for the purpose of enabling NTL to ensure such
compliance exists.
Newco shall cause TTS to cease using "Meridian" as part of its
corporate name and on signs, logos, telephone listings, business cards, customer
and supplier information or otherwise (except as permitted pursuant to the
NTL/TTS Distributor Agreement) as soon after Closing as reasonably possible, but
in no event later than December 31, 1997.
Newco acknowledges that the Trademark and all goodwill associated
therewith are, and shall remain, the sole property of NTL and no rights are
conferred upon TTS or Newco with respect to the Trademark except as specifically
set forth herein.
ARTICLE IX
EMPLOYEE MATTERS
9.1 EMPLOYMENT RELATED CLAIMS. On or prior to the Closing Date, NTL (or
an Affiliate of NTL reasonably satisfactory to Newco) shall assume and agree to
pay, perform and discharge, the following liabilities of TTS caused by actions
or omissions of TTS or NTL, or arising from facts occurring, on or prior to the
Closing Date:
(i) Any liability, Claim or obligation (whether
actual, contingent, known or unknown) in respect of employment
of the TTS Employees on
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or before the Closing Date, including without limitation
wages, costs of benefits or termination of employment; and
(ii) Any liability, Claim or obligation (whether
actual, contingent, known or unknown) in respect of the
persons listed on Schedule 9.1.
9.2 EMPLOYMENT TERMINATION NOTICES. Each Party acknowledges that it is
solely responsible for issuing, serving and delivering all orders and notices
required pursuant to applicable employment standards or labour legislation in
connection with the termination of its employees, if any, and for any financial
obligations and liabilities in connection therewith or otherwise required in
connection with the termination of its employees.
9.3 HIRING RESTRICTIONS. NTL and its Affiliates will not hire Newco
employees for a period of one (1) year from Closing.
9.4 SERVICES AGREEMENT. NTL shall continue to provide to TTS the
services of the persons listed on Schedule 9.1 pursuant to the terms of a
Services Agreement to be negotiated between NTL and TTS within thirty (30) days
after Closing.
ARTICLE X
ADDITIONAL AGREEMENTS
10.1 DELIVERY OF CORPORATE DOCUMENTS. NTL shall deliver to Newco or
TTS, on or before the Closing Date, all Records, including computer disks
reflecting any books or records, documents or other papers, or other information
or data relating to the operation of the TTS Business or the TTS Assets stored
on any electronic media, including computers. NTL shall be entitled to retain
the historical books and records relating to the TTS Business to the extent the
books and records are not necessary for the ongoing operations of the TTS
Business. NTL agrees that Newco and its authorized representatives shall have
the right to inspect and, at Newco's expense, copy, at any time during regular
business hours for any proper purpose, the corporate, accounting, auditing and
tax books, records (including work papers) and other books and records, but only
so far as they relate to TTS or the TTS Business, in the possession of NTL or
its Affiliates. For a period of seven years following the Effective Date, NTL
agrees that it will not dispose of or destroy any such books and records without
having first offered to deliver the same to Newco or TTS.
10.2 ACCESS TO INFORMATION. Newco covenants and agrees to cause TTS to
provide full and complete cooperation and assistance to NTL and its Affiliates
following the Closing and to provide full and complete access to the corporate,
accounting, auditing and tax books, records (including work papers) and other
books and records relating to TTS, and to TTS' premises and employees, to the
extent that
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NTL reasonably requires such information to complete tax returns, to verify and
honor the NTL Retained Liabilities and obtain the benefit of the NTL Retained
Assets, to investigate, enforce or defend against Claims for indemnification
pursuant to Article XI or third party Claims against any such Party or Parties,
or for similar purposes. For a period of seven years following the Effective
Date, Newco agrees that it will cause TTS not to dispose of or destroy any such
books and records without having first offered to deliver the same to NTL.
10.3 NONDISCLOSURE OF PROPRIETARY INFORMATION.
(a) Each of NTL and Newco agrees that, for a period beginning
on the Closing Date and ending on the second anniversary date of the Closing
Date, it and its Affiliates will apply the same standards and treat (i) TTS's
confidential or proprietary information and (ii) the terms and conditions of
this Agreement and the other agreements required pursuant hereto, as it does its
Affiliates' confidential or proprietary information with respect to maintaining
the confidentiality thereof. Notwithstanding the foregoing, each Party and its
Affiliates may disclose information that (A) is required to be disclosed by
applicable provincial, state, or federal tax or securities laws to the extent,
and only to the extent, the laws require the disclosure and such Party provides
TTS prior written notice of its intent to provide the disclosure and the general
text of the disclosure, and the disclosure is consented to by TTS, which consent
shall not be unreasonably withheld, or (B) is required to be disclosed by a
court or administrative body of competent jurisdiction; provided that, if a
Party or its Affiliates are served or threatened with litigation that would
require such Party or its Affiliate to disclose the information, such Party or
the Affiliate shall tender to TTS the opportunity to defend, at its cost,
against the disclosure.
(b) Each Party acknowledges that all documents and objects
containing or reflecting any TTS Owned Intellectual Property and Software,
whether developed by such Party or by someone else for it or any of its
Affiliates, will remain the exclusive property of TTS after the Effective Date
and will be delivered to TTS. TTS will not share such TTS Owned Intellectual
Property and Software with NTL or any of its Affiliates unless sold or licensed
in an arms length transaction, provided that any software effectively available
to NTL or its Affiliates as of February 28, 1997, will continue to be available
at the existing terms and conditions.
10.4 THIRD PARTY CONSENTS. Each of NTL and Newco shall use its
reasonable efforts to obtain the consents of third parties as are necessary for
the completion of the transactions contemplated by this Agreement.
10.5 TAX MATTERS.
(a) Tax Returns, Payment of Taxes, and Refunds. NTL will
prepare and file, or cause to be prepared and filed, on a timely basis, all Tax
Returns (including
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any amendments thereto), if any, for TTS for any taxable period ending on or
prior to the Effective Date, (any such period being referred to herein as a
"Pre-Effective Period"). TTS shall be responsible for and shall pay all Taxes
for such Pre-Effective Periods up to the amount accrued for such Taxes on the
NCS Adjusted Effective Date Balance Sheet. Any amount paid for Taxes with
respect to Pre-Effective Periods which exceeds the total amount of Taxes accrued
on the NCS Adjusted Effective Date Balance Sheet shall be reimbursed by NTL
promptly upon demand therefor. Newco shall, at its expense, cause TTS to
reasonably cooperate and execute such instruments as are required or desirable
in connection with the performance by NTL of its obligations under the
immediately preceding sentence. Newco will prepare and file, or will cause to be
prepared and filed, all Tax Returns relating to TTS for all subsequent periods,
and TTS will pay all Taxes for TTS for all taxable periods which do not
constitute Pre-Effective Periods.
(b) Control of Contest. Each of NTL and Newco will have the
right, at its own expense, to control any audit or determination by any taxing
authority, to initiate any claim for refund or file any amended Tax Return, and
to contest, resolve and defend against any assessment, notice of deficiency, or
other adjustment or proposed adjustment of Taxes for any taxable period for
which such party (or any of its Affiliates) is charged with responsibility for
filing a Tax Return under this Agreement. Newco will promptly forward or cause
TTS to forward to NTL all written notifications and other written communications
from any Taxing authority received by Newco or TTS relating to any liability for
Taxes for any Pre-Effective Periods. Newco will cause TTS to assist NTL, at TTS'
expense to take any and all actions with respect to any proceedings for any such
Pre-Effective Periods. The failure by Newco to provide any such notice to NTL
within twenty (20) Business Days of receipt by Newco or TTS of such notice will
relieve NTL from any obligations with respect to the subject matter of any
notification not so forwarded, but only to the extent that such late notice
materially prejudices NTL's ability to contest such assessment or Tax.
(c) (i) Access to Information. Newco will cause TTS to provide
NTL, and NTL will provide to TTS, the right, at reasonable times and upon
reasonable notice, to have access to and to copy and use any records or
information and personnel which may be relevant for the taxable period for which
the requesting party is charged with payment responsibility for Taxes under this
Agreement in connection with the preparation of any Tax Returns, any audit or
other examination by any taxing authority, the filing of any claim for a refund
of Tax or for the allowance of any Tax credit, or any judicial or administrative
proceedings relating to liability for Taxes. The party requesting assistance
hereunder will reimburse the other party for reasonable expenses incurred in
providing such assistance. Any information obtained pursuant to this Section
10.5(c)(i) will be treated as proprietary information and will be used solely in
connection with the matter for which it was requested.
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(ii) Retention of Records. For a period of seven (7) years
from the Closing Date, Newco will cause TTS not to dispose of or destroy any of
the business records or files of TTS in existence on the Closing Date directly
relating to Taxes without first offering to turn over possession thereof to NTL
by written notice to NTL at least thirty (30) days prior to the proposed date of
such disposition or destruction.
10.6 INSURANCE MATTERS. To the extent that insurance coverage
maintained by NTL is available, in excess of any deductible, retention or full
indemnity program, with respect to any Loss suffered by TTS in respect of an
event occurring on or before the Closing or relating to periods ending on or
before such date, at the request of TTS and subject to reimbursement of costs by
TTS, NTL shall make a claim against such insurance and any insurance proceeds
from such insurance will be for the benefit of TTS for any relevant Loss of TTS,
up to the amount of such Loss. NTL shall have the right to control, at its
expense, subject to consultation with TTS, the defense of third-party Claims in
respect of which NTL expects that insurance coverage under its policies may be
available in respect of all or a portion of such Claims (subject to any
applicable deductible under such insurance coverage).
ARTICLE XI
INDEMNIFICATION
XI.1 INDEMNITY OBLIGATION.
(a) NTL Indemnification. Subject to the provisions of this
Article XI, NTL shall indemnify and hold harmless Newco and its Party
Indemnitees against any and all Losses resulting from or arising out of:
(i) any breach of a representation or warranty
made by NTL in this Agreement or any Schedule or Exhibit
attached hereto;
(ii) the breach of any covenant, agreement or
obligation of NTL contained in this Agreement or any Schedule
or Exhibit hereto; and
(iii) the NTL Retained Liabilities.
The total obligation of NTL and/or any of its Affiliates to indemnify under this
Section and under Section 11.1(a) of the Formation Agreement shall not exceed
$200,000,000 in the aggregate under any circumstances.
(b) Newco Indemnification. Subject to the provisions of this
Article XI, Newco shall indemnify and hold harmless NTL and its Party
Indemnitees against any and all Losses resulting from or arising out of:
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(i) any breach of a representation or warranty
made by Newco in this Agreement or any Schedule or Exhibit
attached hereto; or
(ii) the breach of any covenant, agreement or
obligation of Newco contained in this Agreement or any
Schedule or Exhibit hereto.
The total obligation of Newco and/or any of its Affiliates to indemnify
under subparagraph 11.1(b)(i) shall not exceed $200,000,000 in the aggregate
under any circumstances.
(c) The breach of a specific representation, warranty or
agreement by a Party shall be determined whether or not, apart from such
specific representation, warranty or agreement, the transactions provided for in
this Agreement prove to be more favorable to the other Party, and whether or not
the facts and circumstances covered by one or more of the other representations,
warranties or agreements made by such Party prove to be more favorable than so
represented and warranted.
(d) All Claims for indemnification under this Section 11.1
(the party claiming indemnification and the party against whom such Claim for
indemnification is being made are hereinafter referred to as "Indemnified Party"
and the "Indemnifying Party", respectively) shall be reduced by the amount of
any insurance proceeds effectively received by or benefiting the Indemnified
Party with respect to the relevant Loss or liability subject, as the case may
be, to the application of Section 10.6.
(e) Except with respect to Claims under subparagraph (a)(iii)
of this Section 11.1, (i) no Claims shall be capable of assertion under Section
11.1 unless it pertains to a Loss with a monetary value of $50,000 or more, on a
matter by matter basis (whereby a series of connected Losses that are
substantially identical in nature and that have arisen out of substantially
identical events, circumstances or conditions shall be deemed to constitute one
Loss); and (ii) a Party (including its Party Indemnitees) shall only be entitled
to indemnification under this Section 11.1 to the extent that the aggregate
amount of Losses suffered by it or its Party Indemnitees under both this
Agreement and the Formation Agreement as a result of misrepresentation or breach
by the other Party, exceed a deductible of $1,000,000 (such deductible being
hereinafter referred to as the "General Deductible").
(f) Newco shall be entitled to indemnification under this
Section 11.1 with respect to Litigation Claims against a Party only to the
extent that the aggregate amount of Losses suffered by Newco arising out of
Litigation Claims (as defined in this Agreement and the Formation Agreement)
under both this Agreement and the Formation Agreement against such Party exceed
a deductible of $2,000,000 (such deductible being hereinafter referred to as
such Party's "Litigation Deductible").
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11.2 PROCEDURE. All Claims for indemnification by a Person under this
Article XI shall be asserted and resolved as follows:
(a) Whenever any Claim, Litigation Claim or oral demand for
which an Indemnifying Party would be liable to an Indemnified Party hereunder
(which shall be deemed to include any Claim or Litigation Claim which falls
within, and exhausts any part of such Party's Deductible) is asserted against or
sought to be collected from such Indemnified Party by a third party, such
Indemnified Party shall, within 30 days of the receipt thereof, give notice (a
"Claim Notice") to the Indemnifying Party of such Claim, Litigation Claim or
oral demand, specifying the nature of and specific basis for such Claim,
Litigation Claim or oral demand and the amount or the estimated amount thereof
to the extent then feasible, which estimate shall not be binding upon the
Indemnified Party in its effort to collect indemnification hereunder in respect
such Claim, Litigation Claim or oral demand. To the extent the Indemnifying
Party is prejudiced thereby, the failure to so notify the Indemnifying Party of
any such Claims or oral demand shall relieve the Indemnifying Party from
liability that it may have to the Indemnified Party under the indemnification
provisions contained in this Article XI, but only to the extent of the Loss
directly attributable to such failure to notify, and shall not relieve the
Indemnifying Party from any liability that it may have to the Indemnified Party
otherwise than under this Article XI. The Indemnifying Party shall, within 20
days of the receipt of a Claim Notice, notify the Indemnified Party as to
whether it accepts, in whole or in part, its indemnity obligation under Section
11.1(a) or (b) (subject as the case may be, to the Indemnified Party's General
or Litigation Deductible), in which case, the Indemnifying Party shall assume
and thereafter conduct the defense thereof; provided that the Indemnified Party
shall be entitled to participate in the defense thereof at its own expense. If
the Indemnifying Party disputes liability under this Section 11.1(a) or (b), as
the case may be, or otherwise fails to defend within a reasonable time after
notice, the Indemnified Party will have the right to undertake the defense, at
the risk of the Indemnifying Party and subject, as the case may be, to the
Indemnified Party's right to claim indemnification from the Indemnifying Party
for the cost of defense. The consent to the entry of any judgment or settlement
of any claim hereunder by the Indemnifying Party may only be made upon the prior
approval by the Indemnified Party, which approval shall not be unreasonably
withheld, unless the judgment or proposed settlement involves only the payment
of money damages (which would be paid by the Indemnifying Party) with a full
release of the Indemnified Party, and does not impose any injunction,
conditions, or other equitable relief on the Indemnified Party in which case
consent is not required.
(b) If requested by the Indemnifying Party, the Indemnified
Party agrees to cooperate with the Indemnifying Party and its counsel in
contesting any Claim, Litigation Claim or oral demand that the Indemnifying
Party elects to contest, or, if appropriate and related to the Claim, Litigation
Claim or oral demand in question, in making any counterclaim against the Person
asserting the third party Claim or Litigation Claim or oral demand, or any
cross-complaint against any Person other than
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an Affiliate of the Indemnified Party. The Indemnifying Party shall reimburse
such Indemnified Party for reasonable out-of-pocket expenses incurred by the
Indemnified Party in such cooperation.
(c) If any Indemnified Party should have a claim against the
Indemnifying Party hereunder that does not involve a Claim, Litigation Claim or
oral demand being asserted against or sought to be collected from it by a third
party, the Indemnified Party shall send a Claim Notice with respect to such
claim to the Indemnifying Party. Subject always to application of the relevant
General or Litigation Deductible, reimbursement of any Losses incurred by the
Indemnified Party pursuant to this Article XI shall be made within 30 days after
documentation is sent to the Indemnifying Party by the Indemnified Party. If the
Indemnifying Party disputes such claim, such dispute shall be resolved in the
manner set forth in Article XIV hereof.
11.3 FAILURE TO PAY INDEMNIFICATION. If and to the extent the
Indemnified Party shall make written demand upon the Indemnifying Party for
indemnification pursuant to this Article XI, and the Indemnifying Party shall
refuse to accept its indemnity obligations under Section 11.1 (subject always to
applicable General or Litigation Deductibles) or otherwise fail to pay in full
within the period specified herein the amounts demanded pursuant hereto and in
accordance herewith, then the Indemnified Party may utilize any legal or
equitable remedy to collect from the Indemnifying Party the amount of its
damages plus all costs, including reasonable attorneys' fees incurred in
connection with such collection efforts. Nothing contained herein is intended to
limit or constrain the Indemnified Party's rights against the Indemnifying Party
for indemnity, the remedies herein being cumulative and in addition to all other
rights and remedies of the Indemnified Party.
11.4 SURVIVAL OF OBLIGATIONS. Except as otherwise expressly provided
for in the following sentence, the representations, warranties, covenants,
agreements and undertakings of NTL and Newco contained in this Agreement shall
be deemed remade at and shall survive the Closing until the expiration of
eighteen months (18) following the Closing. The representation and warranties,
covenants, agreements and undertakings of NTL (i) contained in Section 3.4
hereof (the "Title Representations") shall survive the Closing until the fourth
(4th) anniversary thereof and will thereupon expire together with any right of
indemnification with respect to breaches of the Title Representations, (ii)
contained in Section 3.10 hereof (the "Environmental Representations") shall
survive the Closing until the Second (2nd) anniversary thereof and will
thereupon expire together with any right of indemnification with respect to
breaches of the Environmental Representations, (iii) contained in Sections 3.7
and 3.12 and Article IX hereof (the "Employment and Tax Representations and
Covenants") shall survive the Closing for a period ending ninety (90) days
after the expiration of the applicable statute of limitation, as the same may
be extended from time to time, and thereupon expire together with any right of
indemnification with respect to Employment and Tax Representations and
Covenants, and (iv) contained
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in Sections 2.4 and 10.6 shall survive the Closing until the third (3rd)
anniversary thereof and will thereupon expire together with any right of
indemnification with respect thereto; provided that, if a Claim or oral demand
for indemnification (including, without limitation, any notice of any Litigation
Claim) has been made or given within the applicable survival period and has not
been resolved as of the expiration of such period, such Claim (and, if the Claim
results from a breach of a representation, warranty, covenant, agreement or
undertaking, such representation, warranty, covenant, agreement or undertaking)
shall survive until the final resolution of such Claim.
11.5 EXCLUSIVE REMEDY. With respect to all Losses indemnified under
this Article XI, the indemnities provided herein shall be deemed the sole and
exclusive remedies available to the Parties and their respective parents and
Affiliates, and to TTS.
ARTICLE XII
TERMINATION
[THIS ARTICLE INTENTIONALLY LEFT BLANK.]
ARTICLE XIII
EXPENSES
Except as otherwise set forth herein, and whether or not the
transactions contemplated by this Agreement shall be consummated, each Party
agrees to pay, without right of reimbursement from any other Party, the costs
incurred by the Party incident to the preparation and execution of this
Agreement and performance of its obligations hereunder, including the fees and
disbursements of legal counsel, accountants and consultants employed by the
Party in connection with the transactions contemplated by this Agreement.
ARTICLE XIV
RESOLUTION OF DISPUTES
The Parties agree that, except as otherwise specifically provided
herein, all disputes under this Agreement shall be resolved in accordance with
the procedures set forth in Exhibit N to the Formation Agreement.
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ARTICLE 15
GENERAL PROVISIONS
15.1 NOTICES. All notices, requests, demands and other communications
required or permitted to be given under this Agreement shall be deemed to have
been duly given if in writing and delivered personally or sent vi) first-class,
postage prepaid, registered or certified mail (return receipt requested), or by
overnight delivery service or facsimile transmission with confirmation by
certified mail or overnight delivery service addressed as follows:
If to NTL:
Northern Telecom Limited
8200 Dixie Road, Suite 100
Brampton, Ontario, Canada L6T5P6
Attention: Corporate Secretary
Facsimile: (905) 863-8386
and copy to:
Northern Telecom Inc.
2221 Lakeside Boulevard
Richardson, Texas 75082
(Attention: Richard R. Standel, Vice President,
Secretary and General-Counsel)
Facsimile: (972) 685-3011
If to Newco or its Designee:
111 E. 1st Street
Tulsa, Oklahoma 74103
Attention: Howard E. Janzen
Facsimile Number: (918) 561-6024
and copy to:
One Williams Center, 41-3
Tulsa, Oklahoma 74172
Attention: David P. Batow, General Counsel
Facsimile Number: (918) 588-3005
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Any Party may change the address to which the communications are to be
directed to it by giving notice to the other in the manner provided in this
Section 15.1. Notice by mail shall be deemed to have been given and received on
the third calendar day after posting. Notice by overnight delivery service,
facsimile transmission or personal delivery shall be deemed given on the date of
actual delivery.
15.2 GOVERNING LAW. This Agreement and the performance of the
transactions contemplated hereby shall be governed by and construed and enforced
in accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein, without regard to any conflict-of-laws provision thereof
that would otherwise require the application of the law of any other
jurisdiction.
15.3 ENTIRE AGREEMENT. Except for the Formation Agreement and the
agreements and documents contemplated thereby, (a) this Agreement and the
Exhibits hereto, together with the certificates, documents, instruments,
writings and any other agreements contemplated hereby that are delivered
pursuant hereto, set forth the entire agreement and understanding of the Parties
with respect to the transactions contemplated hereby and supersede all prior
agreements, arrangements and understandings relating to the subject matter
hereof; (b) no representation, promise, inducement or statement of intention
with respect to the subject matter of this Agreement has been made by any Party
that is not embodied in this Agreement and Exhibits hereto and the certificates,
documents, instruments, writings and any other agreements contemplated hereby
that are delivered pursuant hereto, and; (c) none of the Parties shall be bound
by or liable for any alleged representation, promise, inducement or statement of
intention not so set forth.
15.4 ASSIGNMENT. No Party to this Agreement may sell, transfer, assign,
pledge or hypothecate its or his rights, interests or obligations under this
Agreement without the prior written consent of the other Party, which may not be
unreasonably withheld.
15.5 SUCCESSORS. This Agreement shall inure to the benefit of, be
binding upon, and be enforceable by the parties hereto and their respective
successors and permitted assigns.
15.6 AMENDMENTS; WAIVER. This Agreement may be amended, superseded or
canceled, and any of the terms hereof may be waived, only by a written
instrument specifically stating that it amends, supersedes or cancels this
Agreement or waives any of the terms herein, executed by all Parties intended to
be bound thereby or, in the case of a waiver, by the Party waiving compliance.
The failure of any Party at any time to require performance of any provision
herein shall in no manner affect the right at a later time to enforce the same.
No waiver by any Party of any condition, or of any breach of any term, covenant,
representation or warranty, shall be deemed or constitute a waiver of any other
condition, or breach of any other term, covenant,
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representation or warranty, nor shall the waiver constitute a continuing waiver
unless otherwise expressly provided.
15.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
15.8 SEVERABILITY. Any provision hereof that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
15.9 NO THIRD PARTY BENEFICIARIES. Except to the extent an Affiliate is
expressly given rights herein, any agreement contained, expressed or implied in
this Agreement shall be only for the benefit of the Parties hereto and their
respective successors and assigns, and such agreements shall not inure to the
benefit of the obligees of any indebtedness of any Party hereto, it being the
intention of the Parties hereto that no Person or entity shall be deemed a third
party beneficiary of this Agreement, except to the extent a third party is
expressly given rights herein.
15.10 NEGOTIATED TRANSACTION. The provisions of this Agreement were
negotiated by the Parties hereto, and this Agreement shall be deemed to have
been drafted by all of the Parties hereto.
15.11 FURTHER ASSURANCES. Each Party shall, from time to time
subsequent to the Closing, at the request and expense of the requesting party,
execute and deliver all such documents, including without limitation, all such
additional conveyances, transfers, consents and other assurances and do all such
other acts and things as any other Party hereto, acting reasonably, may from
time to time request be executed or done in order to better evidence, perfect or
effectuate any provision of this Agreement
39
<PAGE> 41
or of any agreement or other document executed pursuant to this Agreement or any
of the respective obligations intended to be created hereby or thereby.
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of
the date first set forth above.
"NTL"
NORTHERN TELECOM LIMITED
By: /s/ FRED WEBBER
-------------------------------------
Name: Fred Webber
-----------------------------------
Title: Attorney in Fact
----------------------------------
"NEWCO"
WILTEL COMMUNICATIONS, L.L.C.
By: /s/ S. MILLER WILLIAMS
-------------------------------------
[STAMP] Name: S. Miller Williams
-----------------------------------
Title: Senior Vice President
----------------------------------
"DESIGNEE"
1228966 ONTARIO INC.
By: /s/ S. MILLER WILLIAMS
-------------------------------------
[STAMP] Name: S. Miller Williams
-----------------------------------
Title: President
----------------------------------
40
<PAGE> 1
Redacted portions have been marked with asterisks (****). Confidential treatment
has been requested for the redacted portions. The confidential redacted portions
have been filed separately with the Securities and Exchange Commission.
CONFIDENTIAL TREATMENT
EXHIBIT 10.34
EXECUTION COPY
================================================================================
FORMATION AGREEMENT
BY AND BETWEEN
NORTHERN TELECOM INC.
AND
WILLIAMS COMMUNICATIONS GROUP, INC.
DATED AS OF APRIL 1, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article I
Definitions and Construction............................................................................. 1
1.1 Defined Terms................................................................................... 1
1.2 Accounting Terms................................................................................ 11
1.3 References...................................................................................... 11
1.4 Headings........................................................................................ 11
Article II
Formation of Newco....................................................................................... 11
2.1 Initial Formation............................................................................... 11
2.2 Merger of NCS Into Newco and Cash Payment....................................................... 11
2.3 Merger of WilTel Into Newco..................................................................... 12
2.4 Retained Assets................................................................................. 12
2.5 Retained Liabilities............................................................................ 13
2.6 Purchase of TTS Shares.......................................................................... 14
2.7 Transfer of Certain NCS Assets.................................................................. 15
2.8 Net Asset Adjustments........................................................................... 16
Article III
Representations and Warranties of NTI.................................................................... 16
3.1 Corporate Matters............................................................................... 16
3.2 Validity of Agreement; No Conflict.............................................................. 17
3.3 Governmental and Other Consents, Approvals and Authorizations................................... 18
3.4 Title to and Condition of NCS Assets............................................................ 18
3.5 Contracts, Commitments and Customers............................................................ 20
3.6 Financial Statements............................................................................ 21
3.7 Taxes........................................................................................... 23
3.8 No Violations or Litigation..................................................................... 23
3.9 Property Leases................................................................................. 23
3.10 Environmental................................................................................... 24
3.11 Insurance....................................................................................... 26
3.12 Employment and Labor Matters.................................................................... 26
3.13 Finder's Fee.................................................................................... 28
3.14 Minute Books.................................................................................... 28
3.15 Absence of Certain Changes...................................................................... 29
3.16 No Untrue Statements............................................................................ 30
3.17 Distributorship Terms........................................................................... 30
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Article IV
Representations and Warranties of WCG.................................................................... 30
4.1 Corporate Matters................................................................................. 30
4.2 Validity of Agreement; No Conflict.............................................................. 31
4.3 Governmental and Other Consents, Approvals and Authorizations................................... 32
4.4 Title to and Condition of WilTel Assets......................................................... 33
4.5 Contracts, Commitments and Customers............................................................ 34
4.6 Financial Statements............................................................................ 35
4.7 Taxes........................................................................................... 37
4.8 No Violations or Litigation..................................................................... 37
4.9 Property Leases................................................................................. 38
4.10 Environmental................................................................................... 38
4.11 Insurance....................................................................................... 40
4.12 Employment and Labor Matters.................................................................... 40
4.13 Finder's Fee.................................................................................... 42
4.14 Minute Books.................................................................................... 43
4.15 Absence of Certain Changes...................................................................... 43
4.16 No Untrue Statements............................................................................ 44
Article V
Matters Pending Closing.................................................................................. 44
5.1 NTI Actions Pending Closing..................................................................... 44
5.2 WCG Actions Pending Closing..................................................................... 48
Article VI
Conditions To Closing........................................................................................... 52
6.1 Conditions to Obligation of the Parties......................................................... 52
6.2 Conditions to Obligation of WCG................................................................. 52
6.3 Conditions to Obligation of NTI................................................................. 54
6.4 Closing Memorandum.............................................................................. 56
Article VII
Closing.................................................................................................. 56
Article VIII
Post-Closing Adjustment.................................................................................. 56
8.1 True-Up of Section 2.7 Transactions............................................................. 56
8.2 Tax Benefit Payment............................................................................. 57
8.3 Tax Equalization Payment for Interim Period Earnings............................................ 57
8.4 Netting of Post-Closing Adjustments............................................................. 58
Article IX
Employee Matters......................................................................................... 58
9.1 Employee Transfers and Plan Liabilities......................................................... 58
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
9.2 Employee Services Agreement..................................................................... 59
9.3 Reporting of Data............................................................................... 60
9.4 Employment Related Claims....................................................................... 60
9.5 Bonus Payments.................................................................................. 60
9.6 Hiring Restrictions............................................................................. 60
9.7 WARN Notices.................................................................................... 61
9.8 Benefit Issues.................................................................................. 61
9.9 Compensation.................................................................................... 63
9.10 Relocation...................................................................................... 63
Article X
Additional Agreements.................................................................................... 63
10.1 Line of Credit.................................................................................. 63
10.2 Network Services Agreement...................................................................... 63
10.3 Delivery of Corporate Documents................................................................. 64
10.4 Access to Information........................................................................... 64
10.5 Nondisclosure of Proprietary Information........................................................ 64
10.6 Administrative Services......................................................................... 65
10.7 Further Assurances by the Parties............................................................... 66
10.8 Third Party Consents............................................................................ 66
10.9 Intellectual Property License Agreement......................................................... 66
10.10 Tax Matters..................................................................................... 67
10.11 Insurance Matters............................................................................... 68
Article XI
Indemnification.......................................................................................... 68
11.1 Indemnity Obligation............................................................................ 68
11.2 Procedure....................................................................................... 70
11.3 Failure to Pay Indemnification.................................................................. 71
11.4 Survival of Obligations......................................................................... 72
11.5 Exclusive Remedy................................................................................ 72
Article XII
Termination.............................................................................................. 72
12.1 Efforts to Satisfy Conditions................................................................... 72
12.2 Termination..................................................................................... 73
12.3 Liability Upon Termination...................................................................... 73
Article XIII
Expenses................................................................................................. 73
Article XIV
Resolution of Disputes................................................................................... 74
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
Article XV
General Provisions....................................................................................... 74
15.1 Notices......................................................................................... 74
15.2 Governing Law................................................................................... 75
15.3 Entire Agreement................................................................................ 75
15.4 Assignment...................................................................................... 75
15.5 Successors...................................................................................... 76
15.6 Amendments; Waiver.............................................................................. 76
15.7 Counterparts.................................................................................... 76
15.8 Severability.................................................................................... 76
15.9 No Third Party Beneficiaries.................................................................... 76
15.10 Negotiated Transaction.......................................................................... 76
</TABLE>
iv
<PAGE> 6
EXHIBITS
Exhibit A Certificate of Formation (Section 1.1)
Exhibit B Certificate of Merger of WilTel (Section 1.1)
Exhibit C Certificate of Merger of NCS (Section 1.1)
Exhibit D LLC Agreement (Section 1.1)
Exhibit E Non-Competition Agreement (Section 1.1)
Exhibit F TTS Agreement (Section 2.6)
Exhibit G Accounts Receivable Note (Section 2.7(a))
Exhibit H Bill of Sale (Section 2.7(b))
Exhibit I Parent Guaranty (Section 6.3(o))
Exhibit J Employee Services Agreement (Section 9.2)
Exhibit K NTL Administrative Services Agreement (Section 10.6)
Exhibit L Williams Administrative Services Agreement
(Section 10.6)
Exhibit M Intellectual Property License Agreement
(Section 10.9)
Exhibit N Dispute Resolution Procedures (Article XIV)
v
<PAGE> 7
SCHEDULES
ARTICLE II: FORMATION OF NEWCO
Schedule
Number Description
- -----------------------------
2.2 Calculation of cash payment
2.4(a)(iii) NCS Intercompany Notes
2.4(a)(v) NTI Retained Assets
2.4(b)(iii) WilTel Intercompany Notes and Accounts Receivable
2.4(b)(v) WCG Retained Assets
ARTICLE III: REPRESENTATIONS AND WARRANTIES OF NTI
3.1(b) NCS stock ownership schedule
3.1(c) Jurisdictions in which NCS is qualified to do business and in
good standing
3.3(a) NCS Consents
3.3(b) NCS Permits
3.4(a) NCS Assets
3.4(b) NCS Owned Intellectual Property and Software
3.4(c) NCS Licensed Intellectual Property and Software
3.4(d) Essential Property of NCS not included in NCS Assets
3.4(e) Additional NCS Intellectual Property Rights
3.5(a) NCS Customer Agreements
3.5(b) NCS Contracts and Guarantees
3.5(c) NCS Customer Agreements and contracts not in full force and
effect
3.5(d) Consents/Waivers necessary for NCS Contracts
3.5(e) NCS Contracts not made available to WCG
3.6(a) NCS Year End Balance Sheet and NCS Financial Statements
3.6(b) NCS Adjusted Year End Balance Sheet
3.6(d) NCS Gross Revenue Schedule
3.6(e) NCS First Quarter Statements
3.6(f) NCS Adjusted Effective Date Balance Sheet
3.7(a) NCS Tax Schedule
3.8(b) NCS Claims
3.9 NCS Property Leases
3.10(b) NCS Environment Compliance
3.10(c) NCS Environmental Liabilities
3.10(d) NCS Environmental Permits
3.10(e) NCS Environmental claims and proceedings
3.10(f) NCS Transfer Restrictions and Liens
3.11 NCS Insurance
vi
<PAGE> 8
3.12(a)
3.12(a)(i) NCS Active Employees
3.12(a)(ii) NCS Employees
3.12(b) NCS Collective Bargaining Agreements
3.12(c) NCS Employee Leave Schedule
3.12(e) NCS ERISA Schedule
3.12(g) NCS ERISA Obligations
3.12(h) Transfer out of NCS Business since September 1, 1996
3.15 Certain changes by NCS
3.17 Distributorship Agreement and Systems Integrator Agreement
by and between NTI and NCS
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF WCG
4.1(b) WilTel stock ownership schedule
4.1(c) Jurisdictions in which WilTel is qualified to do business and
is in good standing
4.3(a) WilTel Consents
4.3(b) WilTel Permits
4.4(a) WilTel Assets
4.4(b) WilTel Intellectual Property and Software
4.4(c) WilTel Licensed Intellectual Property and Software
4.4(d) Essential Property of WilTel not included in WilTel Assets
4.4(e) Additional WilTel Intellectual Property Rights
4.5(a) WilTel Customer Agreements
4.5(b) WilTel Contracts and Guarantees
4.5(c) WilTel Customer Agreements and not in full force and effect
4.5(d) Consents/Waivers necessary for WilTel Contracts
4.5(e) WilTel Contracts not made available to NTI
4.6(a) WilTel Year End Balance Sheet and WilTel Financial Statements
4.6(b) WilTel Adjusted Year End Balance Sheet
4.6(d) WilTel Gross Revenue Schedule
4.6(e) WilTel First Quarter Statement
4.6(f) WilTel Adjusted Effective Date Balance Sheet
4.7(a) WilTel Tax Schedule
4.8(b) WilTel Claims
4.9 WilTel Property Leases
4.10(b) WilTel Environmental Law Compliance
4.10(c) WilTel Environmental Liabilities
4.10(d) WilTel Environmental Permit
4.10(e) WilTel Environmental claims and proceedings
4.10(f) WilTel Transfer Restrictions and Liens
4.11 WilTel Insurance
4.12(a)
vii
<PAGE> 9
4.12(a)(i) WilTel Active Employees
4.12(a)(ii) WilTel Employees
4.12(b) WilTel Collective Bargaining Agreements
4.12(c) WilTel Employee Leave Schedule
4.12(e) WilTel ERISA Schedule
4.12(g) WilTel ERISA Obligations
4.12(h) Transfers out of WiTel Business since September 1, 1996
4.15 Certain changes by WilTel
ARTICLE V: MATTERS PENDING CLOSING
5.1(b) Permitted Transactions of NTI and NCS
5.2(b) Permitted Transactions of WCG and WilTel
ARTICLE IX:
9.1(a)
9.1(b) WilTel Employees
9.2 Fringe Benefits
9.6(b) Current NCS Employees
9.6(c) Newco officers and director-level employees that may be hired
by WCG and its affiliates
9.8(g) WilTel Union 401(k) Savings Plan
viii
<PAGE> 10
FORMATION AGREEMENT
THIS FORMATION AGREEMENT (this "Agreement") dated as of April 1, 1997,
by and between Northern Telecom Inc., a Delaware corporation ("NTI"), and
Williams Communications Group, Inc., a Delaware corporation ("WCG")
W I T N E S S E T H:
WHEREAS, (A) NTI desires to contribute its direct sales subsidiary,
NCS (including Bell Atlantic Meridian Systems, a partnership in which NCS is a
general partner and in which NCS will purchase the interest of the remaining
general partner prior to closing), but excluding the NTI Retained Assets and the
NTI Retained Liabilities (the "NCS Business");
(B) WCG desires to contribute WilTel, but excluding WilTel's
investment in Intersys and its Internet service provider line of business
(including WilTel's ownership of Digital Frontiers, LLC) and further excluding
the WCG Retained Assets and the WCG Retained Liabilities (the "WilTel
Business");
(C) NTI and WCG desire to combine the NCS Business and the
WilTel Business by forming a Delaware limited liability company ("Newco")
jointly owned by NTI and WCG, or a subsidiary of each, and to merge the WilTel
Business and the NCS Business into Newco; and
(D) Newco will purchase the stock of TTS from NTL immediately
after the merger of the WilTel Business and the NCS Business into Newco with
cash consideration provided by WCG, all as hereinafter provided.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and obligations contained herein and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, NTI
and WCG agree as follows:
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 DEFINED TERMS. The capitalized terms used in this Agreement shall
have the meanings ascribed to them as follows:
"Accounts Receivable Note" shall have the meaning given that
term in Section 2.7(a) hereof;
1
<PAGE> 11
"Affiliates" means, when used with respect to a specified
Person, such specified Person's Subsidiaries or other Persons which are
or which could be included on such Person's consolidated income
statement for financial reporting purposes pursuant to GAAP, and/or any
third Person which does or which could include such specified Person in
such third Person's consolidated income statement for financial
reporting purposes pursuant to GAAP; provided that Newco shall not be
deemed to be an Affiliate of NTI, WCG or any of their respective
Subsidiaries or Affiliates;
"Authority" means any governmental, regulatory or
administrative body, agency or authority, any court or judicial
authority, any arbitrator or any public, private or industry regulatory
authority, whether foreign, federal, state or local;
"BA Meridian" means Bell Atlantic Meridian Systems, a
partnership in which NCS is a general partner;
"Benefit Program or Agreement" shall have the meaning given
that term in each of Section 3.12(e) and Section 4.12(e) hereof;
"Bill of Sale" shall have the meaning given that term in
Section 2.7 hereof;
"Business Day" means any day on which federal commercial banks
are open for business for the purpose of sending and receiving wire
transfers in Tulsa, Oklahoma and Houston, Texas.
"Cash Payment" shall have the meaning given that term in
Section 2.2 hereof;
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Sections 9601 et seq.;
"Certificate of Formation" means the certificate of formation
of Newco to be filed with the Secretary of State of Delaware in
accordance with the DLLCA in the form attached hereto as Exhibit A;
"Certificate of Merger" means the certificate of merger of
WilTel or NCS, as the case may be, and Newco to be filed with the
Delaware Secretary of State in accordance with the DLLCA in the forms
attached hereto as Exhibit B and Exhibit C, respectively;
2
<PAGE> 12
"Claim" means any demand, demand letter, claim or notice of
noncompliance or violation, in each case made in writing, or any
Proceeding;
"Claim Notice" shall have the meaning given that term in
Section 11.2(a) hereof;
"Closing" shall have the meaning given that term in Article
VII;
"Closing Date" means the date of Closing;
"Code" means the Internal Revenue Code of 1986, as amended;
"DLLCA" shall have the meaning given that term in Section 2.1
hereof;
"Effective Date" means April 1, 1997;
"Employee Benefit Plans" shall have the meaning given that
term in each of Section 3.12(e) and Section 4.12(e) hereof;
"Employee Services Agreement" shall have the meaning given
that term in Section 9.2 hereof;
"Employee Transfer Date" means the last day of the third month
following the Closing Date;
"Employment and Tax Representations and Covenants" shall have
the meaning given that term in Section 11.4 hereof;
"Environmental Law" shall have the meaning given that term in
each of Section 3.10(a)(i) and Section 4.10(a)(i) hereof;
"Environmental Representations" shall have the meaning given
that term in Section 11.4 hereof;
"ERISA" shall have the meaning given that term in Section
3.12(d) hereof;
"ERISA Affiliate" shall have the meaning given that term in
each of Section 3.12(e) and Section 4.12(e) hereof;
"GAAP" means generally accepted accounting principles in the
United States;
3
<PAGE> 13
"General Deductible" shall have the meaning given that term in
Section 11.1(e);
"Hazardous Substance" shall have the meaning given that term
in each of Section 3.10(a)(ii) and Section 4.10(a)(ii) hereof;
"Indemnified Party" shall have the meaning given that term in
Section 11.1(d);
"Indemnifying Party" shall have the meaning given that term in
Section 11.1(d);
"Intellectual Property" means U.S. and foreign patents, patent
applications, patent rights, trademarks, trademark applications,
trademark rights, service marks, service mark applications, service
mark rights, registered or common law copyrights, service names and
trade names;
"Intellectual Property License Agreement" shall have the
meaning set forth in Section 10.9;
"Intersys" means Intersys, S.A. de C.V., a Mexican
Corporation;
"IRS" means the Internal Revenue Service of the United States
of America;
"LLC Agreement" means the Limited Liability Company Agreement
of Newco, in the form attached as Exhibit D hereto;
"Leases" shall have the meaning given that term in each of
Section 3.9 and Section 4.9 hereof;
"Lien" means any mortgage, deed of trust, pledge, security
interest, encumbrance, lien or charge of any kind (including any
agreement to give any of the foregoing), any conditional sale or other
title retention agreement, any lease in the nature of any of the
foregoing, and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction;
"Litigation Claim" shall have the meaning given in each of
Section 2.5(a)(ii) and Section 2.5(b)(ii);
"Litigation Deductible" shall have the meaning given that term
in Section 11.1(f);
4
<PAGE> 14
"Loss" or "Losses" means any and all damages, losses,
liabilities, judgments, payments, obligations, penalties, assessments,
costs, disbursements or expenses (including reasonable fees,
disbursements and expenses of attorneys, accountants and other
professional advisors and of expert witnesses and costs of
investigation and preparation of any kind or nature whatsoever) but
excluding indirect and consequential damages;
"Material Adverse Change" means an event, circumstance, condition or
change that has a material adverse impact on the business prospects,
operations or financial condition of the affected Person, it being
understood that such event, circumstance, condition or change shall be
considered material only if (x) it has, or would have a reasonable
likelihood of resulting in, an impact on assets or liabilities of Ten
Million Dollars ($10,000,000) or more, before tax effect; or (y) it
has, or would have a reasonable likelihood of resulting in, a net
negative pre-tax impact on the profit and loss statement of such Person
of Four Million Dollars ($4,000,000) or more and is the result of a
single event, circumstance or condition specific to such Person
(excluding results from such person's general economic environment);
"Material Adverse Effect" means, an effect that results in or
causes, or has a reasonable likelihood of resulting in or causing an
adverse impact in the business, assets, results of operations (before
tax effect) or financial condition of such Person and its subsidiaries,
taken as a whole, in an amount, individually equal to or greater than
$1,000,000;
"NCS" means Nortel Communications Systems Inc., a Delaware
corporation and a wholly owned subsidiary of NTI inclusive of BA
Meridian;
"NCS Active Employees" shall have the meaning given that term
in Section 3.12(a) hereof;
"NCS Adjusted Effective Date Balance Sheet" shall have the
meaning given that term in Section 3.6(f) hereof;
"NCS Adjusted Year End Balance Sheet" shall have the meaning
given that term in Section 3.6(b) hereof;
"NCS Adjustment" shall have the meaning given that term in
Section 2.8(a) hereof;
5
<PAGE> 15
"NCS Assets" means the rights, properties, assets, claims,
contracts and businesses of NCS of every kind, character or
description, whether tangible or intangible, wherever located, but
excluding the NTI Retained Assets;
"NCS Business" shall have the meaning given that term in the
recitals;
"NCS Contracts" means all agreements, contracts, licenses,
indentures, notes, including any instrument relating to the borrowing
of money, guarantee or commitment to which NCS is a party or by which
it or any of NCS Assets are bound, whether in writing or oral, but
excluding Employee Benefit Plans;
"NCS Employees" shall have the meaning given that term in
Sections 3.12(a) hereof;
"NCS Financial Statements" shall have the meaning given that
term in Section 3.6(a) hereof;
"NCS First Quarter Statements" shall have the meaning given
that term in Section 3.6(e) hereof;
"NCS Licensed Intellectual Property and Software" shall have
the meaning given that term in Section 3.4(c) hereof;
"NCS Owned Intellectual Property and Software" shall have the
meaning given that term in Section 3.4(b) hereof;
"NCS Real Property" shall have the meaning given that term in
Section 3.10(b) hereof;
"NCS Transferring Employees" shall have the meaning given that
term in Section 9.1;
"NCS Year End Balance Sheet" shall have the meaning given that
term in Section 3.6(a);
"Net Transferred Receivables" shall have the meaning given
that term in Section 2.7(a);
"Newco" shall have the meaning given that term in Section 2.1
hereof;
6
<PAGE> 16
"Non-Competition Agreement" means the Non-Competition
Agreement between Williams and NTL, in the form attached hereto as
Exhibit E;
"NTI" shall have the meaning given that term in the preamble
and any successor or assign permitted by this Agreement;
"NTI Retained Assets" shall have the meaning given that term
in Section 2.4(a) hereof;
"NTI Retained Liabilities" shall have the meaning given that
term in Section 2.5(a) hereof;
"NTL" means Northern Telecom Limited, a Canadian corporation;
"Order" means any decree, order, judgment, writ, award,
injunction, stipulation or consent of or by an Authority;
"Organizational Agreement" means the LLC Agreement or any
agreement contemplated thereby, and "Organizational Agreements" means
all of the foregoing agreements;
"Parent" means NTL or Williams, as the case may be;
"Party" means NTI or WCG, as the case may be, and "Parties"
means NTI and WCG;
"Party Indemnitees" means a Party's Affiliates and the
officers, directors, shareholders, agents, employees, representatives,
successors and assigns of each of them;
"PBGC" shall have the meaning given that term in Section
3.12(g) hereof;
"Permit" means any license, permit, concession, warrant,
franchise or other governmental authorization or approval of any
Authority;
"Permitted Encumbrances" means (a) Liens for current taxes and
assessments not yet due, (b) inchoate mechanics and materialmen liens
for construction in progress, (c) inchoate workmen, repairmen,
warehousemen, customer, employee and carrier liens arising in the
ordinary course of business, (d) sellers' liens (on condition that the
payable involved is not overdue), or (e) other minor imperfections in
title that do not affect marketability or use;
7
<PAGE> 17
"Person" means any individual, corporation, partnership, joint
venture, association, limited liability company, joint stock company,
trust, unincorporated organization, Authority or government (or agency
or political subdivision thereof);
"Plan" shall have the meaning given that term in each of
Section 3.12(e) and Section 4.12(e) hereof;
"Pre-Closing Period" shall have the meaning given that term in
Section 10.10(a);
"Proceeding" means any action, suit, claim, investigation,
review or other judicial or administrative proceeding, at law or in
equity, before any Authority;
"Records" means all material agreements, documents, books,
records and files relating to (i) with respect to NCS, NCS Assets, NCS
Business or the NCS Contracts, and (ii) with respect to WilTel, the
WilTel Assets, the WilTel Business or the WilTel Contracts;
"Release" shall have the meaning given that term in each of
Section 3.10(a)(iii) and Section 4.10(a)(iii) hereof;
"Relevant Adverse Effect" means, an effect that results in or
causes, or has a reasonable likelihood of resulting in or causing, an
adverse impact in the business, assets, results of operations (before
tax effect) or financial condition of such Person and its subsidiaries,
taken as a whole, in an amount, individually equal to or greater than
$150,000;
"Software" means computer programs, including, object code and
source code (except in the case of software licensed to NCS or WilTel
with respect to which the source code is not included in the applicable
license), input and output formats, control programs, program listings,
general application and special application, system and communications
programs, routines, sub-routines, translations, diagnostic activities,
narrative descriptions, flow charts and operating instructions, as well
as any modifications relating thereto;
"Subsidiary" means, with respect to any Person, a corporation
more than 50% of the combined voting power of the outstanding stock of
which is owned, directly or indirectly, by such Person;
"Tax" or "Taxes" means any United States or foreign federal,
state, provincial, or local income tax, ad valorem tax, excise tax,
sales
8
<PAGE> 18
tax, use tax, value added tax, franchise tax, real or personal property
tax, transfer tax, gross receipts tax or other tax, assessment, duty,
fee, levy or other governmental charge, together with and including,
any and all interest, fines, penalties, assessments, and additions to
tax resulting from, relating to, or incurred in connection with any of
those or any contest or dispute thereof;
"Tax Return" means any report, statement, form, return or
other document or information required to be supplied to a taxing
authority in connection with Taxes;
"Title Representations" shall have the meaning given that term
in Section 11.4 hereof;
"Transferred Hard Assets" shall have the meaning given that
term in Section 2.4(a);
"Transferred Receivables" shall have the meaning given that
term in Section 2.7(a);
"Transferring Employees" means both NCS Transferring Employees
and WilTel Transferring Employees;
"TTS" means TTS Meridian Systems, Inc., a Canadian corporation
and wholly owned subsidiary of NTL;
"TTS Agreement" shall have the meaning given that term in
Section 2.6 hereof;
"WCG" shall have the meaning given that term in the preamble
and any successor or assign permitted by this Agreement;
"WCG Retained Assets" shall have the meaning given that term
in Section 2.4(b) hereof;
"WCG Retained Liabilities" shall have the meaning given that
term in Section 2.5(b) hereof;
"Williams" means The Williams Companies, Inc., a Delaware
corporation;
"WilTel" means Williams Telecommunications Systems, Inc., a
Delaware corporation and wholly owned subsidiary of WCG;
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"WilTel Active Employees" shall have the meaning given that
term in Section 4.12(a) hereof;
"WilTel Adjusted Effective Date Balance Sheet" shall have the
meaning given that term in Section 4.6(f) hereof;
"WilTel Adjusted Year End Balance Sheet" shall have the
meaning given that term in Section 4.6(b) hereof;
"WilTel Adjustment" shall have the meaning given that term in
Section 2.8(b) hereof;
"WilTel Assets" means the rights, properties, assets, Claims,
contracts and businesses of WilTel and the WilTel Subsidiaries of every
kind, character or description, whether tangible or intangible,
wherever located, but excluding the WCG Retained Assets;
"WilTel Business" shall have the meaning given that term in
the recitals;
"WilTel Contracts" means all agreements, contracts, licenses,
indentures, notes, including any instrument relating to the borrowing
of money, guarantee or commitment to which WilTel is a party or by
which it or any of WilTel Assets are bound, whether in writing or oral
but excluding Employee Benefit Plans;
"WilTel Employees" shall have the meaning given that term in
Sections 4.12(a) hereof;
"WilTel Financial Statements" shall have the meaning given
that term in Section 4.6(a) hereof;
"WilTel First Quarter Statements" shall have the meaning given
that term in Section 4.6(e) hereof;
"WilTel Licensed Intellectual Property and Software" shall
have the meaning given that term in Section 4.4(c) hereof;
"WilTel Owned Intellectual Property and Software" shall have
the meaning given that term in Section 4.4(b) hereof;
"WilTel Real Property" shall have the meaning given that term
in Section 4.10(b) hereof;
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"WilTel Subsidiaries" means WCS Microwave Services, Inc., a
Delaware corporation, and WCS, Inc., a Delaware corporation;
"WilTel Transferring Employees" shall have the meaning given
that term in Section 9.1 hereof.
"WilTel Year End Balance Sheet" shall have the meaning given
that term in Section 4.6(a);
1.2 ACCOUNTING TERMS. Any accounting terms used in this Agreement that
are not specifically defined herein shall have the meanings customarily given to
them in accordance with GAAP as of the date of this Agreement.
1.3 REFERENCES. As used in this Agreement, unless expressly stated
otherwise, references to (a) "including" mean "including, without limitation",
and the words "hereof", "herein", and "hereunder", and similar words, refer to
this Agreement as a whole and not to any particular Article, provision, section
or paragraph of this Agreement, (b) "or" mean "either or both", and (c) "Dollar"
or "$" means U.S. Dollars. Unless otherwise specified, all references in this
Agreement to Articles, Sections, paragraphs, Exhibits or Schedules are deemed
references to the corresponding Articles, Sections, paragraphs, Exhibits or
Schedules in this Agreement.
1.4 HEADINGS. The headings of the Articles and Sections of this
Agreement and of the Schedules and Exhibits are included for convenience only
and shall not be deemed to constitute part of this Agreement or to affect the
construction or interpretation hereof or thereof.
ARTICLE II
FORMATION OF NEWCO
2.1 INITIAL FORMATION. At or prior to the Closing, NTI and WCG shall
form a limited liability company under the Delaware Limited Liability Company
Act (the "DLLCA"), to be called WilTel Communications, LLC (hereinafter referred
to as "Newco"). Newco shall elect to be treated as a partnership under the Code.
Each of NTI and WCG shall cause Newco to take all action, and execute and
deliver, record and file all instruments, documents and agreements, as may be
reasonably necessary to form Newco under the DLLCA, including, filing the
Certificate of Formation with the Secretary of State of Delaware.
2.2 MERGER OF NCS INTO NEWCO AND CASH PAYMENT. At the Closing, subject
to the terms and conditions of this Agreement, NTI shall cause NCS to merge with
and into Newco, with effect at the Effective Date, in exchange for a 30%
membership
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interest in Newco and the payment by WCG to NTI of cash (the "Cash Payment") in
an amount equal to the following:
****
2.3 MERGER OF WILTEL INTO NEWCO. At the Closing, subject to the terms
and conditions of this Agreement, WCG shall cause WilTel to merge with and into
Newco, with effect at the Effective Date, in exchange for a 70% membership
interest in Newco, and shall pay to NTI the Cash Payment.
2.4 RETAINED ASSETS.
(a) NTI Retained Assets. Prior to the Closing, NTI shall cause
NCS to execute such documents as are necessary to assign, transfer or convey to
NTI or an Affiliate of NTI the following assets in order to exclude such assets
from the merger: (i) the Accounts Receivable Note and the proceeds from the
transfer of inventory and fixed assets pursuant to Section 2.7(b), (ii) any
rights in, to and under the trademarks, servicemarks and tradenames Nortel,
Nortel and Design(TM) or any other trademark, servicemark or tradenames, whether
registered or otherwise, of NTL or NTI or their Affiliates, (iii) any
intercompany notes payable to, or to the order of, NCS listed on Schedule
2.4(a)(iii) hereto, (iv) any prepaid Taxes or deferred Tax benefits relating to
the NCS Business for any periods ending on or prior to the Closing Date, and (v)
rights in and to the items listed on Schedule 2.4(a)(v) (collectively, the "NTI
Retained Assets").
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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(b) WCG Retained Assets. Prior to the Closing, WCG shall cause
WilTel to execute such documents as are necessary to assign, transfer or convey
to WCG or an Affiliate of WCG the following assets in order to exclude such
assets from the merger: (i) any tangible or intangible asset to the extent, but
only to the extent, it relates to or is used in connection with the development,
marketing, licensing, sale or use of internet services, (ii) any capital stock
or note of Intersys, (iii) any intercompany note or account receivable of WilTel
or any WilTel Subsidiary from any of their respective Affiliates that may be
receivable on the Effective Date in the accounts set forth on Schedule
2.4(b)(iii) hereto, (but excluding any amounts receivable for goods and services
rendered in the ordinary course of the WilTel Business), (iv) any prepaid Taxes
or deferred Tax benefits relating to the WilTel Business for any periods ending
on or prior to the Closing Date, and (v) rights in and to the items listed on
Schedule 2.4(b)(v) (collectively, the "WCG Retained Assets").
2.5 RETAINED LIABILITIES.
(a) NTI Retained Liabilities. Newco shall not assume, and on
or prior to the Closing Date NTI (or an Affiliate of NTI reasonably satisfactory
to WCG) shall assume and agree to pay, perform and discharge, the following
liabilities of NCS (the "NTI Retained Liabilities"):
(i) any liability, Claim or obligation (whether actual,
contingent, known or unknown) for any Taxes relating to the
NCS Business for any periods ending on or prior to the Closing
Date;
(ii) any liability or obligation (whether actual,
contingent, known or unknown) of NCS arising out of any Claim
or oral demand which a third party has expressly indicated its
intention to pursue in connection with facts, events or
circumstances occurring on or before the Effective Date or
relating to periods ending on or before such date (a
"Litigation Claim") to the extent the Losses (after deducting
any specific liability amounts reflected on the NCS Adjusted
Effective Date Balance Sheet) in the aggregate resulting
therefrom exceed the amount of the Litigation Deductible,
excluding, for the avoidance of all doubt, the performance
obligations from and after the Effective Date under NCS
Contracts disclosed under Article III of this Agreement or not
required to be disclosed under the express terms of Article
III of this Agreement;
(iii) any liability, Claim or obligation (whether actual,
contingent, known or unknown), arising out of or relating to
the NTI Retained Assets; and
(iv) any liability, Claim, or obligation (whether actual,
contingent, known or unknown) arising out of any occurrence or
incident happening
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on or before the Closing Date and arising from any: (x) bodily
injury, including death therefrom, personal injury, or
property damage (other than Claims covered by warranty or
maintenance provisions of NCS Contracts with customers),
including loss of use thereof, to third parties; and (y) any
injuries, including death therefrom to any current or prior
employee of NCS.
(b) WCG Retained Liabilities. Newco shall not assume, and on
or prior to the Closing Date WCG (or an Affiliate of WCG reasonably
satisfactory to NTI) shall assume and agree to pay, perform and
discharge, the following liabilities of WilTel (the "WCG Retained
Liabilities"):
(i) any liability, Claim or obligation (whether
actual, contingent, known or unknown) for any Taxes relating
to the WilTel Business for any periods ending on or prior to
the Closing Date;
(ii) any liability or obligation (whether actual,
contingent, known or unknown) of WilTel arising out of any
Claim or oral demand which a third party has expressly
indicated its intention to pursue in connection with facts,
events or circumstances occurring on or before the Effective
Date or relating to periods ending on or before such date (a
"Litigation Claim") to the extent the Losses (after deducting
any specific liability amounts reflected on the WilTel
Adjusted Effective Date Balance Sheet) in the aggregate
resulting therefrom exceed the amount of the Litigation
Deductible, excluding, for the avoidance of all doubt, the
performance obligations from and after the Effective Date
under WilTel Contracts disclosed under Article IV of this
Agreement or not required to be disclosed under the express
terms of Article IV of this Agreement;
(iii) any liability, Claim or obligation, (whether
actual, contingent, known or unknown) arising out of or
relating to the WCG Retained Assets; and
(iv) any liability, Claim or obligation (whether
actual, contingent, known or unknown) arising out of any
occurrence or incident happening on or before the Closing Date
and arising from any: (x) bodily injury, including death
therefrom, personal injury, or property damage (other than
Claims covered by warranty or maintenance provisions of WilTel
Contracts with customers), including loss of use thereof, to
third parties; any (y) any injuries, including death therefrom
to any current or prior employee of WilTel.
2.6 PURCHASE OF TTS SHARES. As of the Closing Date immediately after
the transactions contemplated by Sections 2.2 and 2.3 are consummated, the
Parties shall
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cause Newco to purchase for cash consideration to be contributed by WCG into
Newco the shares of TTS from NTL pursuant to an agreement substantially in the
form of Exhibit F hereto (the "TTS Agreement").
2.7 TRANSFER OF CERTAIN NCS ASSETS.
(a) Transfer of NCS Receivables. In consideration for the
delivery by Newco of a note, in substantially the form attached as Exhibit G
hereto (the "Accounts Receivable Note"), on the Closing Date immediately prior
to the consummation of the transactions contemplated by Sections 2.2 and 2.3,
NCS shall transfer to Newco, pursuant to an assignment in form and substance
acceptable to the Parties, all accounts receivables, work-in-progress and
deposits related thereto of NCS (the "Transferred Receivables"). ****
The interest rate on the Accounts Receivable Note will be at the rate provided
for in B above. Any sales, use or other transfer taxes incurred on account of
the transfer pursuant to this Section 2.7(a) of the Transferred Receivables are
to be paid by NTI.
(b) Transfer of NCS Inventory and Fixed Assets. On the Closing
Date immediately prior to the consummation of the transactions contemplated by
Sections 2.2 and 2.3; pursuant to a bill of sale substantially in the form of
Exhibit H hereto (the "Bill of Sale"), NCS shall sell and the Parties shall
cause Newco to purchase for cash consideration to be contributed by WCG into
Newco all inventory and fixed assets of NCS on the Closing Date **** Any sales,
use or other transfer
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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taxes incurred on account of the transfer pursuant to this Section 2.7(b) of the
NCS inventory and fixed assets are to be paid by NTI.
2.8 NET ASSET ADJUSTMENTS.
(a) Calculation of NCS Adjustment. As soon as possible
following execution of this Agreement, and in no event less than five Business
Days prior to the Closing Date, NTI shall deliver to WCG a worksheet calculating
the sum of (x) the sum of the Assets minus the Liabilities as contained in the
NCS Adjusted Effective Date Balance Sheet minus (y) ****, (such amount shall be
referred to as the "NCS Adjustment").
(b) Calculation of WilTel Adjustment. As soon as possible
following execution of this Agreement, and in no event less than five Business
Days prior to the Closing Date, WCG shall deliver to NTI a worksheet calculating
the (x) the sum of the Assets minus the Liabilities as contained in the WilTel
Adjusted Effective Date Balance Sheet minus (y) ****, (such amount shall be
referred to as the "WilTel Adjustment").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NTI
NTI hereby makes the following representations and warranties to WCG,
each and all of which are true and correct on the signing date hereof and on the
Closing Date, except as set forth in the disclosure schedule attached pertaining
to such representation and warranty:
3.1 CORPORATE MATTERS.
(a) Each of NTI and NCS is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
having all requisite corporate power and authority to own, operate and lease its
properties and assets and to carry on its business in the places and in the
manner currently conducted. WCG has been provided with a true and correct copy
of the Certificate of Incorporation and Bylaws, or other charter documents, of
NCS as currently in effect. NTI has all requisite corporate power and authority
to enter into this Agreement and the Organizational Agreements and to perform
its obligations hereunder and thereunder.
(b) All of the outstanding shares of capital stock of NCS have
been legally and validly authorized and issued, and are fully paid and
nonassessable. NTI is the sole stockholder of NCS holding the number and type of
shares set forth on
- ------
**** Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
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Schedule 3.1(b). None of the capital stock of NCS is subject to any option,
warrant, right of conversion, exchange or purchase, or any similar right.
(c) Except where the failure would not affect the validity of
this Agreement or have a Relevant Adverse Effect on the NCS Business or NCS
Assets, NCS is qualified to transact business as a foreign corporation and is in
good standing in the jurisdictions, if any, specified in Schedule 3.1(c)
attached hereto, and there is no other jurisdiction in which the nature or
extent of the NCS Business or the character of the NCS Assets makes such
qualification necessary.
3.2 VALIDITY OF AGREEMENT; NO CONFLICT.
(a) This Agreement has been duly authorized, executed and
delivered by NTI and is a legal, valid and binding obligation of NTI enforceable
against it in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
from time to time in effect that affect creditors' rights generally and by legal
and equitable limitations on the availability of specific remedies.
(b) The Organizational Agreements have been duly authorized by
NTI or NCS, as the case may be, and upon execution and delivery thereof at or
prior to the Closing will be legal, valid and binding obligations of NTI or NCS
enforceable against it in accordance with their terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws from time to time in effect that affect creditors' rights
generally and by legal and equitable limitations on the availability of specific
remedies.
(c) The execution, delivery and performance of this Agreement
and the Organizational Agreements by NTI or NCS, as the case may be, and the
other agreements and documents to be delivered by NTI or NCS to Newco or WCG
hereunder, the consummation of the transactions contemplated hereby or thereby,
and the compliance with the provisions hereof or thereof, by NTI or NCS will
not, with or without the passage of time or the giving of notice or both:
(i) except in the absence of required consents as set
forth on Schedules 3.3(a), 3.4(b), 3.4(c), or 3.5(d), conflict with, constitute
a breach, violation or termination of any provision of, or give rise to any
right of termination, cancellation or acceleration, or loss of any right or
benefit or both, under any of the NCS Contracts listed in Schedule 3.5(a) or
Schedule 3.5(b), NCS Permits, the NCS Owned Intellectual Property and Software
or the NCS Licensed Intellectual Property and Software;
(ii) conflict with or violate the Certificate of
Incorporation or Bylaws of NTI or NCS;
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(iii) result in the creation or imposition of any
Lien or Claim on any of the NCS Assets; or
(iv) violate any law, statute, ordinance, regulation,
judgment, writ, injunction, rule, decree, order or any other restriction of any
kind or character applicable to NTI, NCS or the NCS Assets.
3.3 GOVERNMENTAL AND OTHER CONSENTS, APPROVALS AND AUTHORIZATIONS.
(a) Except as set forth in Schedule 3.3(a) or Schedule 3.5(d)
attached hereto or as would not significantly adversely impact Newco, the
transactions contemplated hereby, the Organizational Agreements or any other
agreement contemplated hereby or thereby, no order, license to conduct or
operate its business, consent, waiver, authorization or approval of, or
exemption by, or the giving of notice to, or the registration with, or the
taking of any other action in respect of, any Person not a Party, including any
Authority, and no filing, recording, publication or registration in any public
office or any other place is necessary on behalf of NCS (i) to authorize the
execution, delivery and performance of this Agreement, the Organizational
Agreements or any other agreement contemplated hereby or thereby to be executed
and delivered by it and the consummation of the transactions contemplated hereby
or thereby (including assignment of the NCS Assets), or (ii) to effect the
legality, validity, binding effect or enforceability thereof.
(b) Except as set forth in Schedule 3.3(b), all Permits
required or necessary for NCS to own the NCS Assets or carry on the NCS Business
in the places and in the manner currently conducted have been duly obtained,
except where a failure to obtain any such Permit (considered individually) would
not have a Relevant Adverse Effect on the NCS Assets or the NCS Business, and
such Permits are in full force and effect. Except as set forth in Schedule
3.3(b), no violations are in existence or have been recorded with respect to
those Permits and no proceeding is pending or, to the best knowledge of NTI,
threatened with respect to the revocation or limitation of any of such Permits,
except where such violations, revocations or limitations considered per Permit
would not result in a Relevant Adverse Effect on the NCS Assets or the NCS
Business. Except as set forth in Schedule 3.3(b) or as otherwise disclosed in
the Schedules to this Agreement, NCS has complied in all respects with all laws,
rules, regulations and orders applicable to the NCS Business, except where a
failure to comply with such laws, rules, regulations and orders would not result
in a Relevant Adverse Effect on the NCS Assets or the NCS Business.
3.4 TITLE TO AND CONDITION OF NCS ASSETS.
(a) A listing of substantially all of the items of equipment,
furniture or fixture, with an initial purchase price of One Thousand Dollars
($1,000) or more with a remaining useful life of more than one year owned by NCS
as of March 31, 1997,
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constituting a part of the NCS Assets, is set forth in Schedule 3.4(a) attached
hereto. Substantially all of the assets are located at the locations set forth
therein and are in NCS's possession and control. NCS has title to all such
assets, free and clear of all Liens and Claims, except for Permitted
Encumbrances.
(b) Schedule 3.4(b) sets forth all Intellectual Property and
Software owned by NCS (the "NCS Owned Intellectual Property and Software").
Except as set forth on Schedule 3.4(b), NCS owns, free and clear from any claims
or rights of others, all NCS Owned Intellectual Property and Software. Except as
set forth on Schedule 3.4(b), none of the NCS Owned Intellectual Property and
Software has been declared invalid, or been limited in any respect by order of
any court or by agreement, or, to the best knowledge of NTI, is the subject of
any infringement, interference or similar proceeding or challenge. Except as set
forth on Schedule 3.4(b), neither NCS nor NTI has received any notice of
infringement, misappropriation or conflict from any other Person with respect to
the NCS Owned Intellectual Property and Software, and, to the best knowledge of
NTI, the conduct of the NCS Business has not infringed, misappropriated or
otherwise conflicted with any Intellectual Property or Software of any other
Person. Each of the patents, trademarks and registered copyrights included in
the NCS Owned Intellectual Property and Software has been validly issued. All
NCS Owned Intellectual Property and Software that is licensed to a third party
by NCS or in which NCS has otherwise transferred an interest to a third party
has been licensed or transferred on a non-exclusive basis pursuant to valid and
existing license agreements. Except as set forth on Schedule 3.4(b), none of the
NCS Owned Intellectual Property and Software requires the consent or waiver of
any Person or Authority prior to the sale, assignment, transfer, conveyance or
delivery thereof to Newco pursuant to this Agreement and such sale, assignment,
transfer, conveyance and delivery to Newco and any of the other transactions
contemplated by this Agreement will not result in any loss of any NCS Owned
Intellectual Property and Software or any right to use, exploit or receive
benefits with respect to such NCS Owned Intellectual Property and Software.
(c) Schedule 3.4(c) sets forth all material Intellectual
Property and Software licensed to NCS (the "NCS Licensed Intellectual Property
and Software"). Except as set forth on Schedule 3.4(c), NCS has the right to
use, free and clear from any claims or rights of others, except as reflected in
the applicable license, all NCS Licensed Intellectual Property and Software.
Except as set forth on Schedule 3.4(c), none of the NCS Licensed Intellectual
Property and Software has been declared invalid, or been limited in any respect
by order of any court or by agreement, or, to the best knowledge of NTI, is the
subject of any infringement, interference or similar proceeding or challenge.
Except as set forth on Schedule 3.4(c), neither NCS nor NTI has received any
notice of infringement, misappropriation or conflict from any other Person with
respect to the NCS Licensed Intellectual Property and Software, and, to the best
knowledge of NTI, the conduct of the NCS Business has not infringed,
misappropriated or otherwise conflicted with any Intellectual Property or
Software of
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any other Person. Except as set forth on Schedule 3.4(c), none of the NCS
Licensed Intellectual Property and Software requires the consent or waiver of
any Person or Authority prior to the sale, assignment, transfer, conveyance or
delivery thereof to Newco pursuant to this Agreement and such sale, assignment,
transfer, conveyance and delivery to Newco will not result in any loss of any
NCS Licensed Intellectual Property and Software or any right to use, exploit or
receive benefits with respect to such NCS Licensed Intellectual Property and
Software, except where the failure to obtain such consent or waiver would not
have a Relevant Adverse Effect on the NCS Assets or the NCS Business.
(d) Except as set forth on Schedule 3.4(d), the NCS Assets
constitute substantially all of the assets (i) necessary for the conduct of the
NCS Business in the ordinary course consistent with past practices or (ii)
currently used by NCS in connection with the NCS Business. Except as set forth
on Schedule 3.4(d), the conduct of the NCS Business in the ordinary course is
not dependent upon the right to use the property of Persons other than NCS,
except such property as is leased or licensed to NCS pursuant to any of the NCS
Contracts or the absence of which would not have a Relevant Adverse Effect on
Newco. Except as set forth on Schedule 3.4(d), neither NTI nor any Affiliate of
NTI (other than NCS) owns or has any interest in any NCS Asset or any asset
currently used by NCS in the NCS Business, except the NTI Retained Assets, or
such assets as are leased or licensed to NCS pursuant to any of the NCS
Contracts or the loss of which would not have a Relevant Adverse Effect on NCS
or Newco.
(e) Except as set forth on Schedule 3.4 (e), the NCS Owned
Intellectual Property and Software, the NCS Licensed Intellectual Property and
Software, and the Intellectual Property and Software licensed pursuant to the
Intellectual Property License Agreement constitute all of the material
intellectual property rights used by NCS in the conduct of the NCS Business as
currently conducted.
3.5 CONTRACTS, COMMITMENTS AND CUSTOMERS.
(a) Set forth in Schedule 3.5(a) attached hereto is a list of
each of the following agreements between NCS and its customers: (i) service or
maintenance contracts with an annual revenue commitment of $500,000 or greater,
and (ii) purchase, lease or rental agreements for the installation or upgrade of
a PBX with a purchase price of $1,000,000 or greater for which the customer has
not been sent the final invoice.
(b) Set forth in Schedule 3.5(b) attached hereto is a list of
each NCS Contract, other than agreements with customers, which would create a
monetary obligation of NCS, or a right to receive funds by NCS, of greater than
$300,000 in the
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aggregate. Also set forth on Schedule 3.5(b) is a list of all guarantees of the
obligations of NCS by NTI or any NTI Affiliate.
(c) To the best knowledge of either NTI or NCS, neither NTI
nor NCS is in breach of any provision of, or in default (or knows of any event
or circumstance that with notice or lapse of time or both would constitute an
event of default) under the terms of, any NCS Contract except to the extent the
loss of such NCS Contract would not have a Relevant Adverse Effect on Newco.
Except as set forth in Schedule 3.5(c), all of the NCS Contracts listed in
Schedule 3.5(a) and Schedule 3.5(b) are in full force and effect, and neither
NTI nor NCS is aware of any pending or overtly threatened Claims or disputes
with respect thereto. None of the customers or counter parties under the NCS
Contracts listed in Schedule 3.5(a) and Schedule 3.5(b) has notified NTI or NCS
in writing that it intends to discontinue its relationship with the NCS
Business.
(d) Except as set forth on Schedule 3.5(d), and except to the
extent that failure to obtain consent or waiver can be remedied by means of the
mechanism set forth in Section 10.8 hereto without a Relevant Adverse Effect
upon Newco, the NCS Contracts listed in Schedule 3.5(a) and Schedule 3.5(b) do
not require the consent or waiver of any Person or Authority prior to the sale,
assignment, transfer, conveyance or delivery thereof pursuant to this Agreement.
(e) Except as set forth on Schedule 3.5(e), true and complete
copies of the NCS Contracts listed in Section 3.5(a) and Section 3.5(b) have
been made available to WCG prior to the date of this Agreement.
3.6 FINANCIAL STATEMENTS.
(a) Attached as Schedule 3.6(a) hereto is a copy of the
unaudited combined balance sheet of NCS, inclusive of TTS, as of December 31,
1996 (the "NCS Year End Balance Sheet") and the unaudited combined income
statement of NCS, inclusive of TTS, for the year ended on December 31, 1996 (the
"NCS Financial Statements"), which (except as noted therein):
(i) have been prepared in accordance with GAAP
applied on a basis consistent with the unconsolidated balance sheets of the NCS
Business and TTS as of December 31, 1995 and the unconsolidated income
statements of the NCS Business and TTS for the year ended December 31, 1995
(without change in the application of principles or the selection of methods of
calculation permitted by GAAP unless based solely upon changes in facts and
circumstances, required by changes in GAAP, or by the combination of such
financial statements) and fairly present the combined financial condition of NCS
and TTS as of the date thereof, the results of operations and the cash flows for
the period set forth therein, subject to normal year-end adjustments, footnotes
and other presentation items; and
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(ii) except with respect to Canadian, United States
federal and state income taxes, reflect all liabilities or obligations, whether
accrued, absolute, contingent or otherwise, of NCS as required under GAAP
consistently applied other than those liabilities incurred since the date
thereof, in the ordinary course of business consistent with past practice.
(b) Attached as Schedule 3.6(b) hereto is a copy of an audited
balance sheet of NCS as of December 31, 1996, which represents the audited
combined balance sheet of NCS, inclusive of TTS, as of December 31, 1996,
adjusted to exclude the net book values which those categories of items included
in the NTI Retained Assets and the NTI Retained Liabilities had as of December
31, 1996 (the "NCS Adjusted Year End Balance Sheet").
(c) The schedules provided to WCG detailing capitalized costs
with respect to Software owned or leased by NCS are true, correct and complete
in all material respects.
(d) Attached as Schedule 3.6(d) hereto are schedules
reflecting: (i) the gross revenues of the NCS Business for each of the years
ended December 31, 1995 and 1996, showing the portions thereof arising out of
each of (1) new systems and enhancements, (2) maintenance, and (3)
moves/adds/changes; and the portions of each such category of revenue arising
out of the geographic regions shown on such schedules; (ii) the cost of goods
sold for each of such years and each of such categories of revenue, and (iii)
actual product purchases from NTI for 1995 and 1996, and the forecast for
product purchases from NTI for 1997 as prepared by NTI. Except as otherwise
disclosed on Schedule 3.6(d), such schedules have been prepared on a basis
consistent with the NCS Financial Statements for the periods covered thereby and
fairly present the information contained therein.
(e) As soon as possible following execution of this Agreement,
and in no event less than five Business Days prior to the Closing Date, NTI
shall deliver to WCG the unaudited combined balance sheet of NCS, inclusive of
TTS, as of March 31, 1997, and the unaudited combined income statement of NCS,
inclusive of TTS, for the quarter then ended, prepared on a basis consistent in
all respects with the NCS Financial Statements (the "NCS First Quarter
Statements"). The NCS First Quarter Statements shall be attached hereto as
Schedule 3.6(e).
(f) As soon as possible following execution of this Agreement,
and in no event less than five Business Days prior to the Closing Date, NTI
shall deliver to WCG the unaudited combined balance sheet of NCS, inclusive of
TTS, as of March 31, 1997, adjusted to exclude the net book values which those
categories of items included in the NTI Retained Assets (taking into account bad
debt reserves) and the NTI Retained Liabilities had as of March 31, 1997,
prepared on a basis consistent in
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all respects with the NCS Adjusted Year End Balance Sheet (the "NCS Adjusted
Effective Date Balance Sheet"). The NCS Adjusted Effective Date Balance Sheet
shall be attached hereto as Schedule 3.6(f).
3.7 TAXES. Except as set forth in Schedule 3.7(a), NTI, NCS, and any
consolidated, combined, unitary or aggregate group for Tax purposes of which NTI
or NCS is or has been a member, have timely filed all Tax Returns required to be
filed by them with respect to the NCS Business and have timely paid, have caused
to be timely paid, or have had timely paid on their behalf all Taxes which are
due (whether or not shown on a Tax Return) with respect to the NCS Business.
Each of the Tax Returns filed by NTI or NCS is accurate and complete in all
material respects with respect to the NCS Business. Except as described on
Schedule 3.7(a), no material deficiencies exceeding $1,000,000 for a single Tax
for any Taxes have been proposed, asserted or assessed against NTI (with respect
to the income or operations of NCS), or NCS, and no requests for waivers of the
time to assess any such Taxes have been granted or are pending. Except as set
forth in Schedule 3.7(a), there are no current examinations of any Tax Return of
NTI (with respect to the income or operations of NCS) or NCS being conducted and
there are no settlements or any prior examinations which could reasonably be
expected to have a Material Adverse Effect on NTI (with respect to the income or
operation of NCS), or NCS.
3.8 NO VIOLATIONS OR LITIGATION.
(a) To the best knowledge of NTI, NCS has not violated, and
the consummation of the transactions contemplated hereby will not cause any
violation of, any Permit, any order of any Authority or any law, ordinance,
regulation, order, requirement, statute, rule, permit, concession, grant,
franchise, license or other governmental authorization relating or applicable to
the NCS Business or any of NCS Assets or that could have a Relevant Adverse
Effect on the NCS Assets or the NCS Business.
(b) Except as set forth in Schedule 3.8(b) hereto and except
for Claims and examinations relating to Taxes, to the best knowledge of NTI,
there is no Claim, or examination (including, without limitation, any change in
any zoning or building ordinance) pending or, to the best knowledge of NTI,
threatened against or affecting NCS, the NCS Business or any of the NCS Assets,
at law or in equity, before or by any Authority or any third party that could
have a Relevant Adverse Effect on NCS, the NCS Assets or the NCS Business.
(c) This Section 3.8 does not address environmental matters
within the scope of Section 3.10.
3.9 PROPERTY LEASES. Schedule 3.9 is a complete list of all real
property leases and those personal property leases with annual rental payments
equal to or
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greater than Three Hundred Thousand Dollars ($300,000) per annum to which NCS is
a party (the "Leases"). Each of the Leases is a valid and existing lease,
enforceable in accordance with its terms, and, to the best knowledge of NTI,
there are no existing defaults, events of default or events, occurrence or acts
that, with the giving of notice or lapse of time or both, would constitute
defaults, in each case by NCS and, to the best knowledge of NTI, by any other
party thereto, under any of the Leases.
3.10 ENVIRONMENTAL.
(a) Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:
(i) The term "Environmental Law(s)" means each and
every law, Order, Permit, or similar requirement of each and every Authority,
pertaining to (A) the protection of human health, safety, the environment,
natural resources and wildlife, (B) the protection or use of surface water,
groundwater, rivers, and other bodies of water, (C) the management, manufacture,
possession, presence, use, generation, transportation, treatment, storage,
disposal, Release, threatened Release, abatement, removal, remediation or
handling of, or exposure to, any Hazardous Substance or (D) pollution, including
without limitation, as amended, CERCLA, the Solid Waste Disposal Act, 42 U.S.C.
Section 6901 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq. and the
Federal Water Pollution Control Act, 33 U.S.C. Section 1251, et seq.
(ii) The term "Hazardous Substance" means any
substance which is (A) defined as a hazardous substance, hazardous material,
hazardous waste, pollutant or contaminant under any Environmental Laws, (B) a
petroleum hydrocarbon, including crude oil or any fraction thereof, (C)
hazardous, toxic, corrosive, flammable, explosive, infectious, radioactive or
carcinogenic or (D) regulated pursuant to any Environmental Laws.
(iii) The term "Release" means any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping, or disposing into the environment (including without
limitation the abandonment or discarding of barrels, containers, and other
receptacles containing any Hazardous Substance).
(b) Compliance with Environmental Laws. Except as disclosed on
Schedule 3.10(b), with respect to both (i) the operations conducted at and
conditions present at the real property currently used or occupied in connection
with the NCS Business (the "NCS Real Property"), and (ii) the operations
conducted at and the conditions present at any real property formerly used or
occupied in connection with the NCS Business (the "Former NCS Real Property"),
during the period of such use or occupancy by NTI or its Affiliates, NTI or its
Affiliates were and are in compliance with applicable Environmental Laws, except
for such failures to comply that, individually
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and in the aggregate, have not had and could not reasonably be expected to have,
a Material Adverse Effect on NCS.
(c) Environmental Liabilities. Except as disclosed on Schedule
3.10(c), there are no past or present conditions, circumstances, events,
activities, practices, or agreements arising out of, or related either to the
NCS Real Property or to the Former NCS Real Property, including but not limited
to any on-site or off-site Release of any Hazardous Substances, which have given
rise to or could reasonably be expected to give rise to: (i) liabilities or
obligations of NTI or its Affiliates for any clean-up, corrective action or
remedial activity under any Environmental Law; (ii) any Claim against NTI or its
Affiliates under any Environmental Law for personal injury, property damage, or
damage to natural resources, or (iii) the imposition of fines or penalties on
NTI or its Affiliates under any Environmental Law, where such liabilities,
obligations, Claims, fines or penalties, either individually or in the
aggregate, have had or could reasonably be expected to have a Material Adverse
Effect on NCS.
(d) Permits. Schedule 3.10(d) sets forth an accurate and
complete list of all material Permits issued to NTI and its Affiliates under any
Environmental Law for the operation of the NCS Business. Except as disclosed on
Schedule 3.10(d), NTI or its Affiliates have made all filings necessary to
request the timely renewal or issuance of all Permits necessary under
Environmental Laws for the continued use and operation of the NCS Real Property
to conduct the NCS Business as it is presently being conducted.
(e) Proceedings. Except as disclosed in Schedule 3.10(e),
there is no Claim or Proceeding pending or threatened against NTI or its
Affiliates, under or in connection with any Environmental Law, which could
reasonably be expected to result in a fine, penalty or other obligation, cost or
expense, except for such obligations, costs, or expenses that, individually or
in the aggregate, have not had and could not reasonably be expected to have a
Material Adverse Effect on NCS.
(f) Transfer Restrictions and Liens. Except as disclosed in
Schedule 3.10(f), neither the NCS Real Property nor the NCS Business (i) is
subject to, or would as a result of this transaction be subject to, the New
Jersey Industrial Site Recovery Act, or any other state or local Environmental
Law which would impose restrictions, such as notice, disclosure or obtaining
approval prior to this transaction, or (ii) is subject to, or could reasonably
be expected to become subject to, any Liens under any Environmental Laws.
(g) Documents. NTI and its Affiliates will have made available
by Closing to WCG any and all pleadings, reports, assessments, analytical
results, permits, and other material documents, correspondence and records
concerning Environmental Laws, Hazardous Substances, or other environmental
subjects in each case relating to the operation of the NCS Business.
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3.11 INSURANCE. Schedule 3.11 sets forth a complete and accurate list
of all policies (including their respective expiration dates) of property,
general liability, automobile liability, worker's compensation, and other forms
of insurance presently in effect with respect to NCS, the NCS Business or any of
the NCS Assets, its operations, and its employees excluding those policies
relating to Employee Benefit Plans. Such insurance will be terminated as of the
Closing Date.
3.12 EMPLOYMENT AND LABOR MATTERS.
(a) Attached hereto as Schedule 3.12(a) (i) is a true and
complete list of the employees of the NCS Business (the "NCS Active Employees")
as of December 31, 1996, (including regular full and part-time employees)
identified by name and employee number, together with job titles, compensation
and service information concerning such employees. Except as set forth on
Schedule 3.12(a)(ii), NCS is not a party to any employment contract with and
will not have any liability (other than accrued salary, vacation pay,
commissions or as described in Schedule 3.8(b)) to any employees, any former
employees, or any independent contractors of the NCS Business (collectively ?NCS
Employees?).
(b) Except as set forth on Schedule 3.12(b), NCS is not a
party to any collective bargaining agreement or union contract with respect to
the employees and no collective bargaining agreements are being negotiated by
NCS with respect to any of the NCS Employees; and no notice of a proposed union
certification or recognition election has been received by NCS.
(c) Except as otherwise set forth on Schedule 3.12(c), no NCS
Employees are currently on a leave of absence due to sickness or disability and
no claim is pending and, to the best knowledge of NTI, no Claim is expected to
be made by any NCS Employees for workers? compensation benefits.
(d) NCS has complied in all material respects with all laws
relating to the employment of labor, including, without limitation, the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and those laws
relating to wages, hours, collective bargaining, unemployment insurance,
worker's compensation, equal employment opportunity, payment and withholding of
taxes, the Immigration Reform and Control Act, the Workers Adjustment and
Retraining Act, the Occupational Safety and Health Act, the Drug Free Workplace
Act, and the National Labor Relations Act, as amended.
(e) Attached hereto as Schedule 3.12(e) is a true and complete
list of each of the following which is, or has been, sponsored, maintained or
contributed to by NCS or any trade or business, whether or not incorporated (an
"ERISA Affiliate") that together with NCS would be considered affiliated with
NCS under Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of
ERISA for the benefit of any
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person who, as of the Closing, is a NCS Employee: (i) each "employee benefit
plan," as such term is defined in Section 3(3) of ERISA, ("Plan"); and (ii) each
personnel policy, stock option plan, bonus plan or arrangement, incentive award
plan or arrangement, vacation policy, severance pay plan, policy, program or
agreement, deferred compensation agreement or arrangement, retiree benefit plan
or arrangement, fringe benefit program or practice (whether or not taxable),
employee loan, consulting agreement, employment agreement and each other
employee benefit plan, agreement, arrangement, program, practice or
understanding which is not described in Section 3.12(e)(i) ("Benefit Program or
Agreement") (such Plans and Benefit Programs or Agreement are sometimes
collectively referred to in this Agreement as the "Employee Benefit Plans").
(f) True, correct and complete copies of each of the current
Plans, and related trusts, if applicable, including all amendments thereto, have
been furnished or made available to WCG by NCS. There have also been furnished
to WCG by NCS, with respect to each Plan required to file such report and
description, the report on Form 5500 for the past two years and the most recent
summary plan description. True, correct and complete copies or descriptions of
all Benefit Programs or Agreements have also been furnished or made available to
WCG by NCS.
(g) Except as otherwise set forth on Schedule 3.12(g): (i)
none of NCS or any ERISA Affiliate contributes to or has an obligation to
contribute to, nor has at any time contributed to or had an obligation to
contribute to, a multi-employer plan within the meaning of Section 3(37) of
ERISA or any other plan subject to Title IV or ERISA; (ii) each of NCS and its
ERISA Affiliates has performed all obligations, whether arising by operation of
law or by contract, including, but not limited to, ERISA and the Code, required
to be performed by it in connection with the Employee Benefit Plans, and there
have been no defaults or violations by any other party to the Employee Benefit
Plans; (iii) all reports, returns, notices, disclosures and other documents
relating to the Plans required to be filed with or furnished to governmental
entities, plan participants or plan beneficiaries have been timely filed or
furnished in accordance with applicable law and each Employee Benefit Plan has
been administered in compliance with its governing written documents; (iv) each
of the Plans intended to be qualified under Section 401 of the Code satisfies
the requirements of such Section and has received a favorable determination
letter from the IRS regarding such qualified status and has not been amended,
operated or administered in a way which would adversely affect such qualified
status; (v) there are no actions, suits or claims pending (other than routine
claims for benefits) or, to the best knowledge of NTI, contemplated or
threatened against, or with respect to, any of the Employee Benefit Plans or
their assets; (vi) each trust maintained in connection with each Plan, which is
qualified under Section 401 of the Code, is tax exempt under Section 501 of the
Code; (vii) all contributions required to be made to the Employee Benefit Plans
have been made timely; (viii) no accumulated funding deficiency, whether or not
waived, within the meaning of Section 302 of ERISA or Section 412 of the Code
has been incurred, and
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there has been no termination or partial termination of any Plan within the
meaning of Section 411(d)(3) of the Code; (ix) no act, omission or transaction
has occurred which could result in imposition on the Sellers, NCS or its ERISA
Affiliates of (A) breach of fiduciary duty liability damages under Section 409
of ERISA, (B) a civil penalty assessed pursuant to subsections (c), (i) or (1)
of Section 502 of ERISA or (C) a tax imposed pursuant to Chapter 43 of Subtitle
D of the Code; (x) to the best knowledge of NTI, there is no matter pending with
respect to any of the Plans before the IRS, the Department of Labor or the
Pension Benefit Guaranty Corporation (the "PBGC"); (xi) each of the Employee
Benefit Plans complies in form and operation with the applicable provisions of
the Code and ERISA; (xii) each Employee Benefit Plan provides that it may be
unilaterally amended or terminated in its entirety without any liability or
other obligation except the liability set forth for benefits as described in the
plan upon such amendment or termination; (xiii) neither NTI nor NCS has made any
written or oral representations or promises to any present or former director,
officer, employee or other agent concerning his or her terms, conditions or
benefits of employment (other than communicating that which appears on Schedule
3.12(a)), including without limitation the tenure of any such employment or the
conditions under which such employment may be terminated by NCS or Newco which
will be binding upon or enforceable against Newco after the Closing; (xiv) the
actuarial present values of all accrued deferred compensation entitlement of all
NCS Employees and their respective beneficiaries, other than entitlement accrued
pursuant to funded retirement plans subject to the provisions of Section 412 of
the Code, have been fully reflected on the financial statements and balance
sheets attached as Schedule 3.6(a). Such entitlement includes, without
limitation, any entitlement under any executive compensation, supplemental
retirement or any employment continuity agreement; and (xv) all liabilities for
post-retirement benefits required to be booked under Statement of Financial
Standards No. 106 have been fully reflected on the financial statements and
balance sheets attached as Schedule 3.6(a).
(h) Attached hereto as Schedule 3.12 (h) is a list of all
transfers out of the NCS Business since September 1, 1996.
3.13 FINDER'S FEE. Other than Smith Barney Inc., no investment banker,
broker, finder or other Person is entitled to any brokerage or finder's fee or
similar commission from NTI or NCS in respect of the transactions contemplated
by this Agreement. NTI shall indemnify and hold WCG and its Affiliates harmless
from and against any and all Claims, liabilities and obligations with respect to
any such fees, commissions or expenses asserted by any such Person on the basis
of any act, statement, agreement or commitment alleged to have been made by NTI
or any of its Affiliates with respect thereto.
3.14 MINUTE BOOKS. The minute books of NCS, copies of which, certified
by NCS' secretary or assistant secretary, have heretofore been made available to
WCG, contain true and complete minutes and records of all meetings, proceedings
and other
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actions of shareholders and the Board of Directors of NCS, none of which have
been amended to the best knowledge of NTI (except as set forth in such copies)
and are in full force and effect as of the date hereof.
3.15 ABSENCE OF CERTAIN CHANGES. Except as described in Schedule 3.15
and except for the consummation of the transactions contemplated by Article II,
since December 31, 1996, there has not been:
(a) Any mortgage, encumbrance or Lien placed on any of the NCS
Assets by or as a result of any act or omission of NCS which remains in
existence on the date hereof or on the Closing Date, except for Permitted
Encumbrances;
(b) Any obligation or liability in excess of Two Hundred Fifty
Thousand Dollars ($250,000) incurred by NCS other than obligations and
liabilities incurred in accordance with past practice in the ordinary course of
business;
(c) Any purchase, sale or other disposition, or any agreement
or other arrangement for the purchase, sale or other disposition, of any of the
NCS Assets, for an amount in excess of One Hundred Thousand Dollars ($100,000),
other than in accordance with past practice in the ordinary course of business;
(d) Any damage, destruction or Loss in excess of One Hundred
Thousand Dollars ($100,000) per single event, whether or not covered by
insurance, affecting the NCS Assets;
(e) Any strike, work stoppage, concerted work slow down,
grievance or arbitration proceeding, unfair labor practice charge or complaint
involving the NCS Business;
(f) Any material change in the Employee Benefit Plans listed
(or required to be listed) on Schedule 3.12(e) or any change in the compensation
payable or to become payable with respect to the NCS Business to any officer,
employee or agent of NTI or NCS, except changes in compensation which occurred
in the ordinary course of business and which did not involve, in any case, an
increase in compensation in excess of Twenty Thousand Dollars ($20,000) per
annum for any one employee.
(g) A cancellation of any debt in excess of One Hundred
Thousand Dollars ($100,000) owed to or claim of NCS, or waiver of any right of
NCS, other than in accordance with past practice in the ordinary course
business;
(h) Any extraordinary Losses of Fifty Thousand Dollars
($50,000) or more individually aggregating in excess of Seven Hundred Fifty
Thousand Dollars ($750,000) or more suffered by the NCS Business;
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(i) Any change in any method of accounting or accounting
practice by the NCS Business, except as may be required by GAAP; or
(j) Any other change in the financial condition, properties,
assets, liabilities, business or operations of the NCS Business which change, by
itself or in conjunction with all other such changes, whether or not arising in
the ordinary course of business, has been or is reasonably likely to have a
Material Adverse Effect with respect to the NCS Business or Newco.
3.16 NO UNTRUE STATEMENTS. This Agreement, the Exhibits and Schedules
hereto, and any certificate delivered to WCG and its representatives in
connection with this Agreement or the transactions contemplated hereby, do not
and will not contain when delivered any untrue statement of any material fact
and do not and will not omit to state a material fact necessary to make the
statements contained herein and therein taken as a whole not misleading. To the
best knowledge of NTI, there is no material fact that has not been disclosed in
writing to WCG by NTI or NCS that has or is expected to have a Material Adverse
Effect on NCS or Newco.
3.17 DISTRIBUTORSHIP TERMS. Attached hereto as Schedule 3.17 are copies
of the current Distributorship Agreement and the current Systems Integrator
Agreement in place between NTI and NCS, all of the terms of which have been
substantially complied with by the parties.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WCG
WCG hereby makes the following representations and warranties to NTI,
each and all of which are true and correct on the signing date hereof and on the
Closing Date, except as set forth in the disclosure schedule attached pertaining
to such representation and warranty:
4.1 CORPORATE MATTERS.
(a) Each of WCG and WilTel is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
having all requisite corporate power and authority to own, operate and lease its
properties and assets and to carry on its business in the places and in the
manner currently conducted. NTI has been provided with a true and correct copy
of the Certificate of Incorporation and Bylaws, or other charter documents, of
WilTel as currently in effect. WCG has all requisite corporate power and
authority to enter into this Agreement and the Organizational Agreements and to
perform its obligations hereunder and thereunder.
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(b) All of the outstanding shares of capital stock of WilTel
have been legally and validly authorized and issued, and are fully paid and
nonassessable. WCG is the sole stockholder of WilTel, holding the number and
type of shares set forth on Schedule 4.1(b). None of the capital stock of WilTel
is subject to any option, warrant, right of conversion, exchange or purchase or
any similar right.
(c) Except where the failure would not affect the validity of
this Agreement or have a Relevant Adverse Effect on the WilTel Business or the
WilTel Assets, WilTel is qualified to transact business as a foreign corporation
and is in good standing in the jurisdictions, if any, specified in Schedule
4.1(c) attached hereto, and there is no other jurisdiction in which the nature
or extent of the WilTel Business or the character of the WilTel Assets makes
such qualification necessary.
4.2 VALIDITY OF AGREEMENT; NO CONFLICT.
(a) This Agreement has been duly authorized, executed and
delivered by WCG and is a legal, valid and binding obligation of WCG enforceable
against it in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
from time to time in effect that affect creditors' rights generally and by legal
and equitable limitations on the availability of specific remedies.
(b) The Organizational Agreements have been duly authorized by
WCG or WilTel, as the case may be, and upon execution and delivery thereof at or
prior to the Closing will be legal, valid and binding obligations of WCG or
WilTel enforceable against it in accordance with their terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time in effect that
affect creditors' rights generally and by legal and equitable limitations on the
availability of specific remedies.
(c) The execution, delivery and performance of this Agreement
and the Organizational Agreements by WCG or WilTel, as the case may be, and the
other agreements and documents to be delivered by WCG or WilTel to Newco or NTI
hereunder, the consummation of the transactions contemplated hereby or thereby,
and the compliance with the provisions hereof or thereof, by WCG or WilTel will
not, with or without the passage of time or the giving of notice or both:
(i) except in the absence of required consents as set
forth on Schedules 4.3(a), 4,4(b), 4.4(c) or 4.5(d), conflict with, constitute a
breach, violation or termination of any provision of, or give rise to any right
of termination, cancellation or acceleration, or loss of any right or benefit or
both, under, any of the WilTel Contracts listed in Schedule 4.5(a) or Schedule
4.5(b), WilTel's Permits, the WilTel Owned Intellectual Property and Software or
the WilTel Licensed Intellectual Property and Software;
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(ii) conflict with or violate the Certificate of
Incorporation or Bylaws of WCG or WilTel;
(iii) result in the creation or imposition of any
Lien or Claim on any of the WilTel Assets; or
(iv) violate any law, statute, ordinance, regulation,
judgment, writ, injunction, rule, decree, order or any other restriction of any
kind or character applicable to WCG, WilTel or the WilTel Assets.
4.3 GOVERNMENTAL AND OTHER CONSENTS, APPROVALS AND AUTHORIZATIONS.
(a) Except as set forth in Schedule 4.3(a) or Schedule 4.5(d)
attached hereto or as would not significantly adversely impact Newco, the
transactions contemplated hereby, the Organizational Agreements or any other
agreement contemplated hereby or thereby, no order, license to conduct or
operate its business, consent, waiver, authorization or approval of, or
exemption by, or the giving of notice to, or the registration with, or the
taking of any other action in respect of, any Person not a Party, including any
Authority, and no filing, recording, publication or registration in any public
office or any other place is necessary on behalf of WilTel (i) to authorize the
execution, delivery and performance of this Agreement, the Organizational
Agreements or any other agreement contemplated hereby or thereby to be executed
and delivered by it and the consummation of the transactions contemplated hereby
or thereby (including assignment of the WilTel Assets), or (ii) to effect the
legality, validity, binding effect or enforceability thereof.
(b) Except as set forth in Schedule 4.3(b), all Permits
required or necessary for WilTel to own the WilTel Assets or carry on WilTel
Business in the places and in the manner currently conducted have been duly
obtained, except where a failure to obtain any such Permit (considered
individually) would not have a Relevant Adverse Effect on the WilTel Assets or
the WilTel Business, and such Permits are in full force and effect. Except as
set forth in Schedule 4.3(b), no violations are in existence or have been
recorded with respect to those Permits and no proceeding is pending or, to the
best knowledge of WCG, threatened with respect to the revocation or limitation
of any of such Permits, except where such violations, revocations or limitations
considered per Permit would not result in a Relevant Adverse Effect on the
WilTel Assets or the WilTel Business. Except as set forth in Schedule 4.3(b) or
as otherwise disclosed in the Schedules to this Agreement, WilTel has complied
in all respects with all laws, rules, regulations and orders applicable the
WilTel Business, except where the failure to comply with such laws, rules,
regulations and orders would not result in a Relevant Adverse Effect on the
WilTel Assets or the WilTel Business.
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4.4 TITLE TO AND CONDITION OF WILTEL ASSETS.
(a) A listing of substantially all of the items of equipment,
furniture or fixture, with an initial purchase price of One Thousand Dollars
($1,000) or more with a remaining useful life of more than one year owned by
WilTel as of March 31, 1997, constituting a part of the WilTel Assets is set
forth in Schedule 4.4(a) attached hereto. Substantially all of the assets are
located at the locations set forth therein and are in WilTel's possession and
control. WilTel has title to all such assets, free and clear of all Liens and
Claims, except for Permitted Encumbrances.
(b) Schedule 4.4(b) sets forth all Intellectual Property and
Software owned by WilTel (the "WilTel Owned Intellectual Property and
Software"). Except as set forth on Schedule 4.4(b), WilTel owns, free and clear
from any claims or rights of others, all WilTel Owned Intellectual Property and
Software. Except as set forth on Schedule 4.4(b), none of the WilTel Owned
Intellectual Property and Software has been declared invalid, or been limited in
any respect by order of any court or by agreement, or, to the best knowledge of
WCG, is the subject of any infringement, interference or similar proceeding or
challenge. Except as set forth on Schedule 4.4(b), neither WilTel nor WCG has
received any notice of infringement, misappropriation or conflict from any other
Person with respect to the WilTel Owned Intellectual Property and Software, and,
to the best knowledge of WCG, the conduct of the WilTel Business has not
infringed, misappropriated or otherwise conflicted with any Intellectual
Property or Software of any other Person. Each of the patents, trademarks and
registered copyrights included in the WilTel Owned Intellectual Property and
Software has been validly issued. All WilTel Owned Intellectual Property and
Software that is licensed to a third party by WilTel or in which WilTel has
otherwise transferred an interest to a third party has been licensed or
transferred on a non-exclusive basis pursuant to valid and existing license
agreements. Except as set forth on Schedule 4.4(b), none of the WilTel Owned
Intellectual Property and Software requires the consent or waiver of any Person
or Authority prior to the sale, assignment, transfer, conveyance or delivery
thereof to Newco pursuant to this Agreement and such sale, assignment, transfer,
conveyance and delivery to Newco and any of the other transactions contemplated
by this Agreement will not result in any loss of any WilTel Owned Intellectual
Property and Software or any right to use, exploit or receive benefits with
respect to such WilTel Owned Intellectual Property and Software.
(c) Schedule 4.4(c) sets forth all material Intellectual
Property and Software licensed to WilTel (the "WilTel Licensed Intellectual
Property and Software"). Except as set forth on Schedule 4.4(c), WilTel has the
right to use, free and clear from any claims or rights of others, except as
reflected in the applicable license, all WilTel Licensed Intellectual Property
and Software. Except as set forth on Schedule 4.4(c), none of the WilTel
Licensed Intellectual Property and Software has been declared invalid, or been
limited in any respect by order of any court or by agreement, or, to
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the best knowledge of WCG, is the subject of any infringement, interference or
similar proceeding or challenge. Except as set forth on Schedule 4.4(c), neither
WilTel nor WCG has received any notice of infringement, misappropriation or
conflict from any other Person with respect to the WilTel Licensed Intellectual
Property and Software, and, to the best knowledge of WCG, the conduct of the
WilTel Business has not infringed, misappropriated or otherwise conflicted with
any Intellectual Property or Software of any other Person. Except as set forth
on Schedule 4.4(c), none of the WilTel Licensed Intellectual Property and
Software requires the consent or waiver of any Person or Authority prior to the
sale, assignment, transfer, conveyance or delivery thereof to Newco pursuant to
this Agreement and such sale, assignment, transfer, conveyance and delivery to
Newco will not result in any loss of any WilTel Licensed Intellectual Property
and Software or any right to use, exploit or receive benefits with respect to
such WilTel Licensed Intellectual Property and Software, except where the
failure to obtain such consent or waiver would not have a Relevant Adverse
Effect on the WilTel Assets or WilTel Business.
(d) Except as set forth on Schedule 4.4(d), the WilTel Assets
constitute substantially all of the assets (i) necessary for the conduct of the
WilTel Business in the ordinary course consistent with past practices or (ii)
currently used by WilTel in connection with the WilTel Business. Except as set
forth on Schedule 4.4(d), the conduct of the WilTel Business in the ordinary
course is not dependent upon the right to use the property of Persons other than
WilTel, except such property as is leased or licensed to WilTel pursuant to any
of the WilTel Contracts or the absence of which would not have a Relevant
Adverse Effect on Newco. Except as set forth on Schedule 4.4(d), neither WCG nor
any Affiliate of WCG (other than WilTel) owns or has any interest in any WilTel
Asset or any asset currently used by WilTel in the WilTel Business, except the
WCG Retained Assets, or such assets as are leased or licensed to WilTel pursuant
to any of the WilTel Contracts or the loss of which would not have a Relevant
Adverse Effect on WilTel or Newco.
(e) Except as set forth on Schedule 4.4 (e), the WilTel Owned
Intellectual Property and Software, the WilTel Licensed Intellectual Property
and Software, constitute all of the material intellectual property rights used
by WilTel in the conduct of the WilTel Business as currently conducted.
4.5 CONTRACTS, COMMITMENTS AND CUSTOMERS.
(a) Set forth in Schedule 4.5(a) attached hereto is a list of
each of the following agreements between WilTel and its customers: (i) service
or maintenance contracts with an annual revenue commitment of $500,000 or
greater, and (ii) purchase, lease or rental agreements for the installation or
upgrade of a PBX with a purchase price of $1,000,000 or greater for which the
customer has not been sent the final invoice.
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(b) Set forth in Schedule 4.5(b) attached hereto is a list of
each WilTel Contract, other than agreements with customers, which would create a
monetary obligation of WilTel, or a right to receive funds by WilTel, of greater
than $300,000 in the aggregate. Also set forth on Schedule 4.5(b) is a list of
all guarantees of the obligations of WilTel by WCG or any WCG Affiliate.
(c) To the best knowledge of either WCG or WilTel, neither WCG
nor WilTel is in breach of any provision of, or in default (or knows of any
event or circumstance that with notice or lapse of time or both would constitute
an event of default) under the terms of, any WilTel Contract except to the
extent the loss of such WilTel Contract would not have a Relevant Adverse Effect
on Newco. Except as set forth in Schedule 4.5(c), all of the WilTel Contracts
listed in Schedule 4.5(a) and Schedule 4.5(b) are in full force and effect, and
neither WCG nor WilTel is aware of any pending or overtly threatened Claims or
disputes with respect thereto. None of the customers or counter parties under
the WilTel Contracts listed in Schedule 4.5(a) and Schedule 4.5(b) has notified
WCG or WilTel in writing that it intends to discontinue its relationship with
the WilTel Business.
(d) Except as set forth on Schedule 4.5(d), and except to the
extent that failure to obtain consent or waiver can be remedied by means of the
mechanism set forth in Section 10.8 hereto without a Relevant Adverse Effect
upon Newco, the WilTel Contracts listed in Schedule 4.5(a) and Schedule 4.5(b)
do not require the consent or waiver of any Person or Authority prior to the
sale, assignment, transfer, conveyance or delivery thereof pursuant to this
Agreement.
(e) Except as set forth in Schedule 4.5(e), true and complete
copies of the WilTel Contracts listed in Schedule 4.5(a) and Schedule 4.5(b)
have been made available to NTI prior to the date of this Agreement.
4.6 FINANCIAL STATEMENTS.
(a) Attached as Schedule 4.6(a) hereto is a copy of the
unaudited consolidated balance sheet of WilTel as of December 31, 1996 (the
"WilTel Year End Balance Sheet") and the unaudited consolidated income statement
of WilTel for the year ended on December 31, 1996 (the "WilTel Financial
Statements"), which (except as noted therein):
(i) have been prepared in accordance with GAAP
applied on a basis consistent with the consolidated balance sheet of the WilTel
Business as of December 31, 1995 and the consolidated income statement of WilTel
for the year ended December 31, 1995 (without change in the application of
principles or the selection of methods of calculation permitted by GAAP unless
based solely upon changes in facts and circumstances or required by changes in
GAAP) and fairly present the consolidated financial condition of WilTel as of
the date thereof, the
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results of operations and the cash flows for the period set forth therein,
subject to normal year-end adjustments, footnotes and other presentation items;
and
(ii) except with respect to United States federal and
state income taxes, reflect all liabilities or obligations, whether accrued,
absolute, contingent or otherwise, of WilTel as required under GAAP consistently
applied other than those liabilities incurred since the date thereof, in the
ordinary course of business consistent with past practice.
(b) Attached as Schedule 4.6(b) hereto is a copy of an audited
balance sheet of WilTel as of December 31, 1996, which represents the audited
consolidated balance sheet of WilTel as of December 31, 1996, adjusted to
exclude the net book values which those categories of items included in the WCG
Retained Assets and WCG Retained Liabilities had as of December 31, 1996 (the
"WilTel Adjusted Year End Balance Sheet").
(c) The schedules provided to NTI detailing capitalized costs
with respect to Software owned or leased by WilTel are true, correct and
complete in all material respects and accurately reflect the information
purported to be set forth therein in accordance with GAAP.
(d) Attached as Schedule 4.6(d) hereto are schedules
reflecting: (i) the gross revenues of the WilTel Business for each of the years
ended December 31, 1995 and 1996, showing the portions thereof arising out of
each of (1) new systems and enhancements, (2) maintenance, and (3)
moves/adds/changes; and the portions of each such category of revenue arising
out of the geographic regions shown on such schedules; (ii) the cost of goods
sold for each of such years and each of such categories of revenue, and (iii)
actual product purchases from NTI for 1995 and 1996, and the forecast for
product purchases from NTI for 1997 as prepared by WilTel. Except as otherwise
disclosed on Schedule 4.6(d), such schedules have been prepared on a basis
consistent with the WilTel Financial Statements for the periods covered thereby
and fairly present the information contained therein.
(e) As soon as possible following execution of this Agreement,
and in no event less than five Business Days prior to the Closing Date, WCG
shall deliver to NTI the unaudited consolidated balance sheet of WilTel as of
March 31, 1997, and the unaudited consolidated income statement of WilTel for
the quarter then ended, prepared on a basis consistent in all respects with the
WilTel Financial Statements (the "WilTel First Quarter Statements"). The WilTel
First Quarter Statements shall be attached hereto as Schedule 4.6(e).
(f) As soon as possible following execution of this Agreement,
and in no event less than five Business Days prior to the Closing Date, WCG
shall deliver to NTI the unaudited consolidated balance sheet of WilTel as of
March 31, 1997,
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adjusted to exclude the net book values which those categories of items included
in the WCG Retained Assets and the WCG Retained Liabilities had as of March 31,
1997, prepared on a basis consistent in all respects with the WilTel Adjusted
Year End Balance Sheet (the "WilTel Adjusted Effective Date Balance Sheet"). The
WilTel Adjusted Effective Date Balance Sheet shall be attached hereto as
Schedule 4.6(f).
4.7 TAXES. Except as set forth in Schedule 4.7 (a), WCG, WilTel, and
any consolidated, combined, unitary or aggregate group for Tax purposes of which
WCG or WilTel is or has been a member, have timely filed all Tax Returns
required to be filed by them with respect to the WilTel Business and have timely
paid, have caused to be timely paid, or have had timely paid on their behalf all
Taxes which are due (whether or not shown on a Tax Return with respect to the
WilTel Business). Each of the Tax Returns filed by WCG or WilTel is accurate and
complete in all material respects with respect to the WilTel Business. Except as
described on Schedule 4.7(a), no material deficiencies exceeding $1,000,000 for
a single Tax for any Taxes have been proposed, asserted or assessed against
Williams (with respect to the income or operations of WilTel), or WilTel, and no
requests for waivers of the time to assess any such Taxes have been granted or
are pending. Except as set forth in Schedule 4.7(a), there are no current
examinations of any Tax Return of Williams (with respect to the income or
operations of WilTel), or WilTel being conducted and there are no settlements or
any prior examinations which could reasonably be expected to have a Material
Adverse Effect on WCG (with respect to the income or operation of WilTel) or
WilTel.
4.8 NO VIOLATIONS OR LITIGATION.
(a) To the best knowledge of WCG, WilTel has not violated, and
the consummation of the transactions contemplated hereby will not cause any
violation of, any Permit, any order of any Authority or any law, ordinance,
regulation, order, requirement, statute, rule, permit, concession, grant,
franchise, license or other governmental authorization relating or applicable to
the WilTel Business or any of the WilTel Assets or that could have a Relevant
Adverse Effect on the WilTel Assets or the WilTel Business.
(b) Except as set forth in Schedule 4.8(b) hereto and except
for Claims and examinations relating to Taxes, to the best knowledge of WCG,
there is no Claim, or examination (including, without limitation, any change in
any zoning or building ordinance) pending or, to the best knowledge of WCG,
threatened against or affecting WilTel, the WilTel Business, or any of the
WilTel Assets, at law or in equity, before or by any Authority or any third
party that could have a Relevant Adverse Effect on WilTel, the WilTel Assets or
the WilTel Business.
(c) This Section 4.8 does not address environmental matters
within the scope of Section 4.10.
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4.9 PROPERTY LEASES. Schedule 4.9 is a complete list of all real
property leases and those personal property leases with annual rental payments
equal to or greater than Three Hundred Thousand Dollars ($300,000) per annum to
which WilTel is a party (the "Leases"). Each of the Leases is a valid and
existing lease, enforceable in accordance with its terms, and, to the best
knowledge of WCG, there are no existing defaults, events of default or events,
occurrence or acts that, with the giving of notice or lapse of time or both,
would constitute defaults, in each case by WilTel and, to the best knowledge of
WCG, by any other party thereto, under any of the Leases.
4.10 ENVIRONMENTAL.
(a) Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:
(i) The term "Environmental Law(s)" means each and
every law, Order, Permit, or similar requirement of each and every Authority,
pertaining to (A) the protection of human health, safety, the environment,
natural resources and wildlife, (B) the protection or use of surface water,
groundwater, rivers, and other bodies of water, (C) the management, manufacture,
possession, presence, use, generation, transportation, treatment, storage,
disposal, Release, threatened Release, abatement, removal, remediation or
handling of, or exposure to, any Hazardous Substance or (D) pollution, including
without limitation, as amended, CERCLA, the Solid Waste Disposal Act, 42 U.S.C.
S. 6901 et seq., the Clean Air Act, 42 U.S.C. S. 7401 et seq. and the Federal
Water Pollution Control Act, 33 U.S.C. S. 1251, et seq.
(ii) The term "Hazardous Substance" means any
substance which is (A) defined as a hazardous substance, hazardous material,
hazardous waste, pollutant or contaminant under any Environmental Laws, (B) a
petroleum hydrocarbon, including crude oil or any fraction thereof, (C)
hazardous, toxic, corrosive, flammable, explosive, infectious, radioactive or
carcinogenic or (D) regulated pursuant to any Environmental Laws.
(iii) The term "Release" means any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping, or disposing into the environment (including without
limitation the abandonment or discarding of barrels, containers, and other
receptacles containing any Hazardous Substance).
(b) Compliance with Environmental Laws. Except as disclosed on
Schedule 4.10(b), with respect to both (i) the operations conducted at and
conditions present at the real property currently used or occupied in connection
with the WilTel Business (the "WilTel Real Property"), and (ii) the operations
conducted at and the
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conditions present at any real property formerly used or occupied in connection
with the WilTel Business (the "Former WilTel Real Property"), during the period
of such use or occupancy by WCG or its Affiliates, WCG or its Affiliates were
and are in compliance with applicable Environmental Laws, except for such
failures to comply that, individually and in the aggregate, have not had and
could not reasonably be expected to have, a Material Adverse Effect on WilTel.
(c) Environmental Liabilities. Except as disclosed on Schedule
4.10(c), there are no past or present conditions, circumstances, events,
activities, practices, or agreements arising out of, or related either to the
WilTel Real Property or to the Former WilTel Real Property, including but not
limited to any on-site or off-site Release of any Hazardous Substances, which
have given rise to or could reasonably be expected to give rise to: (i)
liabilities or obligations of WCG or its Affiliates for any clean-up, corrective
action or remedial activity under any Environmental Law; (ii) any Claim against
WCG or its Affiliates under any Environmental Law for personal injury, property
damage, or damage to natural resources, or (iii) the imposition of fines or
penalties on WCG or its Affiliates under any Environmental Law, where such
liabilities, obligations, Claims, fines or penalties, either individually or in
the aggregate, have had or could reasonably be expected to have a Material
Adverse Effect on WilTel.
(d) Permits. Schedule 4.10(d) sets forth an accurate and
complete list of all material Permits issued to WCG and its Affiliates under any
Environmental Law for the operation of the WilTel Business with respect to the
operations conducted at and conditions present at the WilTel Real Property.
Except as disclosed on Schedule 4.10(d), WCG or its Affiliates have made all
filings necessary to request the timely renewal or issuance of all Permits
necessary under Environmental Laws for the continued use and operation of the
WilTel Real Property to conduct the WilTel Business as it is presently being
conducted.
(e) Proceedings. Except as disclosed in Schedule 4.10(e),
there is no Claim or Proceeding pending or threatened against WCG or its
Affiliates, under or in connection with any Environmental Law, which could
reasonably be expected to result in a fine, penalty or other obligation, cost or
expense, except for such obligations, costs, or expenses that, individually or
in the aggregate, have not had and could not reasonably be expected to have a
Material Adverse Effect on WilTel.
(f) Transfer Restrictions and Liens. Except as disclosed in
Schedule 4.10(f), neither the WilTel Real Property nor the WilTel Business (i)
is subject to, or would as a result of this transaction be subject to, the New
Jersey Industrial Site Recovery Act, or any other state or local Environmental
Law which would impose restrictions, such as notice, disclosure or obtaining
approval prior to this transaction, or (ii) is subject to, or could reasonably
be expected to become subject to, any Liens under any Environmental Laws.
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(g) Documents. WCG and its Affiliates will have made available
by Closing to NTI any and all pleadings, reports, assessments, analytical
results, permits, and other material documents, correspondence and records
concerning Environmental Laws, Hazardous Substances, or other environmental
subjects in each case relating to the operation of the WilTel Business.
4.11 INSURANCE. Schedule 4.11 sets forth a complete and accurate list
of all policies (including their respective expiration dates) of property,
general liability, automobile liability, worker's compensation, and other forms
of insurance presently in effect with respect to WilTel, the WilTel Business or
any of the WilTel Assets, its operations, and its employees excluding those
policies relating to Employee Benefit Plans. To the best knowledge of WCG, there
are no facts or circumstances which would prevent the extension of such
insurance policies for the benefit of Newco after the Closing.
4.12 EMPLOYMENT AND LABOR MATTERS.
(a) Attached hereto as Schedule 4.12(a)(i) is a true and
complete list of the employees of the WilTel Business (the "WilTel Active
Employees") as of December 31, 1996, (including regular full time and part-time
employees), identified by name and employee number, together with job titles,
compensation and service information concerning such employees. Except as set
forth on Schedule 4.12(a)(ii), WilTel is not a party to any employment contract
with and will not have any liability (other than accrued salary, vacation pay,
commissions or as described in Schedule 4.8(b)) to any employees, any former
employees, or any independent contractors of the WilTel Business (collectively
?WilTel Employees?).
(b) Except as set forth on Schedule 4.12(b), WilTel is not a
party to any collective bargaining agreement or union contract with respect to
the employees and no collective bargaining agreements are being negotiated by
WilTel with respect to any of the WilTel Employees; and no notice of a proposed
union certification or recognition election has been received by WilTel.
(c) Except as otherwise set forth on Schedule 4.12(c), no
WilTel Employees are currently on a leave of absence due to sickness or
disability and no claim is pending and to the best knowledge of WCG, no Claim is
expected to be made by any WilTel Employees for workers? compensation benefits.
(d) WilTel has complied in all material respects with all laws
relating to the employment of labor, including, without limitation, ERISA and
those laws relating to wages, hours, collective bargaining, unemployment
insurance, worker's compensation, equal employment opportunity, payment and
withholding of taxes, the Immigration Reform and Control Act, the Workers
Adjustment and Retraining Act, the
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Occupational Safety and Health Act, the Drug Free Workplace Act, and the
National Labor Relations Act, as amended.
(e) Attached hereto as Schedule 4.12(e) is a true and complete
list of each of the following which is, or has been, sponsored, maintained or
contributed to by WilTel or any trade or business, whether or not incorporated
(an "ERISA Affiliate") that together with WilTel would be considered affiliated
with WilTel under Section 414(b), (c), (m) or (o) of the Code or Section
4001(b)(1) of ERISA for the benefit of any person who, as of the Closing, is a
WilTel Employee: (i) each "employee benefit plan," as such term is defined in
Section 3(3) of ERISA, ("Plan"); and (ii) each personnel policy, stock option
plan, bonus plan or arrangement, incentive award plan or arrangement, vacation
policy, severance pay plan, policy, program or agreement, deferred compensation
agreement or arrangement, retiree benefit plan or arrangement, fringe benefit
program or practice (whether or not taxable), employee loan, consulting
agreement, employment agreement and each other employee benefit plan, agreement,
arrangement, program, practice or understanding which is not described in
Section 4.12(e)(i) ("Benefit Program or Agreement") (such Plans and Benefit
Programs or Agreement are sometimes collectively referred to in this Agreement
as the "Employee Benefit Plans").
(f) True, correct and complete copies of each of the current
Plans, and related trusts, if applicable, including all amendments thereto, have
been furnished or made available to NCS by WCG. There have also been furnished
to NCS by WCG, with respect to each Plan required to file such report and
description, the report on Form 5500 for the past two years and the most recent
summary plan description. True, correct and complete copies or descriptions of
all Benefit Programs or Agreements have also been furnished or made available to
NCS by WCG.
(g) Except as otherwise set forth on Schedule 4.12(g): (i)
none of WilTel or any ERISA Affiliate contributes to or has an obligation to
contribute to, nor has at any time contributed to or had an obligation to
contribute to, a multi-employer plan within the meaning of Section 3(37) of
ERISA or any other plan subject to Title IV or ERISA; (ii) each of WilTel and
its ERISA Affiliates has performed all obligations, whether arising by operation
of law or by contract, including, but not limited to, ERISA and the Code,
required to be performed by it in connection with the Employee Benefit Plans,
and there have been no defaults or violations by any other party to the Employee
Benefit Plans; (iii) all reports, returns, notices, disclosures and other
documents relating to the Plans required to be filed with or furnished to
governmental entities, plan participants or plan beneficiaries have been timely
filed or furnished in accordance with applicable law and each Employee Benefit
Plan has been administered in compliance with its governing written documents;
(iv) each of the Plans intended to be qualified under Section 401 of the Code
satisfies the requirements of such Section and has received a favorable
determination letter from the IRS regarding such qualified status and has not
been amended, operated or administered in a way which
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would adversely affect such qualified status; (v) there are no actions, suits or
claims pending (other than routine claims for benefits) or, to the best
knowledge of WCG, contemplated or threatened against, or with respect to, any of
the Employee Benefit Plans or their assets; (vi) each trust maintained in
connection with each Plan, which is qualified under Section 401 of the Code, is
tax exempt under Section 501 of the Code; (vii) all contributions required to be
made to the Employee Benefit Plans have been made timely; (viii) no accumulated
funding deficiency, whether or not waived, within the meaning of Section 302 of
ERISA or Section 412 of the Code has been incurred, and there has been no
termination or partial termination of any Plan within the meaning of Section
411(d)(3) of the Code; (ix) no act, omission or transaction has occurred which
could result in imposition on the Sellers, WilTel or its ERISA Affiliates of (A)
breach of fiduciary duty liability damages under Section 409 of ERISA, (B) a
civil penalty assessed pursuant to subsections (c), (i) or (1) of Section 502 of
ERISA or (C) a tax imposed pursuant to Chapter 43 of Subtitle D of the Code; (x)
to the best knowledge of WCG, there is no matter pending with respect to any of
the Plans before the IRS, the Department of Labor or the PBGC; (xi) each of the
Employee Benefit Plans complies in form and operation with the applicable
provisions of the Code and ERISA; (xii) each Employee Benefit Plan provides that
it may be unilaterally amended or terminated in its entirety without any
liability or other obligation except the liability set forth for benefits as
described in the plan upon such amendment or termination; (xiii) neither WCG nor
WilTel has made any written or oral representations or promises to any present
or former director, officer, employee or other agent concerning his or her
terms, conditions or benefits of employment (other than communicating that which
appears on Schedule 4.12(a)), including without limitation the tenure of any
such employment or the conditions under which such employment may be terminated
by WilTel or Newco which will be binding upon or enforceable against Newco after
the Closing; (xiv) the actuarial present values of all accrued deferred
compensation entitlement of all WilTel Employees and their respective
beneficiaries, other than entitlement accrued pursuant to funded retirement
plans subject to the provisions of Section 412 of the Code, have been fully
reflected on the financial statements and balance sheets attached as Schedule
4.6(a). Such entitlement includes, without limitation, any entitlement under any
executive compensation, supplemental retirement or any employment continuity
agreement; and (xv) all liabilities for post-retirement benefits required to be
booked under Statement of Financial Standards No. 106 have been fully reflected
on the financial statements and balance sheets attached as Schedule 4.6(a).
(h) Attached as hereto as Schedule 4.12(h) is a list of all
transfers out of the WilTel Business since September 1, 1996.
4.13 FINDER'S FEE. Other than Salomon Brothers Inc, no investment
banker, broker, finder or other Person is entitled to any brokerage or finder's
fee or similar commission from WCG or WilTel in respect of the transactions
contemplated by this Agreement. WCG shall indemnify and hold NTI and its
Affiliates harmless from and
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against any and all Claims, liabilities and obligations with respect to any such
fees, commissions or expenses asserted by any such Person on the basis of any
act, statement, agreement or commitment alleged to have been made by WCG or any
of its Affiliates with respect thereto.
4.14 MINUTE BOOKS. The minute books of WilTel, copies of which,
certified by WilTel's secretary or assistant secretary, have heretofore been
made available to NTI, contain true and complete minutes and records of all
meetings, proceedings and other actions of shareholders and the Board of
Directors of WilTel, none of which have been amended to the best knowledge of
WCG (except as set forth in such copies) and are in full force and effect as of
the date hereof.
4.15 ABSENCE OF CERTAIN CHANGES. Except as described in Schedule 4.15
and except for the consummation of the transactions contemplated by Article II,
since December 31, 1996, there has not been:
(a) Any mortgage, encumbrance or Lien placed on any of the
WilTel Assets by or as a result of any act or omission of WilTel which remains
in existence on the date hereof or on the Closing Date, except for Permitted
Encumbrances;
(b) Any obligation or liability in excess of Two Hundred Fifty
Thousand Dollars ($250,000) incurred by WilTel other than obligations and
liabilities incurred in accordance with past practice in the ordinary course of
business;
(c) Any purchase, sale or other disposition, or any agreement
or other arrangement for the purchase, sale or other disposition, of any of the
WilTel Assets, for an amount in excess of One Hundred Thousand Dollars
($100,000), other than in accordance with past practice in the ordinary course
of business;
(d) Any damage, destruction or Loss in excess of One Hundred
Thousand Dollars ($100,000) per single event, whether or not covered by
insurance, affecting the WilTel Assets;
(e) Any strike, work stoppage, concerted work slow down,
grievance or arbitration proceeding, unfair labor practice charge or complaint
involving the WilTel Business;
(f) Any material change in the Employee Benefit Plans listed
(or required to be listed) on Schedule 4.12(e) or any change in the compensation
payable or to become payable with respect to the WilTel Business to any officer,
employee or agent of WilTel or WCG; except changes in compensation which
occurred in the ordinary course of business and which did not involve, in any
case, an increase in compensation in excess of Twenty Thousand Dollars ($20,000)
per annum for any one employee.
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(g) A cancellation of any debt in excess of One Hundred
Thousand Dollars ($100,000) owed to or claim of WilTel, or waiver of any right
of WilTel, other than in accordance with past practice in the ordinary course
business;
(h) Any extraordinary Losses in excess of Fifty Thousand
Dollars ($50,000) or more individually aggregating in excess of Seven Hundred
Fifty Thousand Dollars ($750,000) or more suffered by the WilTel Business;
(i) Any change in any method of accounting or accounting
practice by the WilTel Business, except as may be required by GAAP; or
(j) Any other change in the financial condition, properties,
assets, liabilities, business or operations of the WilTel Business which change,
by itself or in conjunction with all other such changes, whether or not arising
in the ordinary course of business, has been or is reasonably likely to have a
Material Adverse Effect with respect to the WilTel Business or Newco.
4.16 NO UNTRUE STATEMENTS. This Agreement, the Exhibits and Schedules
hereto, and any certificate delivered to NTI and its representatives in
connection with this Agreement or the transactions contemplated hereby, do not
and will not contain when delivered any untrue statement of any material fact
and do not and will not omit to state a material fact necessary to make the
statements contained herein and therein taken as a whole not misleading. To the
best knowledge of WCG, there is no material fact that has not been disclosed in
writing to NTI by WCG that has or is expected to have a Material Adverse Effect
on WilTel or Newco.
ARTICLE V
MATTERS PENDING CLOSING
5.1 NTI ACTIONS PENDING CLOSING. From the date hereof until the later
of Closing and the Effective Time, except as expressly contemplated by this
Agreement or to the extent WCG shall otherwise consent in writing:
(a) NTI shall and shall cause its appropriate Affiliates to,
in a timely, accurate and complete manner (i) make such filings and secure any
consents, approvals or authorizations of any Authority required to be obtained
by it or such Affiliates or which may be necessary for the consummation of the
transactions contemplated by this Agreement; and (ii) provide to WCG such
information as WCG may require to assist NTI and NCS to make such filings as may
be required for the consummation of the transactions contemplated by this
Agreement.
(b) Except as set forth in Schedule 5.1(b) attached hereto or
with the other party's consent not to be unreasonably withheld, NTI, NCS and
their respective
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Affiliates from and after the date of this Agreement shall not and shall not
permit NCS or an Affiliate of NTI or NCS to do or agree to do, any of the
following in respect of the NCS Business:
(i) Transfer, sell, assign or otherwise dispose of
any material assets other than in the ordinary course of its
business;
(ii) Create, incur, assume or suffer to exist upon
any assets of the NCS Business any Liens arising through any
act or omission of NTI, NCS or any Affiliate of NCS except
Liens securing indebtedness disclosed herein or Permitted
Encumbrances;
(iii) Create, incur, assume or suffer to exist any
indebtedness, liability or obligation in excess of One Hundred
Thousand Dollars ($100,000) except current liabilities (other
than for borrowed money) incurred in the ordinary course of
business;
(iv) Assume, guarantee, endorse or become liable on,
or agree to repurchase the obligation of any Person, firm or
corporation, except for the endorsement of negotiable
instruments for deposit or collection in the ordinary course
of business;
(v) Merge or consolidate with or into any Person
(other than Newco);
(vi) Declare or pay any dividend of any kind (except
as otherwise specifically contemplated hereby), or make any
other distribution in respect of, or purchase, redeem or
otherwise acquire, any of its shares;
(vii) Make any loan or advance to, or make any
investment in any Person, whether by acquisition of stock or
indebtedness, by loan, guarantee or otherwise, except for
advances in the ordinary course of business;
(viii) Make any capital expenditure in an amount in
excess of One Hundred Thousand Dollars ($100,000) per item or
One Million Dollars ($1,000,000) in the aggregate with respect
to all capital expenditures;
(ix) Materially change the Employee Benefit Plans
listed (or required to be listed) on Schedule 3.12(e) or
change the compensation payable or to become payable with
respect to the NCS Business to any officer, employee or agent
of NTI or NCS except changes in compensation which occur in
the ordinary course of business and which
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do not involve, in any case, an increase in compensation in
excess of twenty thousand dollars ($20,000) per annum for any
one employee.
(x) Amend its certificate of incorporation or
by-laws;
(xi) Waive any of its rights or Claims having a value
in the aggregate in excess of One Million Dollars
($1,000,000);
(xii) Enter into any transaction having a Relevant
Adverse Effect other than in the ordinary course of business;
(xiii) Except as provided for in Section 3.11, permit
to be canceled or terminated any insurance policy covering the
business, assets, operations or employees of NCS, or permit
any of the coverage thereunder to lapse, unless simultaneously
with such termination, cancellation or lapse replacement
policies providing substantially the same coverage are in full
force and effect;
(xiv) Change in any respect any of its accounting
principles, policies or procedures, except as may be required
by GAAP, in respect of the NCS Business;
(xv) Settle or compromise any suit or Claim or
threatened suit or Claim in each case involving Two Hundred
Thousand Dollars ($200,000) or more not covered by insurance
relating to the NCS Business;
(xvi) Modify, amend or terminate any material
contract or agreement relating to the NCS Business; or waive,
release, relinquish or assign any material contract or
agreement or other right or claim related to the NCS Business;
or cancel or forgive any indebtedness of One Hundred Thousand
Dollars ($100,000) or more owed to NTI or NCS which would be
included in the NCS Assets; or
(xvii) Take any action that could reasonably be
expected to result in any of the conditions to the obligations
of WCG set forth in Article VI not being satisfied or that
would materially impact the ability of NTI to consummate the
transactions contemplated herein in accordance with the terms
hereof or that would materially delay such consummation.
(c) From and after the date of this Agreement until the
Closing, NTI shall and shall cause each of NCS and NTI's or NCS' Affiliates to
do all of the following in respect of the NCS Business:
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(i) Carry on the NCS Business in substantially the
same manner as heretofore conducted and not make any purchase
or sale, or introduce any method of management or operation in
respect of its business or properties, except in a manner
consistent with its prior practice;
(ii) (A) Maintain and preserve its business
organization intact, including, without limiting the
generality of the foregoing, preserving any confidential
information and trade secrets; (B) substantially maintain its
relationships with its suppliers and customers and others
having business relations with it so that they will be
preserved for Newco on and after the Closing; and (C) use its
best reasonable efforts to retain its present employees so
that they will be available to Newco on and after the Closing;
(iii) Do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate
existence and all franchises, rights and privileges necessary
for the conduct of its business, including, without limiting
the generality of the foregoing, all licenses and permits, and
comply with the requirements of all applicable laws and all
rules, regulations and orders of all Authorities having
jurisdiction over it or its properties;
(iv) Pay and discharge, or cause to be paid and
discharged, all lawful taxes, assessments and governmental
charges or levies imposed upon it or upon its income or
property, prior to the date upon which penalties attach
thereto, except any of the foregoing being contested by NTI,
NCS or such Affiliate in good faith;
(v) Promptly notify WCG in writing of any
investigation, action, suit or proceeding commenced against it
before any court or any Authority;
(vi) Maintain its books, accounts and records in the
usual, regular and ordinary manner, on a basis consistent with
prior years;
(vii) Maintain its inventory levels at levels
consistent with the normal and ordinary course of operation as
the NCS Business has been operated prior to the date hereof;
(viii) Promptly notify WCG of the operating results
of the NCS Business and of any extraordinary loss suffered by
the NCS Business; and
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(ix) Refrain from doing any act or omitting to do any
act, or permitting any act or omission to act, which will
cause a material breach of any of NCS' material contracts,
commitments or obligations.
(d) Between the date of this Agreement and the Closing, NTI,
NCS and their Affiliates during ordinary business hours shall (i) give WCG and
its authorized representatives and agents reasonable access to all books,
records, offices and other facilities and properties of NCS relating to the NCS
Business, (ii) permit WCG and its employees and agents to make such inspections
thereof as WCG may reasonably request, and (iii) cause its officers and
authorize NCS' accountants to furnish WCG and its employees and agents with such
financial and operating data and other information with respect to the financial
statements, business and properties of NCS relating to the NCS Business as WCG
may from time to time reasonably request.
V.2 WCG ACTIONS PENDING CLOSING. From the date hereof until the later
of Closing and Effective Time, except as expressly contemplated by this
Agreement or to the extent NTI shall otherwise consent in writing:
(a) WCG shall and shall cause its appropriate Affiliates to,
in a timely, accurate and complete manner (i) make such filings and secure any
consents, approvals or authorizations of any Authority required to be obtained
by it or such Affiliates or which may be necessary for the consummation of the
transactions contemplated by this Agreement; and (ii) provide to NTI such
information as NTI may require to assist WCG to make such filings as may be
required for the consummation of the transactions contemplated by this
Agreement.
(b) Except as set forth in Schedule 5.2(b) attached hereto or
with the other party's consent not to be unreasonably withheld, WCG, WilTel and
their respective Affiliates from and after the date of this Agreement shall not
and shall not permit WilTel or an Affiliate of WCG or WilTel to do or agree to
do, any of the following in respect of the WilTel Business:
(i) Transfer, sell, assign or otherwise dispose of
any material assets other than in the ordinary course of its
business;
(ii) Create, incur, assume or suffer to exist upon
any assets of the WilTel Business any Liens arising through
any act or omission of WilTel or any Affiliate of WilTel
except Liens securing indebtedness disclosed herein or
Permitted Encumbrances;
(iii) Create, incur, assume or suffer to exist any
indebtedness, liability or obligation in excess of One Hundred
Thousand Dollars ($100,000) except current liabilities (other
than for borrowed money) incurred in the ordinary course of
business;
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(iv) Assume, guarantee, endorse or become liable on,
or agree to repurchase the obligation of any Person, firm or
corporation, except for the endorsement of negotiable
instruments for deposit or collection in the ordinary course
of business;
(v) Merge or consolidate with or into any Person
(other than Newco);
(vi) Declare or pay any dividend of any kind (except
as otherwise specifically contemplated hereby), or make any
other distribution in respect of, or purchase, redeem or
otherwise acquire, any of its shares;
(vii) Make any loan or advance to, or make any
investment in any Person, whether by acquisition of stock or
indebtedness, by loan, guarantee or otherwise, except for
advances in the ordinary course of business;
(viii) Make any capital expenditure in an amount in
excess of One Hundred Thousand Dollars ($100,000) per item or
One Million Dollars ($1,000,000) in the aggregate with respect
to all capital expenditures;
(ix) Materially change the Employee Benefit Plans
listed (or required to be listed) on Schedule 4.12(e) or
change the compensation payable or to become payable with
respect to the WilTel Business to any officer, employee or
agent of WilTel or WCG except changes in compensation which
occur in the ordinary course of business and which do not
involve, in any case, an increase in compensation in excess of
twenty thousand dollars ($20,000) per annum for any one
employee.
(x) Amend its certificate of incorporation or
by-laws;
(xi) Waive any of its rights or Claims having a value
in the aggregate in excess of One Million Dollars
($1,000,000);
(xii) Enter into any transaction having a Relevant
Adverse Effect, other than in the ordinary course of business;
(xiii) Permit to be canceled or terminated any
insurance policy covering the business, assets, operations or
employees of WilTel, or permit any of the coverage thereunder
to lapse, unless simultaneously with such termination,
cancellation or lapse replacement policies providing
substantially the same coverage are in full force and effect;
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(xiv) Change in any respect any of its accounting
principles, policies or procedures, except as may be required
by GAAP, in respect of the WilTel Business;
(xv) Settle or compromise any suit or Claim or
threatened suit or Claim in each case involving Two Hundred
Thousand Dollars ($200,000) or more not covered by insurance
relating to the WilTel Business;
(xvi) Modify, amend or terminate any material
contract or agreement relating to the WilTel Business; or
waive, release, relinquish or assign any material contract or
agreement or other right or claim related to the WilTel
Business; or cancel or forgive any indebtedness of One Hundred
Thousand Dollars ($100,000) or more owed to WilTel which would
be included in the WilTel Assets; or
(xvii) Take any action that could reasonably be
expected to result in any of the conditions to the obligations
of NTI set forth in Article VI not being satisfied or that
would materially impact the ability of WCG to consummate the
transactions contemplated herein in accordance with the terms
hereof or that would materially delay such consummation.
(c) From and after the date of this Agreement until the
Closing, WCG shall and shall cause each of WilTel and WCG's and WilTel's
Affiliates to do all of the following in respect of the WilTel Business:
(i) Carry on the WilTel Business in substantially the
same manner as heretofore conducted and not make any purchase
or sale, or introduce any method of management or operation in
respect of its business or properties, except in a manner
consistent with its prior practice;
(ii) (A) Maintain and preserve its business
organization intact, including, without limiting the
generality of the foregoing, preserving any confidential
information and trade secrets; (B) substantially maintain its
relationships with its suppliers and customers and others
having business relations with it so that they will be
preserved for Newco on and after the Closing; and (C) use its
best reasonable efforts to retain its present employees so
that they will be available to Newco on and after the Closing;
(iii) Do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate
existence and all franchises, rights and privileges necessary
for the conduct of its business, including, without limiting
the generality of the foregoing, all licenses and permits,
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and comply with the requirements of all applicable laws and
all rules, regulations and orders of all Authorities having
jurisdiction over it or its properties;
(iv) Pay and discharge, or cause to be paid and
discharged, all lawful taxes, assessments and governmental
charges or levies imposed upon it or upon its income or
property, prior to the date upon which penalties attach
thereto, except any of the foregoing being contested by WilTel
in good faith;
(v) Promptly notify NTI in writing of any
investigation, action, suit or proceeding commenced against it
before any court or any Authority;
(vi) Maintain its books, accounts and records in the
usual, regular and ordinary manner, on a basis consistent with
prior years;
(vii) Maintain its inventory levels at levels
consistent with the normal and ordinary course of operation as
the WilTel Business has been operated prior to the date
hereof;
(viii) Promptly notify NTI of the operating results
of the WilTel Business and of any extraordinary loss suffered
by WilTel; and
(ix) Refrain from doing any act or omitting to do any
act, or permitting any act or omission to act, which will
cause a material breach of any of WilTel's material contracts,
commitments or obligations.
(d) Between the date of this Agreement and the Closing, WCG
and WilTel during ordinary business hours shall (i) give NTI and its authorized
representatives and the agents reasonable access to all books, records, offices
and other facilities and properties of WilTel relating to the WilTel Business,
(ii) permit NTI and its employees and agents to make such inspections thereof as
NTI may reasonably request, and (iii) cause its officers and authorize WilTel's
accountants to furnish NTI and its employees and agents with such financial and
operating data and other information with respect to the financial statements,
business and properties of WilTel relating to the WilTel Business as NTI may
from time to time reasonably request.
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ARTICLE VI
CONDITIONS TO CLOSING
6.1 CONDITIONS TO OBLIGATION OF THE PARTIES The obligations of the
Parties to effect the Closing shall be subject to the following conditions
unless waived in writing by all Parties:
(a) Formation of LLC. The Certificate of Formation shall have
been filed with the Secretary of State of Delaware and all other acts necessary
to form Newco shall have been taken.
(b) Approvals and Consents. Any required consents, approvals
or authorizations of any Authority to the transfer or change in control
contemplated by this Agreement shall have been obtained.
(c) No Litigation. No Proceeding shall have been initiated by
any Authority or third party seeking to enjoin or otherwise restrain the
consummation of the transactions contemplated by this Agreement.
(d) TTS Agreement. The Parties shall have caused Newco to
execute and deliver the TTS Agreement, and the transactions contemplated thereby
shall have been consummated.
(e) Section 2.7 Transactions. NCS shall have executed and
delivered the Bill of Sale and the assignment covering the Transferred
Receivables; Newco shall have made and delivered the Accounts Receivable Note to
NCS and paid to NCS the cash (contributed by WilTel) provided for in Section
2.7; and NCS shall have delivered the Accounts Receivable Note and cash to NTI.
6.2 CONDITIONS TO OBLIGATION OF WCG. The obligation of WCG to
consummate the transactions contemplated hereby is subject to the satisfaction
on or prior to the date of the Closing of the following conditions, any one or
more of which may be waived in writing, in whole or in part, by WCG:
(a) Representations, Warranties and Covenants. NTI shall have
performed, satisfied, and complied with, in all material respects, all covenants
and agreements required by this Agreement to be performed, satisfied, or
complied with by it on or before the date of the Closing. All representations
and warranties of NTI contained in this Agreement or in any certificate,
document, instrument or writing delivered to WCG by or on behalf of NTI under
this Agreement shall be true and correct, in all material respects, on the date
of this Agreement and (except with respect to Section 3.15(h) and the second
sentence of Section 3.16) as of the date of the Closing with the same force and
effect as though they had been made on such date and NTI shall have delivered a
certificate to the foregoing effect.
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(b) No Material Adverse Change. From the date of this
Agreement to and including the Closing Date, there shall not have occurred any
Material Adverse Change in or with respect to the NCS Business or the NCS
Assets, whether or not disclosed in any supplement or amendment to the schedules
to this Agreement.
(c) Good Standing. NTI shall have delivered to WCG
certificates issued by appropriate Authorities evidencing the good standing and
existence of each of NTI and NCS, as of a date not more than ten calendar days
prior to the date of Closing, in the states in which it was organized or
qualified to do business as a foreign corporation.
(d) Consents of Third Persons. All consents from Persons that
are listed and identified in Schedule 3.3(a) attached hereto shall have been
obtained by NCS including by lapse of a contractual or statutory waiting period
and copies thereof shall have been delivered to WCG.
(e) Delivery of Other Agreements. NTI shall have executed and
delivered to Newco the other agreements contemplated by this Agreement.
(f) Review of Certain Contracts. NTI shall have made available
for review by WCG the contracts identified on Schedule 3.5(a) and Schedule
3.5(b).
(g) Merger of NCS into Newco. NCS shall have signed and
delivered to WCG the Certificate of Merger which upon filing with the Secretary
of State of Delaware will cause NCS to merge with and into Newco.
(h) LLC Agreement. NTI shall have executed and delivered to
WCG the LLC Agreement.
(i) TTS Agreement. NTL and TTS shall have executed and
delivered the TTS Agreement.
(j) BA Meridian. NTI shall have delivered evidence
satisfactory to WCG of the completion of the acquisition by NCS of the interest
of Bell Atlanticom Systems, Inc. in BA Meridian and a copy of the definitive
agreements related thereto.
(k) Secretary's Certificate. NCS shall have delivered to WCG a
certificate dated the Effective Date executed by the secretary or assistant
secretary of NCS certifying that attached thereto is: (1) a true, correct and
complete copy of the certificate of incorporation of NCS certified by the
Secretary of State of Delaware and all amendments thereto; and (2) a true,
correct and complete copy of the by-laws of NCS, and all amendments thereto. NTI
shall have delivered to WCG a certificate dated the Effective Date executed by
the secretary or assistant secretary of NTI certifying the name and title of,
and bearing the signature of, each officer of NTI individually
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authorized to execute and deliver this Agreement and the other agreements,
documents and instruments contemplated hereby.
(l) Resolutions. NTI shall have delivered to WCG certified
resolutions of the respective Boards of Directors of NTI and NCS approving the
consummation of the transactions contemplated hereby.
(m) NTI Retained Liabilities. NTI (or an Affiliate of NTI
reasonably acceptable to WCG) shall have assumed and agreed to pay, perform and
discharge the NTI Retained Liabilities pursuant to an assumption agreement in
form and substance satisfactory to WCG.
(n) Non-Competition Agreement. NTL shall have executed and
delivered the Non-Competition Agreement.
6.3 CONDITIONS TO OBLIGATION OF NTI. The obligation of NTI to
consummate the transactions contemplated hereby is subject to the satisfaction
on or prior to the date of the Closing of the following conditions, any one or
more of which may be waived in writing, in whole or in part, by NTI:
(a) Representations, Warranties and Covenants. WCG shall have
performed, satisfied, and complied with, in all material respects, all covenants
and agreements required by this Agreement to be performed, satisfied, or
complied with by it on or before the date of the Closing. All representations
and warranties of WCG contained in this Agreement or in any certificate,
document, instrument or writing delivered to NTI by or on behalf of WCG under
this Agreement shall be true and correct, in all material respects, on the date
of this Agreement and (except with respect to Section 4.15(h) and the second
sentence of Section 4.16) as of the date of the Closing with the same force and
effect as though they had been made on such date and NTI shall have delivered a
certificate to the foregoing effect.
(b) No Material Adverse Change. From the date of this
Agreement to and including the Closing Date, there shall not have occurred any
Material Adverse Change in or with respect to the WilTel Business or the WilTel
Assets, whether or not disclosed in any supplement or amendment to the schedules
to this Agreement.
(c) Good Standing. WCG shall have delivered to NTI
certificates issued by appropriate Authorities evidencing the good standing and
existence of each of WCG and WilTel, as of a date not more than ten calendar
days prior to the date of Closing, in the states in which it was organized or
qualified to do business as a foreign corporation.
(d) Consents of Third Persons. All consents from Persons that
are listed and identified in Schedule 4.3(a) attached hereto shall have been
obtained by
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WCG including by lapse of a contractual or statutory waiting period and copies
thereof shall have been delivered to NTI.
(e) Delivery of Other Agreements. WCG shall have executed and
delivered to Newco the other agreements contemplated by this Agreement.
(f) Review of Certain Contracts. WCG shall have made available
for review by NTI the contracts identified on Schedule 4.5(a) and Schedule
4.5(b).
(g) Merger of WilTel into Newco. WilTel shall have signed and
delivered to NTI the Certificate of Merger which upon filing with the Secretary
of State of Delaware will cause WilTel to merge with and into Newco.
(h) LLC Agreement. WCG shall have executed and delivered to
NTI the LLC Agreement.
(i) Cash Payment. WCG shall have paid to NTI the Cash Payment.
(j) Secretary's Certificate. WCG shall have delivered to NTI a
certificate dated the Effective Date executed by the secretary or assistant
secretary of WilTel certifying that attached thereto is: (1) a true, correct and
complete copy of the certificate of incorporation of WilTel certified by the
Secretary of State of Delaware and all amendments thereto; and (2) a true,
correct and complete copy of the by-laws of WilTel, and all amendments thereto.
WCG shall have delivered to NTI a certificate dated the Effective Date executed
by the secretary or assistant secretary of WCG certifying the name and title of,
and bearing the signature of, each officer of WCG individually authorized to
execute and deliver this Agreement and the other agreements, documents and
instruments contemplated hereby.
(k) Resolutions. WCG shall have delivered to NTI certified
resolutions of the respective Boards of Directors of WCG and WilTel approving
the consummation of the transactions contemplated hereby.
(l) WCG Retained Liabilities. WCG (or an Affiliate of WCG
reasonably acceptable to NTI) shall have assumed and agreed to pay, perform and
discharge the WCG Retained Liabilities pursuant to an assumption agreement in
form and substance satisfactory to NTI.
(m) Non-Competition Agreement. Williams shall have executed
and delivered the Non-Competition Agreement.
(n) Insurance. WCG shall have provided evidence that the
insurance policies set forth on Schedule 4.11 have been amended to include
Newco.
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(o) Parent Guaranty. WCG shall have delivered a guaranty by
Williams Holdings of Delaware, Inc., of WCG's performance of all financial
obligations under this Agreement and the LLC Agreement and 70% of Newco's
obligations under the Accounts Receivable Note, substantially in the form of
Exhibit I hereof.
6.4 CLOSING MEMORANDUM. Promptly following execution and delivery
hereof, the parties shall draw up a mutually agreed upon closing memorandum
setting forth the mechanism for completion of the transactions contemplated
hereby.
ARTICLE VII
CLOSING
Unless this Agreement shall have been terminated pursuant to the
provisions of Article XII, the consummation of the transactions provided for in
Article II (other than the formation of Newco) (the "Closing") shall take place
at the offices of The Williams Companies, Inc., One Williams Center, Suite 4100,
Tulsa, Oklahoma 74172 on April 30, 1997 or at such other time as the parties
mutually agree; provided that NCS shall have been able to close its acquisition
of the interest of Bell Atlanticom Systems, Inc. in BA Meridian prior to the
Closing, failing which the Closing shall be rescheduled for a Business Day to be
mutually agreed as soon as possible following the satisfaction of the conditions
set forth in this proviso.
ARTICLE VIII
POST-CLOSING ADJUSTMENT
8.1 TRUE-UP OF SECTION 2.7 TRANSACTIONS. The actual amount of Net
Transferred Receivables and the actual amount due under Section 2.7(b) will be
mutually determined by the Parties within 60 days after the Closing Date. The
principal amount owing under the Accounts Receivable Note will be recomputed
pursuant to the formula in Section 2.7(a), and the Parties shall cause Newco to
issue a replacement Accounts Receivable Note (for the same due date) and NTI
shall cause the original Accounts Receivable Note issued at Closing to be
cancelled. The Cash Payment will also be recomputed based on the formula
provided in Section 2.2 using the principal amount of the replacement Accounts
Receivable Note and the actual amount due under Section 2.7(b) rather than the
estimated amounts (the "Recomputed Cash Payment"). If the Recomputed Cash
Payment is greater than the Cash Payment made at Closing, WCG shall pay NTI the
difference within 90 days from the Closing Date. If the Recomputed Cash Payment
is less than the Cash Payment made at Closing, NTI shall pay WCG the difference
within 90 days from the Closing Date.
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8.2 TAX BENEFIT PAYMENT. Within 90 days after the Closing Date, NTI
shall pay to WCG an amount equal to the present value (discounted at 10%) of the
difference in the tax effect of the deductions allocable for federal income tax
purposes to WCG (the "Tax Effect") under the following two alternative sets of
conditions:
(1) A hypothetical scenario assuming that the Transferred Receivables, and
inventory and fixed assets of NCS went into Newco by operation of law
as a result of the merger of NCS with and into Newco and WCG had paid
an amount of cash to NTI to adjust NTI's ownership percentage to 30%;
and,
(2) The actual transactions as agreed to by the parties.
All amounts used in the calculation of the Tax Benefit Payment shall be based on
net book values or tax basis, as appropriate, at the Closing Date and shall be
made in accordance with the Code and Tax Regulations, including, but not limited
to, section 707 and the regulations thereunder. If any alternatives are allowed
by the Code and regulations, the alternative which will produce the smallest
possible Tax Benefit Payment will be selected.
The tax rate to be applied to the difference in allocable deductions in the
determination of the Tax Effect will be 25% for the first four taxable years (a
"Taxable Year") beginning with the year in which the closing occurs. In the
fifth Taxable Year, the Tax Effect will be the sum of the difference in
allocable deductions for that year multiplied by 40% plus the sum of differences
in allocable deductions for the first four Taxable Years multiplied by 15%. For
the sixth Taxable Year and all subsequent Taxable Years, the Tax Effect will be
the difference in allocable deductions for such year multiplied by forty percent
(40%).
In the event that WCG is able to claim any tax benefits for which it has
received a Tax Benefit Payment from NTI pursuant to this Section 8.2, WCG shall
refund all or a portion of such payment to NTI, including interest at the
federal rate for tax deficiencies. The national public accounting firm which
prepares Newco's federal income tax return shall calculate the payment to be
made by WCG to NTI pursuant to this paragraph, subject to the review of WCG and
NTI.
8.3 TAX EQUALIZATION PAYMENT FOR INTERIM PERIOD EARNINGS. Within 90
days after the Closing Date, WCG will pay to NTI an amount equal to the (i) the
Interim Period Taxable Income of NCS multiplied by 28% minus (ii) the Interim
Period Taxable Income of WilTel multiplied by 10.5%. The "Interim Period Taxable
Income" is the taxable income of NCS or WilTel, as applicable, during the period
between the Effective Date and the Closing Date without giving effect to any
gain or loss relating to the transactions arising from this Agreement. The
purpose of this payment is to true-up the federal and state income taxes each of
the Parties will be required to pay on the Interim Period Taxable Income of NCS
or WilTel, as appropriate, to its allocable
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share of the federal and state income taxes on the combined Interim Period
Taxable Income of NCS and WilTel. The cash payment will be adjusted as necessary
to yield such amount net of any income tax effect it may cause.
8.4 NETTING OF POST-CLOSING ADJUSTMENTS. The Recomputed Cash Payment
under Section 8.1 and the amounts to be paid pursuant to Sections 8.2 and 8.3
will be netted against each other to result in one payment by either NTI or WCG,
as the case may be, to the other Party.
ARTICLE IX
EMPLOYEE MATTERS
9.1 EMPLOYEE TRANSFERS AND PLAN LIABILITIES. Immediately prior to the
Closing: (i) all NCS Employees, and all NTI Employees who support the NCS
Business and are identified on Schedule 9.1(a) (hereinafter referred to as the
"NCS Transferring Employees), all labor contracts of NCS and all of NCS's
liabilities and other obligations (whether actual, contingent, known or unknown)
of any nature whatsoever under or relating to the NCS Employees and such labor
contracts shall be transferred from NCS to Nortel Communications Personnel
Services Inc., a new subsidiary to be created by NTI; (ii) all WilTel Employees
other than those identified on Schedule 9.1(b), all labor contracts of WilTel
and all of WilTel 's liabilities and other obligations (whether actual,
contingent, known or unknown) of any nature whatsoever under or relating to the
WilTel Employees and such labor contracts shall be transferred from WilTel to
WilTel Services, Inc., a new subsidiary to be created by WCG; (iii) NCS shall
transfer its interest in and all of its liabilities and other obligations
(whether actual, contingent, known or unknown) of any nature whatsoever under or
relating to the Employee Benefit Plans listed (or required to be listed) on
Schedule 3.12(e) to Nortel Communications Personnel Services Inc.; (iv) WilTel
shall transfer its interest in and all of its liabilities and other obligations
(whether actual, contingent, known or unknown) of any nature whatsoever under or
relating to the Employee Benefit Plans listed (or required to be listed) on
Schedule 4.12(e) to WilTel Services, Inc. For a period ending on the Employee
Transfer Date, Nortel Communications Personnel Services Inc. and WilTel
Services, Inc. shall provide employee services to Newco pursuant to the terms of
the Employee Services Agreement. Subject to the rights of Nortel Communications
Personnel Services Inc. and WilTel Services, Inc. under the Employee Services
Agreement and the provisions of Section 9.8(c) with respect to individuals
qualifying for long-term disability benefits, upon the expiration of such
contract; (i) all NCS Active Employees still employed by Nortel Communications
Personnel Services Inc., all WilTel Active Employees still employed by WilTel,
Services Inc., and all employees hired by Nortel Communications Personnel
Services Inc. or WilTel Services, Inc. under the service contract who are still
employed, shall be transferred to Newco; (ii) all labor contracts and
multi-employer plan obligations of Nortel Communications Personnel Services Inc.
and all labor contracts and multi-employer plan obligations of WilTel Services,
Inc. shall be transferred to Newco, and
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(iii) Newco shall establish employee benefit plans and programs for the benefit
of its employees provided that the transfer of employees and labor contracts
shall not transfer any NTI Retained Liabilities or any WCG Retained Liabilities
to Newco.
9.2 EMPLOYEE SERVICES AGREEMENT. The Employee Services Agreement,
substantially in the form attached as Exhibit J, among Newco, Nortel
Communications Personnel Services Inc., and WilTel Services, Inc. shall be
executed prior to Closing and shall permit Newco to obtain the services of all
employees of Nortel Communications Personnel Services Inc., of all employees of
WilTel Services, Inc., and of various individuals employed by WCG (or its
Affiliates) or NTI (or its Affiliates). The Employee Services Agreement shall
require Newco to pay Nortel Communications Personnel Services Inc. and WilTel
Services, Inc. for all costs associated with their respective employees during
the period of such contract, including, but not limited to compensation,
employment taxes, employee benefits, workers compensation, employment litigation
and any other litigation related to the services provided under the services
contract; provided that Newco shall not be required to pay either (i) for any
costs associated with the retirement of any employees of Nortel Communications
Personnel Services Inc., WilTel Services, Inc., WCG (or its Affiliates) or NTI
(or its Affiliates) (including, but not limited to, retiree medical, life,
long-term care or pension costs), or (ii) for any costs associated with the
fringe benefits described on Schedule 9.2 to the extent such costs exceed the
fringe benefit reimbursement rates set forth on such Schedule 9.2. Newco shall
be required to pay WCG and NTI for the services of any of their employees under
the terms of the Employee Services Agreement. Newco shall also be required to
indemnify Nortel Communications Personnel Services Inc., WilTel Services, Inc.,
WCG (or its Affiliates) and NTI (or its Affiliates) for any and all Claims and
liabilities (including any legal fees and costs incurred by them) arising out of
the employment of the employees of Nortel Communications Personnel Services Inc.
and WilTel Services, Inc. during the period following the Closing to the
Employee Transfer Date and arising out of the services agreement described in
this Section 9.2; provided that Newco shall not be required to provide
indemnification for any Claims or liabilities associated either (i) with the
retirement of any employees of Nortel Communications Personnel Services Inc.,
WilTel Services, Inc., WCG or NTI, or (ii) with the fringe benefits described on
Schedule 9.2. Subject to the limitations set forth in the preceding sentence,
such Claims and liabilities shall include, but not be limited to, all costs
associated with the employment of such employees during the period
(compensation, incentives, benefits, perquisites), the termination of employment
of any such employees (including severance benefits), and claims by such
employees for employment-related liabilities (including worker's compensation,
wrongful terminations, discrimination, etc.). Such Claims and liabilities for
which Newco shall provide indemnification shall also include Claims by Newco or
by third parties related to the services provided by the employees to Newco or
its clients pursuant to the Employee Services Agreement described in this
Section 9.2.
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During the term of the Employee Services Agreement, Nortel Communications
Personnel Services Inc. and WilTel Services, Inc. shall permit all of their
respective employees to participate in employee benefit plans, compensation
programs, and personnel policies which are substantially similar to those in
effect for their respective employees at the Closing.
9.3 REPORTING OF DATA. Each of NTI, WCG and Newco shall complete and
furnish to each other such employee and employee related data as shall be
reasonably required from time to time for each Party to perform and fulfill its
obligations under this Agreement, under the Employee Services Agreement, and
under applicable law.
9.4 EMPLOYMENT RELATED CLAIMS. Subject to Section 9.3, Newco shall be
solely responsible for all liability, costs and expenses (including attorneys'
fees) for all employment Claims relating to arbitrations, unfair labor practices
and Claims, employment discrimination charges, wrongful termination Claims,
workers' compensation Claims, any employment-related tort Claim or other Claims
or charges of or by any employee of Newco arising out of acts, conditions or
omissions occurring on or after such employee's date of employment by Newco.
9.5 BONUS PAYMENTS. The Parties acknowledge that the incentive bonus
programs utilized by each involves the determination and payment of cash bonuses
in the early part of each year, which rewards services rendered in the preceding
calendar year. Each of NTI and WCG agree and acknowledge that, all employees of
NTI, NCS and WilTel who are transferred to Nortel Communications Personnel
Services Inc., or WilTel Services, Inc. ("Transferred Employees") and who are
eligible to receive a bonus should continue to be eligible to receive a bonus
relative to services rendered to NTI, NCS or WilTel as the case may be, on or
prior to the Closing Date in accordance with the terms and conditions of a bonus
plan to be adopted by Newco. On and after the Employee Transfer Date, Nortel
Communications Personnel Services Inc. and WilTel Services, Inc. will have no
continuing obligation or responsibility for the payment of any compensation to
employees transferring to Newco, (including any annual management bonuses
payable in 1998 for performance at any time during 1997.) Newco shall be solely
responsible for such payment in accordance with the terms and conditions of a
bonus plan to be adopted by Newco.
9.6 HIRING RESTRICTIONS.
(a) Subject to subsection 9.6(b), NTI and its Affiliates
will not hire Newco employees for a period of one (1) year from Closing.
(b) Attached as Schedule 9.6(b) is a list of current NCS
employees, who at such employee's option, will have the right to rejoin NTI or
an NTI Affiliate within two (2) years from Closing without loss of seniority and
with compensation for lost benefits credit to be paid by NTI; provided, however
that such employees will remain
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with Newco for a minimum 18-month transition period or until released by Newco,
if earlier.
(c) For a period of two (2) years from Closing, WCG and its
Affiliates will not hire any of Newco's officers and director-level employees,
except for those employees listed on the attached Schedule 9.6(c).
9.7 WARN NOTICES. Each Party acknowledges that it is solely responsible
for issuing, serving and delivering all orders and notices required pursuant to
the Worker Adjustment and Retraining Notification Act ("WARN") in connection
with the termination of its employees, if any, and for any financial obligations
and liabilities in connection therewith or otherwise required in connection with
the termination of its employees.
9.8 BENEFIT ISSUES. Each of Nortel Communications Personnel Services
Inc. and WilTel Services, Inc. will be responsible for the provision of benefits
to NCS Transferring Employees and WilTel Transferring Employees (as identified
in Section 9.1 hereof), as the case may be, in respect of periods prior to the
Closing Date. Benefits will be provided to such Transferring Employees and to
other employees of Nortel Communications Personnel Services Inc. and WilTel
Services, Inc. after the Closing Date in accordance with the provision of
Section 9.1 and this Section 9.8.
(a) General. The participation of such employees in
employee benefit plans maintained by NTI and WCG will
terminate no later than the Employee Transfer Date.
(b) Qualified Retirement Plans. The benefits such
employees earn pursuant to the Code Section 401(a) qualified
retirement Plans maintained by Nortel Communications Personnel
Services Inc. and WilTel Services, Inc. (including
union-negotiated plans) will be paid in accordance with the
terms of such plans.
Distribution of benefits from such plans shall be made in the
form and at the time determined under the provisions of such
plans.
(c) Leaves of Absence. Employees on short-term
disability, long-term disability or any other leave of absence
status, who are able to return to work after the Employee
Transfer Date, will have their reemployment rights determined
by Newco. Any person who qualifies for long-term disability
benefits on or before the Employee Transfer Date under either
the employee benefit plans of NTI or WCG shall not be
transferred to Newco and shall be entitled to receive the
disability and other benefits, if any, provided by the
employee benefit plans covering such person prior to the
Employee Transfer Date. All employees of
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Nortel Communications Personnel Services Inc., and all
employees of WilTel Services, Inc. who are on short-term
disability or other leave of absence status (other than
long-term disability) shall be transferred to Newco on the
Employee Transfer Date and Nortel Communications Personnel
Services Inc., and WilTel Services, Inc. shall cease providing
benefits to all such employees on the Employee Transfer Date.
If Newco decides to provide any benefits to employees on
short-term disability or other leave of absence status (other
than long-term disability) after the Employee Transfer Date,
such benefits shall be the responsibility and liability of
Newco.
(d) Time Off. The liability for accrued vacations for
such employees will be transferred to Newco as of the Employee
Transfer Date. At that time, all Newco employees will become
subject to the Newco vacation schedule and the Newco holiday
schedule.
(e) Ancillary. Educational Assistance commenced by
such employees before the Transfer Date will become the
liability of Newco on the Employee Transfer Date.
(f) NCS Negotiated Plans. Effective as of the
Employee Transfer Date, Newco shall have the option to assume
all liability for the Pension Plan for Bargaining Employees of
Northern Telecom Inc. and/or to assume all liability for The
Savings Plan for Bargaining Unit Employees of Northern Telecom
Inc. on such terms as are agreed to by Newco and NTI. If Newco
assumes either plan, it shall continue such plan with respect
to individuals covered thereby on the Employee Transfer Date
as the sponsoring employer pursuant to the terms of such plans
and the collective bargaining agreements pursuant to which
they were established.
(g) WilTel Negotiated Plans. Effective as of the
Employee Transfer Date, Newco shall have the option to assume
all liability for the WilTel Union 401(k) savings plans listed
on Schedule 9.8(g) on such terms as are agreed to by Newco and
WCG. If Newco assumes a plan listed on Schedule 9.8(g), Newco
shall continue such plan with respect to individuals covered
thereby on the Employee Transfer Date as the sponsoring
employer pursuant to the terms of such plans and the
collective bargaining agreements pursuant to which they were
established. Effective as of the Employee Transfer Date, Newco
shall assume all liability for the WilTel multi-employer Plans
which are listed on Schedule 4.12(g) (except for any
withdrawal liabilities that were incurred prior to the
Closing), and Newco shall continue such plans in accordance
with applicable collective bargaining agreements.
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(h) Newco Benefits. The employee benefit plans
maintained by Newco on and after the Employee Transfer Date
with respect to such employees, will recognize the service of
such employees with NTI/NCS/Nortel Communications Personnel
Services Inc. and WCG/WilTel/WilTel Services, Inc. for all
purposes under such plans, with the exception of (i) service
for benefit accrual under any defined benefit plan, or (ii)
eligibility for retiree medical, if any.
Newco benefit plans which contain deductible benefit limits
will provide credit for eligible amounts previously paid
during 1997 as deductibles by employees who were covered by
the Nortel Communications Personnel Services Inc. or WilTel
Services, Inc. benefit plans as of the Employee Transfer Date.
9.9 COMPENSATION. Salary increase programs for Transferring Employees
originally scheduled to occur in 1997 after the Employee Transfer Date will be
implemented as previously scheduled.
9.10 RELOCATION. Nortel Communications Personnel Services Inc. and
WilTel Services, Inc. will complete the relocation of NCS Transferring Employees
and WilTel Transferring Employees whose relocations have commenced prior to the
Closing Date, in accordance with the policies and procedures of the respective
company which initiated the relocation. Nortel Communications Personnel Services
Inc. and WilTel Services, Inc. will consult with Newco during the period between
the Closing Date and the Employee Transfer Date concerning the relocation of any
employees whose relocation has not commenced prior to the Closing Date. The
expense of any such relocation, whether commenced before or after the Closing
Date, shall be reimbursed by Newco.
ARTICLE X
ADDITIONAL AGREEMENTS
10.1 LINE OF CREDIT. NTI and WCG agree to use reasonable efforts to
negotiate mutually acceptable credit agreements in an appropriate amount (or
other standby credit arrangements), which will provide Newco financing for a
period up to twelve months following the Effective Date. Nothing herein shall be
construed as to require NTI or any of its Affiliates, or WCG or any of its
Affiliates, to provide credit support of any kind to Newco.
10.2 NETWORK SERVICES AGREEMENT. For so long as an Affiliate of
Williams is a member of Newco, Newco will use WCG, or a WCG Affiliate, as
Newco's vendor-of-choice for telecommunications network services (subject,
however, to Newco's reasonable requirements for network and vendor diversity),
provided that WCG offers
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such services necessary or desirable to the operation by Newco of its network
(i) that are substantially equivalent, in quality, performance and scope, to
those offered by other providers of such services, and (ii) at prices and on
terms at least as favorable as those offered by other providers of such
services.
10.3 DELIVERY OF CORPORATE DOCUMENTS. Each of NTI and WCG shall deliver
to Newco, on or before the Closing Date, all Records, including computer disks
reflecting any books or records, documents or other papers, or other information
or data relating to the operation of the NCS Business or the NCS Assets or the
WilTel Business or the WilTel Assets, respectively, stored on any electronic
media, including computers. NTI and WCG shall be entitled to retain the
historical books and records relating to the NCS Business and WilTel Business,
respectively, to the extent the books and records are not necessary for the
ongoing operations of the NCS Business and WilTel Business by Newco. NTI and WCG
shall provide to Newco copies of all personnel and employee benefit files with
respect to any Transferred Employees of such companies. Each of NTI and WCG
agrees that Newco and its authorized representatives shall have the right to
inspect and, at Newco's expense, copy, at any time during regular business hours
for any proper purpose, the corporate, accounting, auditing and tax books,
records (including work papers) and other books and records but only so far as
they relate to NCS, the NCS Business, the NCS Assets or the NCS Transferred
Employees in the possession of NTI or its Affiliates, and as they relate to
WilTel, the WilTel Business, the WilTel Assets or the WilTel Transferred
Employees in the possession of WCG or its Affiliates. For a period of seven
years following the Effective Date, NTI and WCG agree that they will not dispose
of or destroy any such books and records without having first offered to deliver
the same to Newco.
10.4 ACCESS TO INFORMATION. Each Party covenants and agrees to cause
Newco to provide full and complete cooperation and assistance to each of the
Parties and its Affiliates following the Closing and to provide full and
complete access to the corporate, accounting, auditing and tax books, records
(including work papers) and other books and records relating to Newco, and to
Newco's premises and employees, to the extent that such Party or Parties
reasonably require such information to complete tax returns, to verify the
Product Mix as defined in the LLC Agreement, to investigate, enforce or defend
against Claims for indemnification pursuant to Article XI or third party Claims
against any such Party or Parties, or for similar purposes. For a period of
seven years following the Effective Date, each of NTI and WCG agree to cooperate
to cause Newco not to dispose of or destroy any such books and records without
having first offered to deliver the same to NTI and WCG, respectively.
10.5 NONDISCLOSURE OF PROPRIETARY INFORMATION.
(a) Each of NTI and WCG agrees that, for a period beginning on
the Closing Date and ending on the second anniversary date of the disposition by
NTI or WCG, respectively (or, to the extent such interest has been transferred
to an Affiliate
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of such Party as permitted by the LLC Agreement, by such Affiliate), of its
interest in Newco to a Person that is not a wholly owned subsidiary of such
Party's Parent, it and its Affiliates will apply the same standards and treat
(i) Newco's confidential or proprietary information and (ii) the terms and
conditions of this Agreement and the other agreements required pursuant hereto
as it does its Affiliates' confidential or proprietary information with respect
to maintaining the confidentiality thereof. Notwithstanding the foregoing, each
Party and its Affiliates may disclose information that (A) is required to be
disclosed by applicable state or federal tax or securities laws to the extent,
and only to the extent, the laws require the disclosure and such Party provides
Newco prior written notice of its intent to provide the disclosure and the
general text of the disclosure, and the disclosure is consented to by Newco,
which consent shall not be unreasonably withheld, or (B) is required to be
disclosed by a court or administrative body of competent jurisdiction; provided
that, if a Party or its Affiliates are served or threatened with litigation that
would require such Party or its Affiliate to disclose the information, such
Party or the Affiliate shall tender to Newco the opportunity to defend, at its
cost, against the disclosure.
(b) Each Party acknowledges that all documents and objects
containing or reflecting any NCS Owned Intellectual Property and Software or
WilTel Owned Intellectual Property and Software, whether developed by such Party
or by someone else for it or any of its Affiliates, will become the exclusive
property of Newco after the Effective Time and will be delivered to Newco. Newco
will not share such NCS Owned Intellectual Property and Software or WilTel Owned
Intellectual Property and Software with NTI, WCG or any of their Affiliates
unless sold or licensed in an arms length transaction, provided, however, that
any software effectively available to any Affiliate as of February 28, 1997,
will continue to be available at the existing terms and conditions.
10.6 ADMINISTRATIVE SERVICES. Each of NTI and WCG agrees that it, or
its respective Affiliates, will make available to Newco, for a period of twelve
months following the Effective Date, certain administrative services including,
advertising, public relations, and accounting, at such Party's cost (including a
reasonable overhead allocation), not to exceed the amounts charged to NCS or
WilTel, respectively, during 1996 as reflected in the NCS Financial Statements
or the WilTel Financial Statements, as the case may be, and subject to the
provision that such administrative services, as a whole, shall be generally
rendered on a basis not less favorable to Newco than on a competitive basis and
on arm's-length conditions for services of the same or better quality. The terms
and conditions under which such services shall be made available and provided to
Newco will be set forth in Administrative Services Agreements, in substantially
the forms attached hereto as Exhibits K and L. In no event will either Party be
obligated to provide any services to Newco that are not currently being provided
to such Party by its Parent or its Affiliates.
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10.7 FURTHER ASSURANCES BY THE PARTIES. Each of the Parties to this
Agreement, at any time or times, on and after the Closing Date, shall, without
further consideration, execute, acknowledge and deliver any further bills of
sales, assignments, conveyances and other assurances, documents and instruments
of transfer reasonably requested by Newco, and shall take any other action
consistent with the terms of this Agreement that may be reasonably requested by
Newco, (i) for the purpose of assigning, transferring, granting, conveying,
vesting, confirming to and merging with Newco, as the case may be, or reducing
to its possession, any or all of the NCS Assets, the WilTel Assets and (ii) for
effectuating the transfer of operational control of the NCS Business and the
WilTel Business, and (iii) for the purpose of enabling Newco to comply with,
defend against, or contest any claim of violation of any contract, federal,
state or municipal law, ordinance, directive, order, regulation or requirement.
Each of the Parties shall, after the Closing, also furnish Newco with such
information and documents in such Party's possession or under such Party's
control or which any of the Parties can execute or cause to be executed, as will
enable Newco to prosecute any and all pending Claims, applications and the like
which may be assigned hereunder.
10.8 THIRD PARTY CONSENTS. Each of NTI and WCG shall use its reasonable
efforts to obtain the consents of third parties as are necessary for the
assignment and/or merger of NCS Assets and the merger of WilTel, respectively.
To the extent that any of NCS Assets are not assignable by the terms thereof or
consents to the assignment thereof cannot be obtained and the respective
condition to Closing has been waived by WCG, such assets shall be held by NTI in
trust for Newco and shall be performed by Newco in the name of NTI and all
benefits and obligations derived thereunder shall be for the account of Newco,
and, to the extent that any of the WilTel Assets are not assignable by merger by
the terms thereof or consents to the merger cannot be obtained and the
respective condition to closing has been waived by NTI, such assets shall be
held by WCG or the respective WCG Subsidiary, as the case may be, in trust for
Newco and shall be performed by Newco in the name of WCG, or such WCG
Subsidiary, and all benefits and obligations derived thereunder shall be for the
account of Newco; provided that where entitlement of Newco to those NCS Assets
or WilTel Assets is not recognized by any third party, NTI or WCG, or the WCG
Subsidiaries, as the case may be, shall, at the request of Newco, enforce in a
reasonable manner, for the account of Newco, any and all rights of NTI or WCG,
or the WCG Subsidiaries, as the case may be, against the third party. All
reasonable costs and expenses incurred by NTI or WCG, or the WCG Subsidiaries
or, with respect to the performance or enforcement of the above-described NCS
Assets and WilTel Assets, respectively, shall be paid or reimbursed by Newco.
10.9 INTELLECTUAL PROPERTY LICENSE AGREEMENT. NTI or its Affiliates
shall allow Newco to use the tradenames Nortel and Nortel Design? and related
logos and designs to facilitate the orderly change of signs, stationery and
promotional material used in connection with the NCS Business to those of Newco,
until December 31, 1997, and
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certain other Intellectual Property and Software as provided in the Intellectual
Property License Agreement substantially in the form attached hereto as Exhibit
M.
10.10 TAX MATTERS.
(a) Tax Returns and Payment of Taxes. NTI and WCG will prepare
and file, or cause to be prepared and filed, on a timely basis, all Tax Returns
(including any amendments thereto) for their respective Affiliates for any
taxable period ending on or prior to the Closing Date, (any such period being
referred to herein as a "Pre-Closing Period") and will pay all Taxes for their
respective Affiliates for Pre-Closing Periods. As provided in and subject to the
terms of the LLC Agreement, Newco will prepare and file, or will cause to be
prepared and filed, all Tax Returns relating to Newco for all subsequent
periods, and Newco will pay all Taxes for all taxable periods which do not
constitute Pre-Closing Periods. Real property taxes will be allocated among NTI,
WCG and Newco in accordance with Section 164(d) of the Code.
(b) Control of Contest. Each of NTI, WCG and Newco will have
the right, at its own expense, to control any audit or determination by any
taxing authority, to initiate any claim for refund or file any amended Tax
Return, and to contest, resolve and defend against any assessment, notice of
deficiency, or other adjustment or proposed adjustment of Taxes for any taxable
period for which such party (or any of its affiliates) is charged with
responsibility for filing a Tax Return under this Agreement. Newco will promptly
forward to NTI and WCG all written notifications and other written
communications from any Taxing authority received by Newco relating to any
liability for Taxes for any taxable period for which NTI or WCG is charged with
payment responsibility under this Agreement. Newco will assist NTI and WCG to
take any and all actions with respect to any proceedings for any such taxable
period. The failure by Newco to provide any such notice to NTI or WCG within
twenty (20) Business Days of receipt by Newco of such notice will relieve NTI
and WCG from any obligations with respect to the subject matter of any
notification not so forwarded, but only to the extent that such late notice
materially prejudices NTI's or WCG's ability to contest such assessment or Tax.
(c) (i) Access to Information. Newco will provide NTI and WCG,
and NTI and WCG will provide to Newco, with the right, at reasonable times and
upon reasonable notice, to have access to and to copy and use any records or
information and personnel which may be relevant for the taxable period for which
the requesting party is charged with payment responsibility for Taxes under this
Agreement in connection with the preparation of any Tax Returns, any audit or
other examination by any taxing authority, the filing of any claim for a refund
of Tax or for the allowance of any Tax credit, or any judicial or administrative
proceedings relating to liability for Taxes. The party requesting assistance
hereunder will reimburse the other party for reasonable expenses incurred in
providing such assistance. Any information obtained
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pursuant to this Section 10.10 (c)(i) will be treated as confidential
information and will be used solely in connection with the matter for which it
was requested.
(ii) Retention of Records. For a period of seven (7)
years from the Closing Date, Newco will not dispose of or destroy any of the
business records or files of NTI and WCG in existence on the Closing Date
directly relating to Taxes without first offering to turn over possession
thereof to NTI and WCG by written notice to NTI and WCG at least thirty (30)
days prior to the proposed date of such disposition or destruction.
10.11 INSURANCE MATTERS. To the extent that insurance coverage
maintained by either WCG or NTI is available, in excess of any deductible,
retention or full indemnity program, with respect to any Loss suffered by Newco
in respect of an event occurring on or before the Closing or relating to periods
ending on or before such date, at the request of Newco and subject to
reimbursement of costs by Newco, NTI or WCG, as appropriate, shall make a claim
against such insurance and any insurance proceeds from such insurance will be
for the benefit of Newco for any relevant Loss of Newco, up to the amount of
such Loss. Each of the Parties shall have the right to control, at its expense,
subject to consultation with Newco, the defense of third-party Claims in respect
of which such Party expects that insurance coverage under its policies may be
available in respect of all or a portion of such claims (subject to any
applicable deductible under such insurance coverage).
ARTICLE XI
INDEMNIFICATION
11.1 INDEMNITY OBLIGATION.
(a) NTI Indemnification. Subject to the provisions of this
Article XI, NTI shall indemnify and hold harmless WCG, its Party Indemnitees and
Newco against any and all Losses resulting from or arising out of:
(i) any breach of a representation or warranty made
by NTI in this Agreement or any Schedule or Exhibit hereto;
(ii) the breach of any covenant, agreement or
obligation of NTI contained in this Agreement or any Schedule
or Exhibit hereto; and
(iii) the NTI Retained Liabilities.
NTI shall compensate directly WCG for 70% of any Losses resulting from or
arising out of any matter described in subparagraphs (a)(i) of this Section 11.1
and Newco shall be deemed to be compensated thereby and shall have no right of
recovery with respect to any such matters.
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NTI shall compensate directly Newco for any Losses resulting from or arising out
of any matter described in subparagraph (a)(iii) of this Section 11.1 and WCG
shall be deemed to be compensated thereby and shall have no right of recovery
with respect to any such matter.
The total obligation of NTI and NTL taken together to indemnify under this
Section and under Section 11.1(a) of the TTS Agreement, shall in no event
exceed $200,000,000.
(b) WCG Indemnification. Subject to the provisions of this
Article XI, WCG shall indemnify and hold harmless NTI, its Party Indemnitees and
Newco against any and all Losses resulting from or arising out of:
(i) any breach of a representation or warranty made
by WCG in this Agreement or any Schedule or Exhibit hereto;
(ii) the breach of any covenant, agreement or
obligation of WCG contained in this Agreement or any Schedule
or Exhibit hereto; and
(iii) the WCG Retained Liabilities.
WCG shall compensate directly NTI for 30% of any Losses resulting from or
arising out of any matter described in subparagraph (b)(i) of this Section 11.1
and Newco shall be deemed to be compensated thereby and shall have no right of
recovery with respect to any such matters.
WCG shall compensate directly Newco for any Losses resulting from or arising out
of any matter described in subparagraph (b)(iii) of this Section 11.1 and NTI
shall be deemed to be compensated thereby and shall have no right of recovery
with respect to any such matter.
The total obligation of WCG to indemnify under subparagraph 11.1(b)(i) shall in
no event exceed $200,000,000.
(c) The breach of a specific representation, warranty or
agreement by a Party shall be determined whether or not, apart from such
specific representation, warranty or agreement, the transactions provided for in
this Agreement prove to be more favorable to the other Party, and whether or not
the facts and circumstances covered by one or more of the other representations,
warranties or agreements made by such Party prove to be more favorable than so
represented and warranted.
(d) All Claims for indemnification under this Section 11.1
(the party claiming indemnification and the party against whom such Claim for
indemnification is being made are hereinafter referred to as "Indemnified Party"
and the "Indemnifying Party", respectively) shall be reduced by the amount of
any insurance proceeds
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<PAGE> 79
effectively received by or benefiting the Indemnified Party with respect to the
relevant Loss or liability subject, as the case may be, to the application of
Section 10.11.
(e) Except with respect to Claims under subparagraphs (a)(iii)
and (b)(iii) of this Section 11.1, (i) no Claim shall be capable of assertion
under Section 11.1 unless it pertains to a Loss with a monetary value of $50,000
or more, on a matter by matter basis (whereby a series of connected Losses that
are substantially identical in nature and that have arisen out of substantially
identical events, circumstances or conditions shall be deemed to constitute one
Loss); and (ii) a Party (including its Party Indemnitees) shall only be entitled
to indemnification under this Section 11.1 to the extent that the total amount
of Losses suffered by it, its Party Indemnitees or Newco as a result of
misrepresentation or breach by the other Party, exceed a deductible of
$1,000,000 (such deductible being hereinafter referred to as the " General
Deductible").
(f) Newco shall be entitled to indemnification under this
Section 11.1 with respect to Litigation Claims against a Party only to the
extent that the total amount of Losses suffered by Newco arising out of
Litigation Claims against such Party exceed a deductible of 2,000,000 (such
deductible being hereinafter referred to as such Party's "Litigation
Deductible").
11.2 PROCEDURE. All Claims for indemnification by a Person under this
Article XI shall be asserted and resolved as follows:
(a) Whenever any Claim, Litigation Claim or oral demand for
which an Indemnifying Party would be liable to an Indemnified Party hereunder
(which shall be deemed to include any Claim or Litigation Claim which falls
within, and exhausts any part of such Party's Deductible) is asserted against or
sought to be collected from such Indemnified Party by a third party, such
Indemnified Party shall, within 30 days of the receipt thereof, give notice (a
"Claim Notice") to the Indemnifying Party of such Claim, Litigation Claim or
oral demand, specifying the nature of and specific basis for such Claim,
Litigation Claim or oral demand and the amount or the estimated amount thereof
to the extent then feasible, which estimate shall not be binding upon the
Indemnified Party in its effort to collect indemnification hereunder in respect
of such Claim, Litigation Claim or oral demand. To the extent the Indemnifying
Party is prejudiced thereby, the failure to so notify the Indemnifying Party of
any such Claims or oral demands shall relieve the Indemnifying Party from
liability that it may have to the Indemnified Party under the indemnification
provisions contained in this Article XI, but only to the extent of the Loss
directly attributable to such failure to notify, and shall not relieve the
Indemnifying Party from any liability that it may have to the Indemnified Party
otherwise than under this Article XI. The Indemnifying Party shall, within 20
days of the receipt of a Claim Notice, notify the Indemnified Party as to
whether it accepts, in whole or in part, its indemnity obligation under Section
11.1(a) or (b) (subject, as the case may be, to the Indemnified Party's General
or Litigation
70
<PAGE> 80
Deductible), in which case, the Indemnifying Party shall assume and thereafter
conduct the defense thereof; provided that the Indemnified Party shall be
entitled to participate in the defense thereof at its own expense. If the
Indemnifying Party disputes liability under this Section 11.1(a) or (b), as the
case may be, or otherwise fails to defend within a reasonable time after notice,
the Indemnified Party will have the right to undertake the defense, at the risk
of the Indemnifying Party and subject, as the case may be, to the Indemnified
Party's right to claim indemnification from the Indemnifying Party for the cost
of defense. The consent to the entry of any judgment or settlement of any claim
hereunder by the Indemnifying Party may only be made upon the prior approval by
the Indemnified Party, which approval shall not be unreasonably withheld, unless
the judgment or proposed settlement involves only the payment of money damages
(which would be paid by the Indemnifying Party) with a full release of the
Indemnified Party, and does not impose any injunction, conditions, or other
equitable relief on the Indemnified Party in which case consent is not required.
(b) If requested by the Indemnifying Party, the Indemnified
Party agrees to cooperate with the Indemnifying Party and its counsel in
contesting any Claim, Litigation Claim or oral demand that the Indemnifying
Party elects to contest, or, if appropriate and related to the Claim, Litigation
Claim or oral demand in question, in making any counterclaim against the Person
asserting the third party Claim, Litigation Claim or oral demand, or any
cross-complaint against any Person other than an Affiliate of the Indemnified
Party. The Indemnifying Party shall reimburse such Indemnified Party for
reasonable out-of-pocket expenses incurred by the Indemnified Party in such
cooperation.
(c) If any Indemnified Party should have a claim against the
Indemnifying Party hereunder that does not involve a Claim, Litigation Claim or
oral demand being asserted against or sought to be collected from it by a third
party, the Indemnified Party shall send a Claim Notice with respect to such
claim to the Indemnifying Party. Subject always to application of the relevant
General or Litigation Deductible, reimbursement of any Losses incurred by the
Indemnified Party pursuant to this Article XI shall be made within 30 days after
documentation is sent to the Indemnifying Party by the Indemnified Party. If the
Indemnifying Party disputes such claim, such dispute shall be resolved in the
manner set forth in Article XIV hereof.
11.3 FAILURE TO PAY INDEMNIFICATION. If and to the extent the
Indemnified Party shall make written demand upon the Indemnifying Party for
indemnification pursuant to this Article XI, and the Indemnifying Party shall
refuse to accept its indemnity obligations under Section 11.1 (subject always to
applicable General or Litigation Deductibles) or otherwise fail to pay in full
within the period specified herein the amounts demanded pursuant hereto and in
accordance herewith, then the Indemnified Party may utilize any legal or
equitable remedy to collect from the Indemnifying Party the amount of its
damages to the extent covered by such indemnities plus all costs, including
reasonable attorneys' fees incurred in connection with such collection
71
<PAGE> 81
efforts. Nothing contained herein is intended to limit or constrain the
Indemnified Party's rights against the Indemnifying Party for indemnity, the
remedies herein being cumulative and in addition to all other rights and
remedies of the Indemnified Party.
11.4 SURVIVAL OF OBLIGATIONS. Except as otherwise expressly provided
for in the following sentence, the representations, warranties, covenants,
agreements and undertakings of NTI and WCG contained in this Agreement shall be
deemed remade at and shall survive the Closing until the expiration of
eighteen (18) months following the Closing. The representation and warranties,
convenants, agreements and undertakings of NTI and WCG: (i) contained in
Sections 3.4 and 4.4 hereof (the "Title Representations") shall survive the
Closing until the fourth (4th) anniversary thereof and will thereupon expire
together with any right of indemnification with respect to breaches of the Title
Representations, (ii) contained in Sections 3.10 and 4.10 hereof (the
"Environmental Representations") shall survive the Closing until the Second
(2nd) anniversary thereof and will thereupon expire together with any right of
indemnification with respect to breaches of the Environmental Representations,
(iii) contained in Sections 3.7, 3.12, 4.7, 4.12, the last paragraph of 8.2, and
Article IX hereof (the "Employment and Tax Representations and Covenants") shall
survive the Closing for a period ending ninety (90) days after the expiration of
the applicable statute of limitation, as the same may be extended from time to
time, and thereupon expire together with any right of indemnification with
respect to Employment and Tax Representations and Covenants; and (iv) contained
in Sections 2.5 and 10.11 shall survive the Closing until the third (3rd)
anniversary thereof and will thereupon expire together with any right of
indemnification with respect thereto; provided that, if a Claim or oral demand
for indemnification (including, without limitation, any notice of any Litigation
Claim) has been made or given within the applicable survival period and has not
been resolved as of the expiration of such period, such Claim (and, if the claim
results from a breach of a representation, warranty, covenant, agreement or
undertaking, such representation, warranty, covenant, agreement or undertaking)
shall survive until the final resolution of such Claim.
11.5 EXCLUSIVE REMEDY. With respect to all Losses indemnified under
this Article XI, the indemnities provided herein shall be deemed the sole and
exclusive remedies available to the Members, their respective parents and
Affiliates, and to Newco.
ARTICLE XII
TERMINATION
12.1 EFFORTS TO SATISFY CONDITIONS. WCG and NTI shall agree to use
their reasonable efforts to bring about the satisfaction of the conditions
specified in Article VI hereof.
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<PAGE> 82
12.2 TERMINATION. The obligations to close the transactions
contemplated by this Agreement may be terminated by:
(a) mutual agreement of WCG and NTI;
(b) WCG, if a default shall be made by NTI in the observance
or performance by it of any agreements and covenants of NTI herein contained, or
if there shall have been a misrepresentation made in Article III by NTI,
provided that with respects to any such default or misrepresentation WCG shall
have provided five (5) Business Days notice with an opportunity for NTI to cure
within such period if capable of cure;
(c) NTI, if a default shall be made by WCG in the observance
or performance by it of any agreements and covenants of WCG herein contained, or
if there shall have been a misrepresentation made in Article IV by WCG provided
that with respect to any such default or misrepresentation NTI shall have
provided five (5) Business Days notice with an opportunity for WCG to cure
within such period if capable of cure; or
(d) By either WCG or NTI if the Closing shall not have
occurred by July 1, 1997.
XII.3 LIABILITY UPON TERMINATION. If the obligation to close the
transactions contemplated by this Agreement is terminated pursuant to any
provision of Section 12.2(a) and (d), then neither party shall be under any
liability to the other party hereto; provided, however, that nothing herein
shall relieve any party from liability for any breach of or default under this
Agreement occurring prior to such termination. Except as set forth in this
Section 12.3, the rights of the parties shall not terminate upon the failure to
close the transactions contemplated hereby.
ARTICLE XIII
EXPENSES
Except as otherwise set forth herein, and whether or not the
transactions contemplated by this Agreement shall be consummated, each Party
agrees to pay, without right of reimbursement from any other Party, the costs
incurred by the Party incident to the preparation and execution of this
Agreement and performance of its obligations hereunder, including the fees and
disbursements of legal counsel, accountants and consultants employed by the
Party in connection with the transactions contemplated by this Agreement. The
pre-formation and pre-organization costs of Newco shall be shared equally by NTI
and WCG; provided that the incurrence of any such costs shall be pre-approved in
writing by NTI and WCG.
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<PAGE> 83
ARTICLE XIV
RESOLUTION OF DISPUTES
The Parties agree that, except as otherwise specifically provided
herein, all disputes under this Agreement shall be resolved in accordance with
the procedures set forth in Exhibit N hereto.
ARTICLE XV
GENERAL PROVISIONS
15.1 NOTICES. All notices, requests, demands and other communications
required or permitted to be given under this Agreement shall be deemed to have
been duly given if in writing and delivered personally or sent via first-class,
postage prepaid, registered or certified mail (return receipt requested), or by
overnight delivery service or facsimile transmission with confirmation by
certified mail or overnight delivery service addressed as follows:
If to NTI:
Northern Telecom Inc.
2221 Lakeside Boulevard
Richardson, Texas 75082
(Attention: Richard T. Faletti, Vice President)
Facsimile: (972) 684-3999
and copy to:
Northern Telecom Inc.
2221 Lakeside Boulevard
Richardson, Texas 75082
(Attention: Richard R. Standel, Vice President,
Secretary and General-Counsel)
Facsimile: (972) 685-3011
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<PAGE> 84
If to WCG:
One Williams Center
Tulsa, Oklahoma 74172
Attention: Henry C. Hirsch, CEO
Facsimile Number: (918) 561-6024
and copy to:
One Williams Center, 41-3
Tulsa, Oklahoma 74172
Attention: David P. Batow, General Counsel
Facsimile Number: (918) 588-3005
Any Party may change the address to which the communications are to be
directed to it by giving notice to the other in the manner provided in this
Section 15.1. Notice by mail shall be deemed to have been given and received on
the third calendar day after posting. Notice by overnight delivery service,
facsimile transmission or personal delivery shall be deemed given on the date of
actual delivery.
15.2 GOVERNING LAW. This Agreement and the performance of the
transactions contemplated hereby shall be governed by and construed and enforced
in accordance with the laws of the State of New York, without regard to any
conflict-of-laws provision thereof that would otherwise require the application
of the law of any other jurisdiction.
15.3 ENTIRE AGREEMENT. This Agreement and the Exhibits hereto, together
with the certificates, documents, instruments, writings and any other agreements
contemplated hereby that are delivered pursuant hereto, set forth the entire
agreement and understanding of the Parties with respect to the transactions
contemplated hereby and supersede all prior agreements, arrangements and
understandings relating to the subject matter hereof. No representation,
promise, inducement or statement of intention with respect to the subject matter
of this Agreement has been made by any Party that is not embodied in this
Agreement and Exhibits hereto and the Organizational Agreements, the
certificates, documents, instruments, writings and any other agreements
contemplated hereby that are delivered pursuant hereto, and none of the Parties
shall be bound by or liable for any alleged representation, promise, inducement
or statement of intention not so set forth.
15.4 ASSIGNMENT. No Party to this Agreement may sell, transfer, assign,
pledge or hypothecate its or his rights, interests or obligations under this
Agreement. Nothing herein is intended to restrict the transferability of the
Membership Interests (as defined in the LLC Agreement), which is governed by the
LLC Agreement.
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<PAGE> 85
15.5 SUCCESSORS. This Agreement shall inure to the benefit of, be
binding upon, and be enforceable by the parties hereto and their respective
successors and permitted assigns.
15.6 AMENDMENTS; WAIVER. This Agreement may be amended, superseded or
canceled, and any of the terms hereof may be waived, only by a written
instrument specifically stating that it amends, supersedes or cancels this
Agreement or waives any of the terms herein, executed by all Parties intended to
be bound thereby or, in the case of a waiver, by the Party waiving compliance.
The failure of any Party at any time to require performance of any provision
herein shall in no manner affect the right at a later time to enforce the same.
No waiver by any Party of any condition, or of any breach of any term, covenant,
representation or warranty, shall be deemed or constitute a waiver of any other
condition, or breach of any other term, covenant, representation or warranty,
nor shall the waiver constitute a continuing waiver unless otherwise expressly
provided.
15.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
15.8 SEVERABILITY. Any provision hereof that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
15.9 NO THIRD PARTY BENEFICIARIES. Except for Newco, or to the extent
an Affiliate of either Party is expressly given rights herein, any agreement
contained, expressed or implied in this Agreement shall be only for the benefit
of the Parties hereto and their respective successors and assigns, and such
agreements shall not inure to the benefit of the obligees of any indebtedness of
any Party hereto, it being the intention of the Parties hereto that no Person or
entity shall be deemed a third party beneficiary of this Agreement, except to
the extent a third party is expressly given rights herein.
15.10 NEGOTIATED TRANSACTION. The provisions of this Agreement were
negotiated by the Parties hereto, and this Agreement shall be deemed to have
been drafted by all of the Parties hereto.
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<PAGE> 86
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of
the date first set forth above.
NORTHERN TELECOM INC.
By: /s/
---------------------------------------
Its: Vice President
--------------------------------------
WILLIAMS COMMUNICATIONS GROUP, INC.
By: /s/ [S. MILLER WILLIAMS]
---------------------------------------
Its: Senior Vice President
--------------------------------------
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<PAGE> 87
CERTIFICATE OF FORMATION
OF
WILTEL COMMUNICATIONS, LLC
This Certificate of Formation of WilTel Communications, LLC (the
"LLC"), dated April 1, 1997, is being duly executed and filed by Howard E.
Janzen, as an authorized person, to form a limited liability company under the
Delaware Limited Liability Company Act (6 Del. C. 18-101, et seq.).
FIRST. The name of the limited liability company formed hereby is
WilTel Communications, LLC.
SECOND. The address of the registered office of the LLC in the State of
Delaware is c/o The Corporation Trust Company, Corporation Trust Center, 1209
Orange Street, Wilmington, New Castle County, Delaware 19801.
THIRD. The name and address of the registered agent for service of
process on the LLC in the State of Delaware is The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation as of the date first above written.
/s/ HOWARD E. JANZEN
------------------------------
Howard E. Janzen
Authorized Person
1
<PAGE> 88
EXHIBIT UPDATES TO FORMATION AGREEMENT
EXHIBIT B
CERTIFICATE OF MERGER OF WILTEL
This Exhibit has been updated pursuant to the Amendment Agreement to Formation
Agreement.
2
<PAGE> 89
CERTIFICATE OF MERGER
OF
WILLIAMS TELECOMMUNICATIONS SYSTEMS, INC.
INTO
WILTEL COMMUNICATIONS, LLC
Pursuant to Title 8, Section 264(c) of the General Corporation Law of
the State of Delaware (the "General Corporation Law") and Title 6, Section
18-209 of the Delaware Limited Liability Company Act (the "Act"), the
undersigned limited liability company does hereby certify:
FIRST: The name of the jurisdiction of formation or organization and
domicile of each of the constituent entities which is to merge are as follows:
WilTel Communications, LLC, a Delaware limited liability company, and Williams
Tele communications Systems, Inc., a Delaware corporation.
SECOND: An Agreement of Merger has been approved, adopted, certified,
executed and acknowledged in accordance with Section 264(c) of the General
Corporation Law and in accordance with Section 18-209 of the Act by: (i)
Williams Telecommunications Systems, Inc. and (ii) WilTel Communications, LLC.
THIRD: The name of the surviving limited liability company is WilTel
Communications, LLC.
FOURTH: The merger of Williams Telecommunications Systems, Inc. into
WilTel Communications, LLC shall be effective upon the filing of this
Certificate of Merger with the Secretary of State of the State of Delaware.
FIFTH: The executed Agreement of Merger is on file at the principal
place of business and an office of the surviving limited liability company. The
address of the principal place of business and an office of the surviving
limited liability company is One Williams Center, Tulsa, OK 74172.
SIXTH: A copy of the Agreement of Merger will be furnished by the
surviving limited liability company, on request and without cost, to any member
of WilTel Communications, LLC and to any person holding an interest in Williams
Telecommunications Systems, Inc.
IN WITNESS WHEREOF, said Limited Liability Company has caused this certificate
to be signed by an authorized person, the 30th day of April, 1997.
WILTEL COMMUNICATIONS, LLC
BY: /s/ S. MILLER WILLIAMS
-------------------------------
as Authorized Person
3
<PAGE> 90
CERTIFICATE OF MERGER
OF
NORTEL COMMUNICATIONS SYSTEMS INC.
INTO
WILTEL COMMUNICATIONS, LLC
------------------------------------------------------
Pursuant to Section 18-209(c) of the
Limited Liability Company Act of the State of Delaware
and Section 264(c) of the
General Corporation Law of the State of Delaware
------------------------------------------------------
WilTel Communications, LLC, a limited liability company
organized under the Delaware Limited Liability Company Act with its principal
office at One Williams Center, Tulsa, Oklahoma 74172, does hereby certify as
follows:
FIRST: The name and jurisdiction of organization of each of
the constituent entities to the merger are as follows:
<TABLE>
Name State of Organization
---- ---------------------
<S> <C>
NORTEL Communications Systems Inc. Delaware
WilTel Communications, LLC Delaware
</TABLE>
SECOND: An Agreement of Merger between the constituent
entities to the merger (the "Agreement of Merger") has been approved and
executed by each
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<PAGE> 91
of the constituent entities in accordance with Section 18-209(b) of the Limited
Liability Company Act of the State of Delaware and Section 264(c) of the
Delaware General Corporation Law, as applicable.
THIRD: The name of the surviving domestic limited liability company in
the merger is WilTel Communications, LLC (the "Surviving Limited Liability
Company").
FOURTH: The Agreement of Merger is on file at the principal place of
business of the Surviving Limited Liability Company. The address of the
principal place of business of the Surviving Limited Liability Company is One
Williams Center, Tulsa, Oklahoma 74172.
FIFTH: A copy of the Agreement of Merger will be furnished by the
Surviving Limited Liability Company, on request and without cost, to any stock
holder of NORTEL Communications Systems Inc. and any member of WilTel
Communications, LLC.
SIXTH: The merger of the constituent entities shall become effective
upon the filing hereof.
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<PAGE> 92
IN WITNESS WHEREOF, this Certificate of Merger has been duly executed
as of the 30th day of April 1997, and is being filed in accordance with Section
18-209(c) of the Limited Liability Company Act of the State of Delaware and
Section 264(c) of the General Corporation Law of the State of Delaware.
WilTel Communications, LLC
By: /s/ S. MILLER WILLIAMS
-----------------------------------
Name: S. Miller Williams
Title: Senior Vice President
6
<PAGE> 1
EXHIBIT 10.56
STOCK PURCHASE AGREEMENT
by and between
WILLIAMS COMMUNICATIONS, INC.,
CONFERENCING ACQUISITION CORPORATION
and
GENESYS, S.A.
Dated as of June 30, 1999
<PAGE> 2
TABLE OF CONTENTS
STOCK PURCHASE AGREEMENT
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I. PURCHASE AND SALE OF SHARES..................................... 2
1.01 Shares Being Sold......................................... 2
1.02 Purchase Price............................................ 2
1.03 Net Current Asset Adjustment.............................. 2
1.04 Capital Expenditures...................................... 7
ARTICLE II. CLOSING........................................................ 8
2.01 Date of Closing........................................... 8
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER...................... 8
3.01 Organization and Authority................................ 8
3.02 Capital Stock of the Company.............................. 9
3.03 Subsidiaries.............................................. 9
3.04 Authorization of Agreement................................ 10
3.05 No Conflicts.............................................. 10
3.06 Litigation................................................ 11
3.07 No Consents............................................... 11
3.08 Financial Statements...................................... 11
3.09 Undisclosed Liabilities................................... 13
3.10 Title to and Condition of Assets.......................... 13
3.11 Compliance with Law....................................... 13
3.12 Intellectual Property..................................... 14
3.13 Contracts and Commitments................................. 15
3.14 Employees and Employee Benefits........................... 16
3.15 Absence of Certain Changes................................ 18
3.16 Restrictions on Property.................................. 20
3.17 Taxes..................................................... 20
3.18 No Brokers................................................ 21
3.19 Disclosure................................................ 21
3.20 Sufficiency of Assets..................................... 21
3.21 Transactions with Affiliates.............................. 22
3.22 Software.................................................. 22
3.23 Environmental Matters..................................... 22
3.24 Real and Personal Property Leased to Seller............... 24
3.25 Absence of Sensitive Payments............................. 25
3.26 Labor Disputes; Unfair Labor Practices................... 26
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.27 Insurance Policies........................................ 26
3.28 Customers................................................. 27
3.29 Bridge Capacity and Location.............................. 27
3.30 Corporate Documents; Officers and Directors............... 27
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER..................... 28
4.01 Organization of Purchaser................................. 28
4.02 Authorization of Agreement................................ 28
4.03 No Brokers................................................ 28
4.04 Purchase for Investment................................... 29
4.05 No Conflicts.............................................. 30
ARTICLE V. CONDUCT PRIOR TO THE CLOSING.................................... 31
5.01 General................................................... 31
5.02 Seller's Obligations...................................... 31
ARTICLE VI. CONDITIONS TO CLOSING.......................................... 38
6.01 Conditions to Seller's Obligations........................ 38
6.02 Conditions to Purchaser's Obligations..................... 39
ARTICLE VII. FURTHER AGREEMENTS OF THE PARTIES.............................. 40
7.01 Expenses.................................................. 40
7.02 Cooperation after Closing................................. 41
7.03 Employees................................................. 41
7.04 Transfer Taxes............................................ 42
7.05 Mail...................................................... 42
7.06 Confidentiality Agreements................................ 42
7.07 Books and Records......................................... 42
7.08 Consents.................................................. 43
7.09 Non-Solicitation.......................................... 44
7.10 Insurance................................................. 44
7.11 Expenses or Assets of the Business........................ 44
7.12 Confidentiality and Publicity............................. 45
7.13 Section 338(h)(10) Election............................... 46
7.14 Deferred Revenue-Bridges Liability........................ 48
ARTICLE VIII. CLOSING DATE DELIVERIES...................................... 48
8.01 Documents to be Delivered by Seller....................... 48
8.02 Documents to be Delivered by Purchaser.................... 49
8.03 Funds to be Delivered..................................... 50
ARTICLE IX. INDEMNIFICATION................................................ 50
9.01 Survival.................................................. 50
9.02 Indemnification by Seller................................. 50
9.03 Indemnification by Purchaser.............................. 52
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
9.04 Notice to the Indemnitor.................................. 52
9.05 Right of Parties to Settle or Defend...................... 52
9.06 Settlement Proposals...................................... 53
9.07 Reimbursement............................................. 54
ARTICLE X. EFFECT OF TERMINATION/PROCEEDING................................ 55
10.01 Right to Terminate........................................ 55
10.02 Remedies.................................................. 55
ARTICLE XI. MISCELLANEOUS.................................................. 56
11.01 Entire Agreement.......................................... 56
11.02 Governing Law; Arbitration................................ 56
11.03 Amendment; Waiver......................................... 57
11.04 Notices................................................... 57
11.05 Separability.............................................. 59
11.06 Assignment and Binding Effect............................. 59
11.07 No Benefit to Others...................................... 59
11.08 Counterparts.............................................. 59
11.09 Interpretation............................................ 60
</TABLE>
DEFINITIONS
"AAA" shall have the meaning provided in Section 11.02.
"ACT" shall have the meaning provided in Section 3.02.
"ACCUMULATED FUNDED DEFICIENCY" shall have the meaning provided in
Section 3.14(d).
"ADDITIONAL AGREEMENTS" shall have the meaning provided in Section 7.01.
"AFFILIATE" shall mean with respect to a person or entity, any other person or
entity that controls, is controlled by, or is under common control with, such
person or entity.
"AGREEMENT" shall have the meaning provided in the preambles.
"ARBITRATOR" shall have the meaning provided in Section 1.03(d).
"ASSETS" shall mean all of the properties, rights and assets of Seller, of every
kind, nature and description, tangible or intangible, used or necessary for the
Business, whether arising by contract, law, or otherwise, including any such
assets or rights that have been written off or have not been included on the
books of Seller, as the same shall exist immediately prior to the Closing, the
tangible fixed assets of which are situated in and around Denver, Colorado or
are listed on Schedule 5.02(a)(i), except for the Excluded Assets, which
Excluded Assets are more particularly
iii
<PAGE> 5
described in Section 5.02(a)(ii) and the Schedule referred to therein.
"ASSUMED LIABILITIES" shall have the meaning provided in Section 5.02(a)(iii).
"BASKET AMOUNT" shall have the meaning provided in Section 9.02.
"BENEFITS" shall have the meaning provided in Section 7.03.
"BUSINESS" shall mean the audio and video conferencing business conducted by
Conferencing primarily from its location in Denver, Colorado, as such business
is conducted immediately prior to the Closing, excluding the Tulsa Business.
"CLOSING" shall have the meaning provided in Section 2.01.
"CLOSING DATE" shall have the meaning provided in Section 2.01.
"CLOSING DATE BALANCE SHEET" shall have the meaning provided in Section
1.03(a)(i).
"CLOSING DATE CURRENT ASSETS" shall have the meaning provided in Section
1.03(a)(ii).
"CLOSING DATE CURRENT LIABILITIES" shall have the meaning provided in Section
1.03(a)(iii).
"CLOSING DATE NET CURRENT ASSET AMOUNT" shall have the meaning provided in
Section 1.03(a)(iv).
"CLOSING DATE RECEIVABLES" shall have the meaning provided in Section
1.03(a)(v).
"CODE" shall have the meaning provided in the preambles.
"COLLECTION DATE" shall have the meaning provided in Section 1.03(a)(v).
"COMPANY" shall have the meaning provided in the preambles.
"CONFERENCING" shall have the meaning provided in the preambles.
"CONFERENCING SERVICES AGREEMENT" shall have the meaning provided in Section
8.01(d).
"CONFIDENTIAL INFORMATION" shall have the meaning provided in Section 7.12(a).
"CONTRACTS" shall have the meaning provided in Section 5.02(a)(12).
"COPYRIGHTS" shall have the meaning provided in Section 5.02(a)(8).
"DAMAGES" shall have the meaning provided in Section 9.02.
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<PAGE> 6
"DEFICIENCY" shall have the meaning provided in Section 1.03(a)(vi).
"DISPUTED ITEM" OR "DISPUTED ITEMS" shall have the meaning provided in Section
1.03(c)(ii).
"DOJ" shall have the meaning provided in Section 6.01(e)
"EMPLOYEE" shall have the meaning provided in Section 3.14(a).
"EMPLOYEE BENEFIT PLAN" shall have the meaning provided in Section 3.14(b)(i).
"EMPLOYEE BENEFIT PROGRAM" OR "EMPLOYEE BENEFIT PROGRAMS" shall have the meaning
provided in Section 3.14(b)(ii).
"ENVIRONMENTAL CLAIM" shall have the meaning provided in Section 3.23(e).
"ENVIRONMENTAL LAWS" shall have the meaning provided in Section 3.23(e).
"ERISA" shall have the meaning provided in Section 3.14(b)(i).
"EVENTS MANAGEMENT" shall mean the integration (and not individual sale of
component parts) of video events, including the integration of video
conferencing with other services, encompassing fiber optic cable, satellite,
ISDN and internet protocol transmission, whether interactive or non-interactive,
utilized by customers for the purpose of corporate communications or messaging,
sales or product roll-outs or sales training, and shall include project
management, AV equipment rental, third party production and direct customer
distribution.
"EVENTS RESELLER AGREEMENT" shall have the meaning provided in Section 8.01(e).
"EXCLUDED ASSETS" shall have the meaning provided in Section 5.02(a)(ii).
"EXCLUDED LIABILITIES" shall have the meaning provided in Section 5.02(a)(iii).
"EXPENDITURES" shall have the meaning provided in Section 1.04.
"E&Y" shall have the meaning provided in Section 1.03(d).
"FINANCIAL STATEMENTS" shall have the meaning provided in Section 3.08(a).
"FTC" shall have the meaning provided in Section 6.01(e).
"GAAP" shall have the meaning provided in Section 1.03(a)(ii).
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" shall have the meaning provided in
Section 11.09.
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"HSR ACT" shall have the meaning provided in Section 6.01(e).
"INDEMNIFIED PURCHASER PARTIES" shall have the meaning provided in Section 9.02.
"INDEMNITEE" shall have the meaning provided in Section 9.04.
"INDEMNITOR" shall have the meaning provided in Section 9.04.
"INVENTORY" shall have the meaning provided in Section 5.02(a)(13).
"LIEN" shall mean any mortgage, pledge, security interest, lien, or encumbrance
of any kind.
"LOSSES" shall have the meaning provided in Section 9.02.
"MARKS" shall have the meaning provided in Section 5.02(a)(6).
"MATERIAL CONTRACTS" shall have the meaning provided in Section 3.13(a).
"MATERIAL OF ENVIRONMENTAL CONCERN" shall have the meaning provided in Section
3.23(e).
"NON-COMPETITION AGREEMENT" shall have the meaning provided in Section 8.01(c).
"PATENTS" shall have the meaning provided in Section 5.02(a)(7).
"PLAN" OR "PLANS" shall have the meaning provided in Section 3.14(b)(i).
"PROHIBITED TRANSACTION" shall have the meaning provided in Section 3.14(d).
"PROPOSED SETTLEMENT" shall have the meaning provided in Section 9.06(a).
"PURCHASE PRICE" shall have the meaning provided in Section 1.02(a).
"PURCHASE PRICE ALLOCATION" shall have the meaning provided in Section 7.13(b).
"PURCHASER" shall have the meaning provided in the preambles.
"PURCHASER'S ADDITIONAL AGREEMENTS" shall have the meaning provided in Section
4.01.
"PWC" shall have the meaning provided in Section 1.03(d).
"REGULATED PROPERTIES" shall have the meaning provided in Section 3.23(a).
"REPORTABLE EVENT" shall have the meaning provided in Section 3.14(d).
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"SHARES" shall have the meaning provided in the preambles.
"SCHEDULE OF CAPITAL EXPENDITURES" shall have the meaning provided in Section
1.04(e).
"SECTION 338(H)(10) ELECTIONS" shall have the meaning provided in Section
7.13(a).
"SELLER" shall have the meaning provided in the preambles.
"SELLER'S ADDITIONAL AGREEMENTS" shall have the meaning provided in Section
3.01.
"SOFTWARE" shall have the meaning provided in Section 3.22.
"TAX" shall have the meaning provided in Section 3.17.
"TAX RETURNS" shall have the meaning provided in Section 3.17.
"TRANSITION SERVICES AGREEMENT" shall have the meaning provided in Section
8.01(f).
"TULSA BUSINESS" shall mean the business of Conferencing of (i) providing video
conferencing services to companies within the Williams group of companies for
their internal use using the technology currently used by Conferencing in
providing such services, including provision of ISDN video conferencing services
internally until September 25, 2000 and (ii) providing Events Management.
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STOCK PURCHASE AGREEMENT
AGREEMENT (this "Agreement"), dated as of the 30th day of June, 1999,
by and among Williams Communications, Inc., a Delaware corporation ("Seller"),
Conferencing Acquisition Corporation, a Delaware corporation (the "Company") and
Genesys, S.A., a French corporation ("Purchaser").
WHEREAS, Williams Conferencing, a division of Seller ("Conferencing"),
offers worldwide audio and video conferencing services and special events
management to businesses;
WHEREAS, Seller owns 1000 shares (the "Shares") of common stock, par
value $1.00 per share, of the Company, which Shares constitute all of the issued
outstanding securities of the Company;
WHEREAS, in order to induce Purchaser to acquire the Shares, Seller
shall transfer certain of the assets and certain of the liabilities of
Conferencing to the Company;
WHEREAS, subsequent to such transfer, and upon the terms and conditions
set forth herein, Seller desires to sell, and Purchaser desires to purchase, the
Shares;
WHEREAS, the parties hereto intend that the purchase of the Shares by
Purchaser constitute a "qualified stock purchase" for purposes of Section 338 of
the Internal Revenue Code of 1986, as amended (the "Code"), and will be treated
for tax purposes, in accordance with Section 338(h)(10) of the Code and
comparable tax provisions of state and local law, as a purchase of the Assets
(as herein defined).
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
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ARTICLE I. PURCHASE AND SALE OF SHARES.
1.01 SHARES BEING SOLD.
Upon the terms and subject to the conditions of this
Agreement, on the Closing Date referred to in Article II hereof, Seller shall
sell, assign, transfer and deliver to Purchaser, and Purchaser shall purchase
and acquire from Seller, the Shares.
1.02 PURCHASE PRICE.
(a) In consideration of the sale, assignment, transfer and delivery of
the Shares by Seller to Purchaser at the Closing and in reliance upon the
representations and warranties made herein by Seller, Purchaser agrees to pay to
Seller at the Closing Thirty-Nine Million Dollars ($39,000,000) (the "Purchase
Price"), subject to adjustment as provided in Sections 1.03 and 1.04 below.
(b) All payments to be made on the Closing Date pursuant to this
Section 1.02 shall be made by wire transfer of immediately available funds to
the account or accounts specified in writing by Seller.
1.03 NET CURRENT ASSET ADJUSTMENT.
(a) Definitions.
For the purposes of this Agreement, the following terms shall
have the following respective meanings:
(i) "Closing Date Balance Sheet" shall mean the balance sheet
of the Company setting forth the Closing Date Current Assets and Closing Date
Current Liabilities (each as hereinafter defined).
(ii) "Closing Date Current Assets" shall mean, as of the
Closing Date, the net
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amount of those current assets of the Company on the Closing Date Balance Sheet,
determined in accordance with Generally Accepted Accounting Principles ("GAAP"),
consistently applied, except that (u) amounts due from MCI/WorldCom shall be
excluded, (v) cash and cash equivalents shall be excluded, (w) the determination
of Accounts Receivable shall be equal to the Closing Date Receivables as
hereinafter set forth, (x) amounts due from any Affiliates of the Company shall
be excluded, (y) amounts of uncleared checks received prior to the Closing Date
from third parties and not subsequently cleared within sixty (60) days after the
Closing Date shall be reclassified as "Accounts Receivable", and (z) credit
balances in "Accounts Receivable" (other than reserves) shall be reclassified as
"Accounts Payable".
(iii) "Closing Date Current Liabilities" shall mean, as of the
Closing Date, the current liabilities of the Company on the Closing Date Balance
Sheet, in the categories to be agreed upon by the parties on or prior to
Closing, determined in accordance with GAAP, consistently applied, except that
(y) amounts due to any Affiliate of the Company shall be excluded, and (z) debit
balances in "Accounts Payable" shall be classified as "Accounts Receivable."
(iv) "Closing Date Net Current Asset Amount" shall mean the
Closing Date Current Assets less Closing Date Current Liabilities. The Closing
Date Net Current Asset Amount can be a positive or negative number.
(v) "Closing Date Receivables" shall mean those accounts
receivable of the Company on the books of the Company on the Closing Date that
(i) with respect to accounts receivable that were on the books of Seller on May
31, 1999, are collected as of the four month anniversary of the end of the month
in which the Closing Date occurs, or, if the Closing Date
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is no more than ten days after the end of the preceding month, as of the four
month anniversary of the last day of such preceding month, and (ii) with respect
to accounts receivable not on the books of Seller on May 31, 1999 (i.e.,
receivables generated after such date), are collected as of the five month
anniversary of the end of the month in which the Closing Date occurs, or, if the
Closing Date is no more than ten days after the end of the preceding month, as
of the five month anniversary of the last day of such preceding month (the date
referred to in (ii) being the "Collection Date").
(vi) "Deficiency" shall mean the amount, if any, by which the
Closing Date Net Current Asset Amount is less than One Million Dollars
($1,000,000).
(vii) "Excess" shall mean the amount, if any, by which the
Closing Date Net Current Asset Amount is more than One Million Dollars
($1,000,000).
(b) Effect of Deficiency or Excess. The amount of any Deficiency or
Excess shall be reviewed and resolved in accordance with Sections 1.03(c) and
1.03(d) and shall be paid, if applicable, in accordance with Sections 1.03(e)
and 1.03(f).
(c) Delivery of Closing Date Balance Sheet.
(i) No later than 90 days after the Closing Date, Purchaser
shall deliver to Seller the preliminary Closing Date Balance Sheet (the
"Preliminary Statement"); provided, in lieu of the amount of the Closing Date
Receivables, the Preliminary Statement shall include the Accounts Receivable of
the Company (net of reserves) as of the Closing Date.
(ii) Seller shall have forty-five (45) days from its receipt
of the Preliminary Statement to notify Purchaser if it objects to any item on
the Preliminary Statement. Any such notice shall specify the item or items in
dispute (a "Disputed Item" or "Disputed Items").
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(iii) If either (A) Seller does not deliver to Purchaser its
objections in writing to the Preliminary Statement within forty-five (45) days
of its receipt of such statement, or (B) Seller acknowledges in writing that the
Preliminary Statement is accurate, the Preliminary Statement shall be final,
binding and conclusive on all parties.
(iv) Within thirty (30) days after the later of (A) the
Collection Date, (B) the date the Preliminary Statement is finally determined in
accordance with clause (iii) above or (C) all Disputed Items are resolved,
Purchaser shall deliver to Seller the Closing Date Balance Sheet, setting forth
the Closing Date Receivables, which is the only change that shall be made by
Purchaser to the final version of the Preliminary Statement.
(v) Seller shall have thirty (30) days from its receipt of the
Closing Date Balance Sheet to notify Purchaser if it objects to the Closing Date
Receivables (which is the only item on the Closing Date Balance Sheet which the
parties may dispute as a Disputed Item).
(vi) If either (A) Seller does not deliver to Purchaser its
objections in writing to the Closing Date Balance Sheet within thirty (30) days
of its receipt of such statement, or (B) Seller acknowledges in writing that the
Closing Date Balance Sheet is accurate, the Closing Date Balance Sheet shall be
final, binding and conclusive on all parties.
(d) Arbitration. If Purchaser and Seller shall be unable to resolve any
Disputed Items within thirty (30) days after notice from Seller to Purchaser
that a dispute exists, then Seller's accounting representative, Ernst & Young
("E&Y"), and Purchaser's accounting representative, PricewaterhouseCoopers
("PWC"), shall endeavor in good faith to resolve any Disputed Item or Disputed
Items. Either party may change its representative to an accounting firm other
than E&Y or PWC at any time prior to the thirtieth (30th) day after any notice
as set forth in the preceding
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sentence, by notice in writing to the other party. In the event that E&Y and PWC
are unable to resolve the Disputed Item(s) within thirty (30) days, E&Y and PWC
shall together, within ten (10) days thereafter, appoint a representative from
the office of an accounting firm other than E&Y and PWC to arbitrate the dispute
(the "Arbitrator"). Seller and Purchaser shall, within the next twenty (20) days
thereafter, present their positions with respect to the Disputed Item or
Disputed Items to the Arbitrator together with such other material as the
Arbitrator deems appropriate. The Arbitrator shall, after the submission of the
parties' materials, submit a written decision on each Disputed Item to the
Seller and Purchaser. Any determination by the Arbitrator with respect to any
Disputed Item shall be final and binding on each party to this Agreement. The
cost of the Arbitrator shall be borne 50% by Seller and 50% by Purchaser.
(e) Resolution of Deficiency or Excess. If it is finally determined
pursuant to the provisions of this Section 1.03 that there is a Deficiency or an
Excess, then within ten (10) days after all Disputed Items with respect thereto
have been resolved, Seller shall pay to Purchaser the amount of the Deficiency
or Purchaser shall pay to Seller eighty percent (80%) of the amount of any
Excess.
(f) Payment. All payments for any Deficiency or Excess shall be made by
wire transfer of immediately available funds to an account or accounts
designated by Purchaser or Seller, as applicable.
(g) Collection of Receivables.During the period between the date of
this Agreement and the Closing Date, Seller shall use good faith efforts in
collecting the Accounts Receivable on the books of the Company, it being
understood that Seller's obligation shall not extend to the institution of
litigation, employment of counsel or a collection agency, or any other means of
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<PAGE> 15
collection that might have an adverse effect on customer relationships. During
the period after the Closing and prior to the Collection Date, Purchaser shall
use good faith efforts to collect Accounts Receivables on the books of Company
on the Closing Date. Purchaser shall provide to Seller, during the period after
the Closing Date and prior to the Collection Date, on a monthly basis, a report
of the collections made with respect to such Accounts Receivable.
1.04 CAPITAL EXPENDITURES. (a) At Closing, Seller shall deliver to
Purchaser a schedule (the "Schedule of Capital Expenditures") detailing the 1999
third party expenditures (of the type budgeted, but including capital
expenditures for upgrades and enhancement of the billing and reservation systems
for the Business) ("Expenditures") actually made by the Seller in connection
with the Business during the period from January 1, 1999 through May 31, 1999.
Such Schedule of Capital Expenditures shall be certified by the Chief Financial
Officer of Seller as being a true and correct list of payments actually made by
Seller between January 1, 1999 and May 31, 1999 in respect of Expenditures. If
the Schedule of Capital Expenditures shows that the amount of Expenditures
actually made between January 1, 1999 and May 31, 1999, including Expenditures
for upgrades and enhancements of the billing and reservation systems for the
Business, was less than $1,958,333, then the Purchase Price shall be reduced by
the amount by which $1,958,333 exceeds actual Expenditures during such period.
(b) On or prior to the Collection Date, Purchaser shall deliver to
Seller a list of the Expenditures made by the Seller in connection with the
Business for the period from June 1, 1999 through the Closing Date. Within
thirty (30) days after receipt of such list, Seller may dispute the amount of,
or failure to include, any item on such list by written notice to Purchaser. If
no such notice is received by Purchaser within such time period the list shall
be deemed final.
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<PAGE> 16
The parties shall attempt to resolve any dispute with respect to such list in
the manner provided in Section 1.03(d) hereof. Within ten (10) days of the
finalization of such list or resolution of any disputed items on such list,
whichever is later, Seller shall pay to Purchaser the amount, if any, by which
the aggregate Expenditures on such list are less than the prorated amount of
budgeted Expenditures for the period from June 1, 1999 through Closing (based on
an annual budget of $4,700,000).
ARTICLE II. CLOSING.
2.01 DATE OF CLOSING. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Breslow &
Walker, LLP, 767 Third Avenue, New York, NY 10017, on July 30, 1999 or on such
other date as the parties may agree. The actual time and date of Closing are
hereinafter referred to as the "Closing Date." All calculations hereunder to be
made as of the Closing Date shall be made as of 11:59 p.m., Eastern Standard
Time, on the Closing Date.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller hereby represents and warrants to the Purchaser as follows:
3.01 ORGANIZATION AND AUTHORITY. Seller and the Company each is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. In connection with the Business, Seller has qualified
to do business in all jurisdictions in which qualification is necessary in order
to conduct the Business. The Company has not qualified to do business in any
jurisdiction other than Delaware, as it is not doing business and will not do
business prior to Closing. Seller has not failed to qualify to do business in
any jurisdiction where the failure to so qualify would materially adversely
affect the financial condition of the Business
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<PAGE> 17
or its ability to perform its obligations under this Agreement and the other
agreements and instruments referred to in Section 8.01 of this Agreement to be
executed and delivered by Seller ("Seller's Additional Agreements") or its
ability to operate the Business. Seller has, and the Company shall have at
Closing, the full power and authority to own or lease and operate its properties
relating to the Business and to carry on the Business as now being operated and
conducted. Seller has full power and authority to carry out the transactions
contemplated by this Agreement and Seller's Additional Agreements.
3.02 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company consists of 1000 shares of common stock, par value $1.00 per share, of
which the Shares are the only issued and outstanding securities of the Company.
The Shares are duly and validly issued, outstanding, fully paid and
non-assessable and are subject to no preemptive rights. None of the Shares were
issued in violation of the Securities Act of 1933, as amended (the "Act"), or
the securities or blue sky laws of any state or other jurisdiction. There are no
outstanding options, warrants or agreements of any kind for the issuance or sale
of, or outstanding securities convertible into, any shares of capital stock of
any class of the Company. Seller has complete and unrestricted power to sell,
convey, assign, transfer and deliver the Shares to Purchaser. The transfer of
the Shares pursuant to this Agreement will convey to Purchaser good, valid and
marketable title to the Shares, free and clear of all Liens. Upon delivery of
the Shares to Purchaser pursuant to this Agreement, Purchaser will have good,
valid and marketable title to all the outstanding shares of capital stock of the
Company, and the Shares will be, when delivered, duly authorized, validly
issued, fully paid and non-assessable.
3.03 SUBSIDIARIES. The Company does not (i) own, and on the Closing
Date will not
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own, directly or indirectly, any interest or investment (whether equity or debt)
in any corporation, partnership, joint venture, trust, or other entity, or (ii)
have any option, right, agreement or commitment of any kind, whether oral or in
writing, to acquire any securities of or to make any investment in any person,
corporation, partnership, joint venture, trust or other entity.
3.04 AUTHORIZATION OF AGREEMENT. The execution, delivery and
performance by Seller of this Agreement and Seller's Additional Agreements and
the consummation by Seller of the transactions contemplated hereby and thereby,
have been duly authorized by all necessary corporate action of Seller. This
Agreement has been, and Seller's Additional Agreements shall be on the Closing
Date, duly executed and delivered by Seller, and constitute the legal, valid and
binding obligations of Seller, enforceable against Seller in accordance with
their respective terms, except as the enforceability of this Agreement and
Seller's Additional Agreements may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights of creditors generally.
3.05 NO CONFLICTS. Neither the execution, delivery or performance of
this Agreement or any of Seller's Additional Agreements, nor the consummation by
Seller of the transactions contemplated hereby or thereby, nor compliance by
Seller with the terms and provisions hereof or thereof, will: (i) conflict with
the Certificate of Incorporation or Bylaws of Seller; (ii) conflict with, or
result in the breach or termination of, or constitute a default (or with notice
or lapse of time, or both, constitute a default) under or result in the
termination or suspension of, or accelerate the performance required by any of
the terms, conditions or provisions of, any material note, bond, mortgage,
indenture, license, lease, agreement, commitment or other instrument to which
Seller is a party or by which any of the Assets is bound, except for any
required consents
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to assignment or other transfer of Contracts, which consents as to Material
Contracts are listed on Schedule 3.13(b); (iii) constitute a violation by Seller
of any law or statute or any judgment, ruling, order, writ, injunction, decree,
rule or regulation of any court or governmental authority applicable to Seller;
or (iv) result in the creation of a Lien upon any of the Assets.
3.06 LITIGATION. Except as set forth on Schedule 3.06, there are no
actions, suits, inquiries, material claims, proceedings or investigations
pending, or, to the best of Seller's knowledge, threatened before any court,
arbitration panel or governmental or administrative body or agency (i) against
Conferencing or the Company, (ii) against Seller relating to the Assets, the
Business or the Shares, or (iii) otherwise relating to the Assets, the Business
or the Shares or the transactions contemplated by this Agreement or Seller's
Additional Agreements nor, to the best of Seller's knowledge, are there any
facts which would provide a basis for any such action, suit, inquiry, claim,
proceeding or investigation. None of the Assets, Business or Shares is subject
to any judgment, order or decree entered in any lawsuit or proceeding.
3.07 NO CONSENTS. Except as set forth on Schedule 3.07, no order,
permission, consent, approval, license, authorization, registration, or
validation of, or filing with, notice to, or exemption by, any governmental
authority, commission, board, or agency is required to authorize, or is required
in connection with, the execution, delivery or performance by Seller of this
Agreement or any of Seller's Additional Agreements.
3.08 FINANCIAL STATEMENTS. (a) Seller has delivered to Purchaser (i)
Conferencing's unaudited income statements with regard to the Business for the
years ended December 31, 1996, 1997 and 1998, and the four months ended April
30, 1999 (ii) Conferencing's unaudited balance sheets with regard to the
Business as at December 31, 1996, 1997 and 1998, and April 30, 1999
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and (iii) Conferencing's unaudited statements of cash flows for the year ended
December 31, 1998, and the four months ended April 30, 1999 (collectively, the
"Financial Statements"). Seller shall supply to Purchaser financial statements
for the five months ended May 31, 1999 as soon as they are available and the
definition of "Financial Statements" shall be deemed to include such May 31,
1999 financial statements after they are delivered. True and correct copies of
the Financial Statements are attached as Schedule 3.08(a) hereto. Except as set
forth on Schedule 3.08(a), the Financial Statements have been prepared in
accordance with GAAP, consistently applied, from books and records maintained by
Seller in accordance with GAAP, consistently applied, and fairly present in all
material respects the financial condition and results of operations of the
Business as of the dates thereof and for the periods presented.
(b) The receivables of Conferencing either reflected on the unaudited
balance sheet of Conferencing as at April 30, 1999 or created subsequent to
April 30, 1999 are, and the receivables of the Company at Closing will be, to
the extent not previously collected in full, true and valid receivables, created
in the ordinary course of the business of Conferencing. Neither Seller nor the
Company has permitted or agreed to any extension in the time for payment of
receivables, accelerated billing or collection practices, except for efforts to
remedy past billing problems in a manner which would not adversely effect
customer relationships, or accepted reduced payments for early or prompt
payment, other than in the ordinary course of business consistent with the past
practice of Conferencing.
(c) Except as set forth on Schedule 3.08(c), none of the obligations of
Seller relating to the Business are, and none of the obligations of the Company
at Closing will be, guaranteed either as to performance or payment by any other
person, and neither (i) Seller, relating to the
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Business, nor (ii) the Company has or will prior to Closing guarantee the
obligations of any other person.
3.09 UNDISCLOSED LIABILITIES. Except for the leases of real and
personal property listed on Schedule 3.13, Schedule 3.24(a) and Schedule
3.24(b), and except for the liabilities of Conferencing reflected on the April
30, 1999 balance sheet or incurred in the ordinary course of business since such
date, neither Conferencing, the Company, the Assets nor the Business are subject
to any debt, liabilities or obligations of any nature, whether absolute,
accrued, contingent or otherwise and whether due or to become due.
3.10 TITLE TO AND CONDITION OF ASSETS. Except as set forth on Schedule
3.10, Seller has, and the Company will have at Closing, good, valid, and
marketable title to all of the Assets owned by it, valid leasehold interests in
all real and personal property leased by it, and valid right, title and interest
in all licenses used by it, in each case related to the Business, free and clear
of all Liens. In all material respects, all of the tangible Assets have been
adequately maintained and repaired for their continued operation and are in good
operating condition, reasonable wear and tear excepted, and usable in the
ordinary course of business for the purposes and uses intended. Except as set
forth on Schedule 3.10 and Schedule 3.21 attached hereto, none of the tangible
Assets are used by Seller, the Company or any third party in connection with any
operation or business other than the Business. Schedule 3.10 attached hereto
sets forth all the states and counties in which any of the tangible Assets are
located (and a brief description of the Assets at each such location).
3.11 COMPLIANCE WITH LAW. Neither Seller nor the Company is in
violation (i) in any material respect of any applicable federal, state or local
law, rule, regulation or ordinance, or (ii)
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of any judgment, writ, decree, injunction, order or any material requirement of
any court, administrative agency, bureau, board, commission, office, department
or other governmental authority or agency, in each case relating to the
Business, and no notice has been received by Seller or the Company alleging any
such violation.
3.12 INTELLECTUAL PROPERTY. Schedule 3.12 attached hereto lists an
accurate and complete description of all of the Marks, Patents and Copyrights
(other than common law rights) owned, licensed, used or required for use by
Seller (and by the Company on the Closing Date) for the Business. Except as set
forth on Schedule 3.12 attached hereto, the Seller is, and the Company on the
Closing Date shall be, the sole and exclusive owner of the Marks, Patents and
Copyrights, free and clear of all Liens. Except as set forth on Schedule 3.12,
no governmental registration of any of such Marks, Patents or Copyrights has
lapsed, expired or been canceled, abandoned, opposed or been the subject of a
re-examination request. Seller has received no notice of any actual or
threatened claims that challenge the scope, validity or enforceability of any of
the Marks, Patents or Copyrights. None of the Marks, Patents or Copyrights
infringes on any trademarks, patents, copyrights or any other rights of any
other person. Seller has received no notice of any actual or threatened claims
of any third party for infringement of the copyrights, patents, trademarks,
trade names or trade secrets of any third party by Seller or the Company
relating to the Business, for unfair competition or based on the use by or
challenging the ownership of or the right to use by Seller or the Company of the
Marks, Patents or Copyrights. None of the Marks, Patents or Copyrights is
subject to any outstanding order, decree, judgment, stipulation, injunction,
written restriction or agreement restricting the scope of use thereof. To the
best of Seller's knowledge, there are no infringing or diluting uses of the
Marks, Patents or
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Copyrights. Neither Seller nor the Company has granted any license, franchise or
permit to any person or entity to use any of the Marks, Patents or Copyrights.
3.13 CONTRACTS AND COMMITMENTS. Except as set forth on Schedule 3.13,
Schedule 3.24(a) or Schedule 3.24(b):
(a) Neither Seller nor the Company is party to or subject to any
Contracts and there are no Contracts relating to the Assets or the Business,
other than those customer contracts which, during the last three calendar years,
involved less than $10,000 in any of such calendar years and those contracts
other than customer contracts involving less than $10,000 in calendar year 1998.
Such Contracts above such amount in such periods are referred to herein as
"Material Contracts".
(b) No consent by, notice to, or approval from any person or entity is
required under any of the Material Contracts as a result of or in connection
with the execution, delivery or performance of this Agreement and Seller's
Additional Agreements and the consummation of the transactions contemplated
hereby or thereby, and the consummation of the transactions contemplated hereby
shall not affect the terms or enforceability thereof or give rise to any right
of termination whatsoever. No Material Contracts contain a "change in control,"
"potential change in control" or similar provision, and the consummation of the
transactions contemplated hereby shall not result in any payment or payments
becoming due from the Company to any person or give any person the right to
terminate or alter the provisions of any Contract.
(c) Neither Seller nor the Company is in default in any material
respect, nor to the best of Seller's knowledge is there any basis for any claim
of such default, under any Contracts made or obligations owed by Seller
thereunder. All Material Contracts are in full force and effect and are valid
and enforceable in accordance with their respective terms, except as the
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enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium, or other similar laws relating to or affecting the rights of
creditors generally. To the best of Seller's knowledge, none of the other
parties to such Material Contracts is in default thereunder, nor is there any
basis for any claim of such default.
(d) Seller has heretofore delivered to Purchaser true and correct
copies of all Material Contracts and will deliver at the Closing all written
Contracts, and a summary of all oral Contracts. The Material Contracts are
listed on Schedule 3.13, Schedule 3.24(a) or Schedule 3.24(b) and Schedule
5.02(a).
3.14 EMPLOYEES AND EMPLOYEE BENEFITS.
(a) Schedule 3.14 attached hereto sets forth (x) the name of each
employee employed by Seller in connection with the Business and those employees
to be employed by the Company on the Closing Date (each an "Employee"), (y) each
such Employee's date of hire, title, current base salary and other compensation,
and (z) each such Employee's gross earnings for the twelve months ended December
31, 1998 separately setting forth base salary, commission and other compensation
(including gains on the exercise of stock options).
(b) Schedule 3.14 hereto lists:
(i) Each "Employee Benefit Plan" as such term is defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), that is covered by ERISA and that is maintained, or otherwise
contributed to by Seller or the Company for the benefit of the Employees of the
Business (a "Plan"; collectively, the "Plans"); and
(ii) Each plan or arrangement not subject to ERISA maintained, or
otherwise contributed to or paid for by Seller or the Company for the benefit
of Employees employed by
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Seller or the Company in connection with the operation of the Business and
providing for retirement benefits, termination bonuses, deferred compensation,
bonuses, stock options, employee insurance coverage or any similar compensation
or welfare benefit plan (individually, an "Employee Benefit Program";
collectively, the "Employee Benefit Programs").
(c) Each Plan and Employee Benefit Program has been maintained and
administered at all times in compliance in all material respects with all
applicable laws, rules and regulations, including but not limited to ERISA and
the Code applicable to such Plan and Employee Benefit Program.
(d) No "Reportable Event" (as such term is used in Section 4043 of
ERISA), "Prohibited Transaction" (as such term is used in Section 406 of ERISA
or Section 4975 of the Code) or "Accumulated Funded Deficiency" (as such term
is used in Section 412 or Section 4971 of the Code) has heretofore occurred
with respect to any Plan and there exists no condition or set of circumstances
which could result in a "Reportable Event."
(e) Neither Seller nor the Company has contributed to or participated
in any pension plan which is a "multi-employer plan," as defined in Section
3(37) of ERISA, in respect of any employees employed by Seller or the Company
in connection with the operation of the Business.
(f) No material litigation or administrative or other proceeding
involving a Plan or Employee Benefit Program has occurred or to the best of
Seller's knowledge is threatened.
(g) Except as set forth on Schedule 3.13 or Schedule 3.14 hereto,
there are no other employment agreements or contracts or special bonus or
incentive compensation agreements with the Employees of Seller or the Company
employed or sales agents retained in connection with the operation of the
Business.
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3.15 ABSENCE OF CERTAIN CHANGES. Except as and to the extent set forth
in Schedule 3.15 attached hereto or in the April 30, 1999 financial statements
included in the Financial Statements or as contemplated by this Agreement,
since December 31, 1998, neither Seller nor the Company has, with respect to
the Assets or the Business:
(a) suffered any material adverse change in its Business, condition
(financial or otherwise), operations or prospects or any event or occurrence
which, individually or in the aggregate, could reasonably result in a material
adverse change;
(b) operated the Business other than in the ordinary course;
(c) except in the ordinary course of business consistent with past
practice of Conferencing, incurred any material obligations or liabilities
(whether absolute, accrued, contingent or otherwise and whether due or to
become due) or entered into any material agreements, commitments or
transactions;
(d) except in the ordinary course of business consistent with past
practice of Conferencing, canceled any material debts or claims, written off as
uncollectible or canceled any material notes or accounts receivable or any
portion thereof, or waived any rights of material value;
(e) sold or transferred any of its material properties or Assets,
real, personal, mixed, tangible or intangible other than in the ordinary course
of business, consistent with past practice of Conferencing;
(f) disposed of or permitted to lapse any Mark, Patent or Copyright,
or any Mark, Patent or Copyright application or license (with respect to
lapsing of a common law copyright, Seller's representation contained herein is
given to the best of Seller's knowledge);
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(g) except in the ordinary course of business consistent with past
practice of Conferencing, and as described in Section 1.04 hereof, made any
material capital expenditures or commitments for capital assets or deferred
making any such capital expenditures or commitments for capital assets;
(h) made any change in any accounting practice, principle, policy or
method;
(i) (A) except in the ordinary course of business of Seller and in
amounts consistent with past practice of Conferencing, granted any general
increase in the compensation of Employees of Seller or the Company employed in
connection with the operation of the Business (including, without limitation,
any increase pursuant to any bonus, pension, profit sharing or other plan,
commitment or benefit), except the right granted to certain employees of
Williams Communications Group, Inc. ("WCG") and its Affiliates to purchase
shares of stock of WCG at the initial public offering price, or (B) granted any
increase in any compensation payable to any individual Employee of Seller or the
Company employed in connection with the operation of the Business (other than
increases given in connection with regular reviews in the ordinary course of
business and in amounts consistent with past practice of Conferencing);
(j) accelerated any billing or collection efforts, except for efforts
to remedy past billing problems in a manner which would not adversely affect
customer relationships, or deferred the payment of bills, liabilities or
obligations;
(k) made any advances (except in the ordinary course of business) or
any loans or capital contributions to or investments in any person;
(l) suffered any material damage, destruction or casualty loss
(whether or not covered by insurance);
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(m) failed to use reasonable efforts to (i) maintain intact and
preserve the business organization material to the Business and (ii) preserve
the business relationships with third parties material to the Business;
(n) suffered or made any material change in personnel used in
connection with the Business, whether or not employed by Seller or the Company;
or
(o) agreed, whether in writing or otherwise, to take any action
referred to in this Section 3.15 in the future.
3.16 RESTRICTIONS ON PROPERTY. Seller is not, and the Company shall
not be at Closing, a party to, subject to, or bound by any judgment of any
court or governmental authority or any contract, commitment, agreement,
undertaking, arrangement, or restriction that could prevent the use of any of
the Assets in the manner used by Seller prior to the Closing Date.
3.17 TAXES. Seller and the Company have duly and timely filed or
received extensions to file all Tax Returns required to be filed and paid all
Taxes and other charges due, or claimed to be due, from Seller and the Company
to any federal, state, local or foreign taxing authorities relating to the
Business. All of such Tax Returns and reports of Seller and the Company have
been prepared in accordance with all applicable governmental requirements and
are accurate and complete in all material respects, and Seller and the Company
have paid or made adequate provisions for the payment of all Taxes due and
payable by same. There are no actions or proceedings now pending against Seller
or the Company involving any item of income, deduction, gain, loss or credit
attributable to same related to the Business. There are no Liens for Taxes upon
any of the Assets or the Shares and there are no claims asserted for Taxes or
assessments against Seller or the Company with respect to the Assets. For
purposes of this Agreement, "Tax"
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shall be defined to include any tax of any type imposed by any taxing authority
(including, without limitation, federal, state, local and foreign income, sales,
use, excise, franchise, withholding, transfer, real property and personal
property taxes and any installment payment for such taxes and any tax by reason
of the application of Code regulation section 1-1502-6 or similar provisions in
any taxing jurisdiction), and any interest charges, penalties, additions to tax,
additional amounts, assessments or deficiencies, governmental charges or duties.
For purposes of this Agreement, "Tax Returns" shall mean all federal, state,
local and foreign income, sales, use, excise, franchise, withholding, transfer,
real property and personal property tax returns or annual reports. The Company
is part of an affiliated group and Seller will include the Company in its
consolidated federal income tax return and in any state or local tax return
filed on a consolidated, combined or unitary basis through the close of
business on the Closing Date.
3.18 NO BROKERS. Neither Seller nor the Company has incurred any
obligation or liability, contingent or otherwise, for brokers' or finders' fees
or commissions or similar fees in connection with the transactions contemplated
by this Agreement.
3.19 DISCLOSURE. No representation or warranty of Seller contained in
this Agreement or Seller's Additional Agreements and any instruments attached
to this Agreement, and no statement contained in any certificate, schedule,
list or other document or writing delivered to Purchaser hereunder, contains
any untrue statement of a material fact, or omits to state a material fact
which would render any material statement contained herein or therein untrue or
misleading.
3.20 SUFFICIENCY OF ASSETS. Except as described on Schedule 3.20 and
Schedule 3.21 hereto, the Assets comprise all of the assets, properties and
rights of every type and description, real, personal and mixed, tangible or
intangible, owned, used (other than incidental use) or
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employed by Seller or the Company in operating the Business, or otherwise
necessary for the Business.
3.21 TRANSACTIONS WITH AFFILIATES. Except as described in Schedule
3.21, (a) there are no personnel, facilities, equipment or other property or
types of services being provided to the Business, or shared by, any Affiliate
of Conferencing or the Company, other than that which is incidental, and (b)
there have been no transactions of any type between Conferencing or the Company
and any of such Affiliates since December 31, 1997.
3.22 SOFTWARE. Schedule 3.22 lists all software used in connection
with the Business, except for licensed shrink wrapped off-the-shelf software
(the "Software"), and sets forth which of the Software is owned and which is
licensed. Except as set forth on Schedule 3.22 or Schedule 3.13, Seller has
(whether by ownership, lease or license), and the Company shall have at Closing,
all necessary rights in and to all such Software, including without limitation,
any and all modifications, additions and alterations to such Software such that,
after the date hereof, the Purchaser shall be able to use and operate the
Software substantially in the manner now being used in connection with the
Business.
3.23 ENVIRONMENTAL MATTERS. Neither Seller nor the Company has ever
owned nor does either currently own any real property in connection with the
operation of the Business. Except as set forth in Schedule 3.23 attached
hereto:
(a) Seller and the Company are in compliance in all material respects
with all Environmental Laws (as hereinafter defined) relating to all real
property currently leased by it in connection with the operation of the
Business and all real property previously leased by it in connection with the
operation of the Business (the "Regulated Properties"). Neither Seller nor
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the Company has received any written communication relating to any of the
Regulated Properties, whether from a governmental authority or otherwise, that
alleges that it is not in such compliance. All permits and other governmental
authorizations required pursuant to the Environmental Laws relating to the
Regulated Properties have been obtained by Seller or the Company and are
currently in force, and all such permits and other governmental authorizations
are identified in Schedule 3.23 hereto.
(b) There is no Environmental Claim (as hereinafter defined) relating
to the Regulated Properties pending or, to the best of Seller's knowledge,
threatened against Seller or the Company or any predecessor.
(c) There are no present activities, including, without limitation,
the release, threatened release, emission, discharge or disposal of any
Material of Environmental Concern (as hereinafter defined), that are reasonably
likely to form the basis of any Environmental Claim against Seller, in
connection with the operation of the Business, or the Company.
(d) Without in any way limiting the generality of the foregoing, (i)
the procedures currently used by Seller and the Company for storing, disposing
of or arranging for the disposal of Materials of Environmental Concern on the
Regulated Properties are set forth in Schedule 3.23, (ii) all underground
storage tanks located on any of the Regulated Properties are identified in
Schedule 3.23, (iii) no polychlorinated biphenyls have been disposed of by
Seller or the Company at any of the Regulated Properties and (iv) no exposed,
friable asbestos or asbestos-containing material is present at any of the
Regulated Properties.
(e) Certain definitions used in this Section 3.23 are set forth below:
"Environmental Claim" means any written notice by any person or entity
alleging potential
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liability (including, without limitation, potential liability for investigatory
costs, cleanup costs, remedial activity or removal costs, government response
costs, natural resource damages, property damages, personal injuries, fines or
penalties arising out of, based on, or resulting from (i) the presence, or
release into the environment, of any Material of Environmental Concern at any of
the Regulated Properties or (ii) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law.
"Environmental Laws" means all federal, state and local laws and
regulations relating to the protection of the environment (including, without
limitation, ambient air, water, land surface or subsurface strata), including,
without limitation, laws and regulations relating to emissions, discharges,
disposals, releases or threatened releases of Materials of Environmental
Concern, or otherwise relating to the generation, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.
"Material of Environmental Concern" means any material defined as a
"hazardous substance" under Section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act, as amended, and any petroleum
products.
3.24 REAL AND PERSONAL PROPERTY LEASED TO SELLER. Set forth on Schedule
3.24(a) hereto is a description of each lease under which Seller or the Company
is the lessee of any real property used or useful (other than incidental) in
connection with the Business, and on Schedule 3.24(b) hereto is a description
of each lease under which Seller or the Company is the lessee of any material
personal property used or useful in connection with the Business. Seller has
delivered to Purchaser a true, correct and complete copy of each lease
identified on Schedule 3.24(a) and Schedule 3.24(b). The premises or property
described in said leases are presently
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occupied or used by Seller as lessee under the terms of such leases. Except as
set forth on Schedule 3.24(a) and Schedule 3.24(b), all amounts due under such
leases have been paid and there exists no material default by Seller or the
Company, or to the best of Seller's knowledge, by any other party to such leases
under the terms of any such leases and, to the best of Seller's knowledge, no
event has occurred which, upon passage of time or the giving of notice, or both,
would result in any material event of default or prevent Seller or the Company
from exercising and obtaining the benefits of any rights or options contained
therein. Seller has, and the Company shall have at Closing, all right, title and
interest of the lessee under the terms of said leases, free of all Liens and all
such leases are valid and in full force and effect. Except as set forth on
Schedule 3.24(a) and Schedule 3.24(b), no consent is necessary under such leases
in respect of the consummation of the transactions contemplated hereby.
3.25 ABSENCE OF SENSITIVE PAYMENTS. Neither Seller nor the Company nor
any partner, officer, director, manager, agent or employee of Seller or the
Company, in connection with the Business:
(a) has made or authorized any contributions, payments or gifts of
funds or property to any government official, employee or agent where either
the payment or the purpose of such contribution, payment or gift was or is
illegal under (i) the Foreign Corrupt Practices Act and the regulations adopted
thereto, or (ii) applicable local laws;
(b) has directly or indirectly made any contribution to candidates for
public office which would be a violation of (i) the Foreign Corrupt Practices
Act and the regulations adopted thereto, or (ii) applicable local laws; or
(c) maintains any unrecorded fund or asset for any purpose, other than
immaterial
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amounts of petty cash.
3.26 LABOR DISPUTES; UNFAIR LABOR PRACTICES. There is no current union
representation or request for union representation of the employees employed by
Seller or the Company in connection with the operation of the Business. There
is neither pending nor, to the best of Seller's knowledge, threatened any labor
dispute, strike or work stoppage which affects or which reasonably may be
expected to have an adverse effect on the Business. Except as set forth on
Schedule 3.26, within the past three years, neither Seller nor the Company nor
any of their agents, representatives or employees has committed any unfair labor
practice, as defined in the National Labor Relations Act of 1947, as amended, in
connection with the operation of the Business. There is not now pending or, to
the best of Seller's knowledge, threatened any charge or complaint against
Seller or the Company by the National Labor Relations Board, any state or local
labor or employment agency or any representative thereof in connection with the
operation of the Business.
3.27 INSURANCE POLICIES. Set forth on Schedule 3.27 hereto is a list
of all insurance coverages relating to the Assets or the Business, including
without limitation all coverages of properties, operations or personnel of
Seller or the Company, all of which insurance coverages shall cease as of
Closing. Policies covering the types of insurance thereon described evidence
insurance in such amounts and against such risks and losses as are generally
maintained with respect to comparable businesses and properties. Except as set
forth on Schedule 3.27, there are no claims by Seller relating to the Business
or the Company pending under any of such insurance coverages as to which
coverage has been questioned, disputed or denied by the underwriter's of such
insurance coverages. To the best of Seller's knowledge, no state of facts
exists and no event
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has occurred relating to the Business that might form the basis of any claim
against or relating to Seller or the Company that might substantially increase
the Seller's insurance premiums payable under or result in the cancellation or
non-renewal of any of the coverages listed on Schedule 3.27.
3.28 CUSTOMERS. Attached hereto as Schedule 3.28 is a true and correct
list of the top thirty (30) customers of the Business for the fiscal year ended
December 31, 1998 and the three months ended March 31, 1999, and the total
dollar amount of services billed to such customers. True and correct copies of
schedules detailing the rates charged to such customers have been provided to
Purchaser. Except as set forth on Schedule 3.28, no customer that purchased
services from Seller during the fiscal year ended December 31, 1998 or during
the three months ended March 31, 1999 has given written or oral notification to
Conferencing of its intent to cancel, terminate, materially reduce or otherwise
suspend such relationship.
3.29 BRIDGE CAPACITY AND LOCATION. The port capacity and location of
the bridges contained within the Assets (whether owned or leased) are set forth
on Schedule 3.29. Except as set forth on Schedule 3.29, none of such bridges
will require relocation prior to one year after the date of Closing, except for
any such relocation required due to any act or failure to act by Purchaser,
including the purchase of services from a carrier not currently used for the
Business.
3.30 CORPORATE DOCUMENTS; OFFICERS AND DIRECTORS. Seller will, no
later than ten (10) days prior to Closing, furnish Purchaser with true, correct
and current copies of (i) the Articles of Incorporation and By-laws of the
Company, together with all respective amendments thereto, (ii) the minute book
of the Company containing all records of proceedings, consents, actions and
meetings of the shareholders and board of directors of same, and (iii) the
stock transfer book of
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the Company setting forth all issuances and transfers of capital stock of the
Company. The names of the officers and directors of the Company will also be so
provided.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser represents and warrants to Seller as follows:
4.01 ORGANIZATION OF PURCHASER. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of France and
has the full corporate power and authority to enter into this Agreement and the
other agreements and instruments referred to in Section 8.02 of this Agreement
to be executed and delivered by Purchaser (the "Purchaser's Additional
Agreements") and to carry out the transactions contemplated hereby and thereby.
4.02 AUTHORIZATION OF AGREEMENT. The execution, delivery and
performance by Purchaser of this Agreement and Purchaser's Additional
Agreements and the consummation by Purchaser of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary corporate action
of Purchaser. This Agreement has been, and Purchaser's Additional Agreements
shall be on the Closing Date, duly executed and delivered by Purchaser and
constitute the legal, valid and binding obligations of Purchaser, enforceable
against Purchaser in accordance with their respective terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights of creditors generally.
4.03 NO BROKERS. Except for Purchaser's obligation to Mille Capital
Corporation for a merger and acquisition fee, for which Seller shall not be
obligated, Purchaser has not incurred any obligation or liability, contingent
or otherwise, for brokers' or finders' fees or commissions or similar fees in
connection with the transactions contemplated by this Agreement.
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4.04 PURCHASE FOR INVESTMENT. (a) Purchaser is purchasing the Shares
for its own account for investment and not with a view to the distribution or
resale thereof, except in compliance with the Act and all other applicable
securities laws, rules or regulations.
(b) Purchaser is able to fend for itself in the transactions
contemplated by this Agreement, has such knowledge and experience in financial
and business matters to be capable of evaluating the merits and risks of its
investment, has the ability to bear the economic risks of its investment, and
has been furnished with and has had access to such information as it has
requested and deemed appropriate to its investment decision. In particular,
Purchaser is experienced in evaluating and investing in companies involved in
the operation and management of businesses similar to the Business. Purchaser
has had the opportunity to discuss the business, management, and financial
affairs of Conferencing and the Company with the principal officers of the
Company, Conferencing and Seller. Purchaser has had access to and the
opportunity to review all of Conferencing's and the Company's financial and
operational documents and plans of operations.
(c) Purchaser understands and acknowledges that the Shares are
restricted securities under the Act and may not be resold or transferred unless
the Shares to be resold are first registered under the securities laws or
unless an exemption from such registration is available. Accordingly, Purchaser
acknowledges and agrees that it is prepared to hold such Shares for an
indefinite period and Purchaser must therefore bear the economic risk of such
investment indefinitely, unless a subsequent disposition thereof is registered
under the Act or is exempt from registration.
(d) Each instrument representing the Shares may be endorsed with the
following
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legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH
RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THE SECURITIES REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH
ACT.
(e) Anything in this Section to the contrary notwithstanding, Seller
acknowledges that Purchaser is relying on the representations, warranties and
covenants of Seller made herein in making its decision to execute this Agreement
and Purchaser's Additional Agreements and consummate the transactions
contemplated hereby and thereby.
4.05 NO CONFLICTS. Neither the execution, delivery or performance of
this Agreement or any of Purchaser's Additional Agreements, nor the consummation
by Purchaser of the transactions contemplated hereby or thereby, nor compliance
by Purchaser with the terms and provisions hereof or thereof, will: (i) conflict
with the organizational documents of Purchaser; (ii) conflict with, or result in
the breach or termination of, or constitute a default under or result in the
termination or suspension of, or accelerate the performance required by any of
the terms, conditions or provisions of any material note, bond, mortgage,
indenture, license, lease, agreement, commitment, or other instrument to which
Purchaser is a party; or (iii) constitute a violation by Purchaser of any law or
statute or any judgment, ruling, order, writ, injunction, decree, rule or
regulation of any court or governmental authority applicable to Purchaser.
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ARTICLE V. CONDUCT PRIOR TO THE CLOSING
5.01 GENERAL. Seller and Purchaser shall have the rights and
obligations with respect to the period between the date hereof and the Closing
Date which are set forth in the remainder of this Article V.
5.02 SELLER'S OBLIGATIONS. The following are Seller's obligations:
(a) (i) On or prior to the Closing Date, Seller shall transfer to
the Company, and on the Closing Date the Company shall own, all of Seller's
right, title and interest in and to the Assets. The Assets shall include,
without limitation, all of Seller's right, title and interest in and to the
following:
(1) all accounts receivable due to Conferencing in connection with
the Business;
(2) all furniture, fixtures, bridges, equipment and other fixed
assets of the Business, or used or necessary for the operation of the Business,
situated in and around Denver, Colorado, together with any related warranties
with respect thereto;
(3) all prepaid expenses and deposits of the Business (other than
deposits on real estate leases);
(4) all hardware of the Business or used or necessary for the
Business situated in and around Denver, Colorado and all software and all
databases and database systems of the Business or used or necessary for the
Business, whether owned, leased, or licensed, together with any related
warranties with respect thereto;
(5) all existing lists (whether rented or owned), documents and
records of the Business, or used or necessary for the Business, relating to
past, present and prospective
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customers of the Business (in printed form, on magnetic tape or in any
computer-based or electronic media);
(6) all trademarks, trademark applications, service marks,
tradenames, trade dress and logos, including any existing or pending
registrations or applications for registration therefor of the Business or used
or necessary for the Business, but not the names "Williams" or "Williams
Conferencing" or any marks or logos incorporating or relating to such names
(collectively, the "Marks") and rights to obtain Marks, whether under statute or
common law;
(7) all existing patents and applications for patents of the
Business, or used or necessary for the Business (collectively, the "Patents")
and rights to obtain Patents, whether under statute or common law;
(8) all copyrights owned by Seller and all rights of Seller under
any copyright laws, together with any copyright registrations and applications
for registration therefor, of the Business, or used or necessary for the
Business (collectively, the "Copyrights");
(9) the information contained on Seller's site on the world wide
web (http://www.williamsconferencing.com) used or necessary in connection with
the Business, but not including any marks or other information specifically
retained by Seller under this Agreement;
(10) all trade secrets and confidential information of the
Business, or used or necessary for the Business, provided that confidential
information of third parties relating to the Business shall be transferred to
the Company only to the extent that such third parties so consent, if such
consent is required;
(11) all existing files, accounting and other records,
correspondence, internal
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reports and contractual documents of the Business or used or necessary for the
Business (in printed form, on magnetic tape or in any computer-based or
electronic media);
(12) subject to Section 7.08, all existing contracts, leases,
licenses, commitments and agreements (oral or written) (collectively, the
"Contracts") of the Business or used or necessary for the Business, whether
fully performed or wholly or partially executory on the Closing Date;
(13) all supplies and inventory of the Business or used or
necessary for the Business, wherever located, whether in the possession of
Seller or a third party, relating to the Business (collectively, the
"Inventory");
(14) all of the goodwill and going concern value of the Business;
and
(15) all telephone numbers of the Business or used or necessary
for the Business to the extent Seller has the right to transfer such numbers.
(16) the assets referred to on Schedule 5.02(a)(i).
(ii) The Assets to be transferred to the Company shall not include, and
Purchaser acknowledges that there shall be excluded from the Assets to be
transferred to the Company, (a) all cash or cash equivalents other than prepaid
expenses of the Business, (b) all facility leases and related leasehold
improvements and facility lease deposits, (c) the AT&T contracts effective
September 25, 1996 and June 23, 1995, and all amendments thereto, and the
MCI/WorldCom contract dated April 13, 1994, and all amendments thereto,
including any amounts due from such parties under such contracts (d) subject to
the following sentence, any assets of, or used or necessary for, the Tulsa
Business, including the Events Management bridge located in Tulsa, Oklahoma, and
including, without limitation, the assets listed on Schedule 5.02(a)(ii), (e)
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the Latitude bridge located in Houston, Texas, (f) the names "Williams" and
"Williams Conferencing" and any Marks or logos containing such names or relating
thereto, (g) all insurance policies of Seller, and (h) amounts due from any
Affiliate of the Company (other than Accounts Receivable from Affiliates of the
Company related to the purchase of audio conferencing services) (collectively,
the "Excluded Assets"). In the event that any asset is shared in use (other than
incidental use) in both the Business and the Tulsa Business, Seller shall either
transfer all of its right, title and interest in such asset to the Company as
part of the Assets or provide a replacement asset to be transferred to the
Company as part of the Assets.
(iii) On or prior to the Closing Date, the only liabilities Seller
shall transfer to the Company shall be (A) those executory obligations of
Conferencing relating to the Business under each Contract that is (1) not in
default by Conferencing and as to which no claim of default by Conferencing
exists on the Closing Date and (2) enforceable by Purchaser without the consent
of any third party (or for which a consent is obtained within thirty (30) days
after the Closing Date), and (B) those ordinary course of business third party
vendor liabilities of Conferencing or the Company of the type and in amounts
which are currently due as of the Closing Date set forth on a closing schedule
of liabilities to be agreed upon by the parties on or prior to Closing, and (C)
the liabilities under the captions "Capital Leases Due in One Year" and "Capital
Leases Long Term" on the Balance Sheet of Conferencing dated April 30, 1999
(collectively, the "Assumed Liabilities"). Other than the Assumed Liabilities,
the Company shall have no liabilities on the Closing Date. Purchaser shall be
responsible for, and will thereafter pay, perform and discharge when due all
debts, liabilities and obligations arising out of or relating to events or
transactions occurring after the Closing Date in connection with the operation
of the Business or the Company
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or the use of the Assets, contingent or otherwise, known or unknown. In no event
shall the Assumed Liabilities include the following liabilities of Seller,
whether absolute, accrued, contingent or otherwise, disclosed or undisclosed,
and whether or not relating to the Assets, the Business or any other business of
Seller: (a) subject to Section 7.04, any liabilities in respect of any Tax
including federal, state, local or foreign income taxes, sales and use taxes,
excise taxes, payroll taxes and transfer and other taxes relating to the period
prior to Closing, (b) any liability for Seller's legal, accounting or broker's
fees incurred in connection with the negotiation of this Agreement or the
consumation of the transactions contemplated hereby, (c) any liabilities related
to any litigation of Seller relating to events or transactions occurring on or
before the Closing Date, (d) except as otherwise provided in Section 7.03, any
liability or obligation of Seller associated with employees of Seller employed
in connection with the operation of the Business, whether or not such employees
are later transferred to the Company, including but not limited to salary,
bonus, sales commissions or other compensation, the amount of sick and holiday
days and vacation representing the pro rata amount thereof attributable to the
period prior to the Closing Date, profit sharing, or any pension, severance
(including severance liability to 28 Employees of the Company identified by
Purchaser prior to Closing in accordance with Section 7.03), disability,
medical, dental, life or retirement benefits, (e) any liability owing by Seller
to any former owner of Conferencing or its predecessor or to any Affiliate of
Seller for loans, advances, or inter-company charges or allocable costs, (f) any
liability for uncleared checks of Seller, (g) any indebtedness of Seller for
borrowed money, (h) any liability under any facility leases of Seller, (i) any
liabilities under the AT&T contracts effective September 25, 1996 and June 23,
1995, (j) any contingent liabilities relating to events or transactions
occurring on or
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before the Closing Date, (k) any liability under the MCI/WorldCom contract dated
April 13, 1994, including any liability related to the termination by Seller of
its contract with MCI/WorldCom in 1996, (l) any liabilities relating to the
Tulsa Business, (m) the liabilities under the caption "Deferred Revenue-Bridges"
on the Balance Sheet of Conferencing dated April 30, 1999, and (n) any Tax gains
or income liability to Seller or the Company resulting from the Section
338(h)(10) Election contemplated under Section 7.13 (collectively, the "Excluded
Liabilities").
(b) Seller shall give the Purchaser's officers, employees, attorneys,
consultants and accountants reasonable access upon reasonable notice during
normal business hours to all of the properties, books, contracts, documents,
records and personnel of Seller and the Company relating to the Assets and the
Business and shall furnish to Purchaser such information as Purchaser may at any
time and from time to time reasonably request relating to the Assets and the
Business.
(c) Seller shall carry on the Business in the usual and ordinary course
of business, consistent with past practices of Conferencing, and shall use its
best commercial efforts to preserve the Business and the goodwill of the
customers and suppliers of the Business and others having business relations
with Conferencing and to retain Conferencing's business organization intact,
including keeping available the services of its present Employees,
representatives and agents, and, in all material respects, shall maintain all of
Conferencing's properties in good operating condition and repair, ordinary wear
and tear excepted. Seller shall cooperate with Purchaser in offering the bonuses
specified in the Transition Services Agreement to the Employees of the Company
listed therein, payable at the times specified therein.
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(d) Without the prior consent of Purchaser, and without limiting the
generality of any other provision of this Agreement, except as set forth on
Schedule 5.02(d) or in the Transition Services Agreement, neither Seller nor the
Company shall, with respect to the Business:
(i) make any payments or distributions to Seller's or the Company's
Employees, officers, or directors employed or retained in connection with the
operation of the Business, except such amounts as constitute currently effective
compensation for services rendered or for reimbursement for ordinary and
necessary out-of-pocket business expenses;
(ii) hire any new employee for the Business or terminate (except
for cause) the employment of any Employee employed by Seller or the Company in
connection with the operation of the Business with annual compensation in excess
of $30,000, or solicit or hire any Employee of the Business for employment with
Seller or any of its Affiliates other than in connection with the Business
provided that Seller shall have the right to terminate the 28 Employees
designated by Purchaser listed on Schedule 7.03;
(iii) directly or indirectly, enter into or assume any contract,
agreement, obligation, lease, license or commitment not in the ordinary course
of business of the Business;
(iv) adopt or amend any Welfare Plan or Employee Benefit Plan with
respect to Employees of the Business;
(v) increase the compensation payable to any Employee employed by
Seller or the Company in connection with the operation of the Business other
than in the ordinary course of business of the Business consistent with past
practice of Conferencing;
(vi) pay or incur any management or consulting fee not in the
ordinary
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course of business of the Business consistent with past practice of
Conferencing;
(vii) sell, transfer or otherwise dispose of any material asset or
property other than in the ordinary course of business of the Business;
(viii) amend, terminate or give notice of termination with respect
to any existing material Contract to which Seller or the Company is a party, or
waive any material rights, relating to the Business; or
(ix) directly or indirectly, enter into any material transaction
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of services) with any Affiliate of Seller or the
Company, except for the sale of audio and video conferencing services.
ARTICLE VI. CONDITIONS TO CLOSING
6.01 CONDITIONS TO SELLER'S OBLIGATIONS. The obligation of Seller to
consummate the transaction contemplated hereby is subject to the fulfillment or
written waiver of all of the following conditions on or prior to the Closing
Date, upon the non-fulfillment of any of which this Agreement may, at Seller's
option, be terminated pursuant to and with the effect set forth in Article X.
(a) Each and every representation and warranty made by Purchaser
shall, in all material respects, have been true and correct when made and shall
be true and correct as if originally made on and as of the Closing Date.
(b) All obligations of Purchaser to be performed under this
Agreement through, and including on, the Closing Date shall have been performed
in all material respects.
(c) Seller shall have received all of the agreements,
certificates, documents and
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items specified in Section 8.02.
(d) No suit, proceeding or investigation shall have been commenced
or threatened by any governmental authority or private person on any grounds to
restrain, enjoin or hinder, or to seek material damages on account of, the
consummation of the transaction contemplated hereby.
(e) Any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act") and the rules and
regulations thereunder shall have expired or been terminated without action by
the Federal Trade Commission (the "FTC") or The Antitrust Division of The
Department of Justice (the "DoJ") to prevent the consummation of this Agreement.
(f) Purchaser shall have delivered to Seller the Purchase Price.
6.02 CONDITIONS TO PURCHASER'S OBLIGATIONS. The obligation of Purchaser
to consummate the transaction contemplated hereby is subject to the fulfillment
or written waiver of all of the following conditions on or prior to the Closing
Date, upon the non-fulfillment of any of which this Agreement may, at
Purchaser's option, be terminated pursuant to and with the effect set forth in
Article X.
(a) Each and every representation and warranty made by Seller
shall, in all material respects, have been true and correct when made without
regard to any schedule updates furnished by Seller thereafter and shall be true
and correct as if originally made on and as of the Closing Date.
(b) All covenants (including the obligations under Section 5.02)
of Seller and the Company required to be performed under this Agreement through,
and including on, the
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Closing Date shall have been performed in all material respects.
(c) Purchaser shall have received all of the agreements,
certificates, documents and items specified in Section 8.01.
(d) Consents to assignment of the U.S. West Primary Rate Services
Agreements and the U.S. West Rate Stability Plan Agreement shall have been
obtained.
(e) No suit, proceeding or investigation shall have been commenced
or threatened by any governmental authority or private person on any grounds to
restrain, enjoin or hinder, or to seek material damages on account of, the
consummation of the transaction contemplated hereby.
(f) Any applicable waiting period under the HSR Act and the rules
and regulations thereunder shall have expired or been terminated without action
by the FTC or the DoJ to prevent the consummation of this Agreement.
(g) Purchaser shall have received shareholder approval of the
transactions contemplated hereby, which approval Purchaser shall use best
commercial efforts to obtain.
(h) Purchaser shall have obtained financing in an amount
sufficient to consummate the transactions contemplated hereby.
ARTICLE VII. FURTHER AGREEMENTS OF THE PARTIES.
7.01 EXPENSES. Purchaser and Seller shall bear their own respective
expenses incurred in connection with this Agreement and the Purchaser's
Additional Agreements, on the one hand, and Seller's Additional Agreements, on
the other hand (collectively, the "Additional Agreements") and in connection
with all obligations required to be performed by each of them under this
Agreement and the Additional Agreements, except as otherwise specified in this
Agreement or
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the Additional Agreements.
7.02 COOPERATION AFTER CLOSING. From time to time after the Closing,
each party at the other party's request and without further consideration, will
execute and deliver such other instruments of sale, transfer, conveyance and
assignment and take such action as may be reasonably necessary in order to more
effectively transfer, convey and assign to Purchaser, and to confirm Purchaser's
title to, the Shares and the Company's title to the Assets, and to ensure that
either party pays or reimburses the other party for all obligations of the
Business that are the responsibility of the paying or reimbursing party.
7.03 EMPLOYEES. Purchaser shall offer, or shall cause the Company to
offer, the bonuses specified in the Transition Services Agreement to the
Employees of the Company listed therein, payable at the times specified therein.
Seller shall be responsible for and shall pay, and the Company and Purchaser
shall have no obligations whatsoever for, any salary, bonus, sales commissions,
fringe, pension, medical, dental, life or retirement benefits, or the amount of
vacation, holiday or sick days representing the pro-rata amount thereof
attributable to the period after to the Closing Date or other benefits or claims
including without limitation, severance payments and COBRA benefits
(collectively, "Benefits") payable to, or accruable for any employee of Seller
or the Company to the extent any Benefits apply to the period before the Closing
Date. Without limiting the foregoing, Seller shall pay when due its pro rata
share of any bonuses based on annual performance, whether or not accrued prior
to Closing. Seller shall also be responsible for and shall pay, and the Company
and Purchaser shall have no obligation for, any severance payments and COBRA
benefits for 28 of those Employees indicated on Schedule 7.03 who are designated
by Purchaser. Purchaser shall be liable only for such Benefits as may
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be offered by Purchaser and for the amounts relating to service for the Company
or the Purchaser after the Closing Date. Seller agrees that it is its
non-binding intent, to the extent there are job openings, to offer employment
with other companies within the Williams group of companies to the seven
Employees of the Business located in Tulsa, Oklahoma when and as no longer
employed by Purchaser.
7.04 TRANSFER TAXES. Purchaser shall pay all state or local sales,
transfer or like taxes payable in connection with the transactions contemplated
pursuant to this Agreement.
7.05 MAIL. All mail relating specifically to the Business that is
delivered to Seller after the Closing Date shall forthwith be delivered to
Purchaser unless otherwise agreed in writing.
7.06 CONFIDENTIALITY AGREEMENTS. If at any time following the Closing,
Purchaser believes that any person or entity that may have been a prospective
purchaser from Seller of the Business and may have entered into a
confidentiality agreement with Seller and has violated such agreement, Purchaser
may so notify Seller and shall present to Seller reasonable evidence of the
violation. If Seller had entered into a confidentiality agreement with that
prospective purchaser, after Closing, Seller shall assign to Purchaser any
rights of Seller under the confidentiality agreement which are assignable
thereunder. In the event that the assignment of a confidentiality agreement
would constitute a breach thereof, Seller shall take reasonable steps to enforce
such confidentiality agreement, at Purchaser's expense and direction.
7.07 BOOKS AND RECORDS. Seller shall retain no copies of any contracts,
agreements, commitments, books, records, files and other data relating to the
Business, except that Seller may retain copies of those books and records of the
Business required in connection with (a) the preparation of Seller's Tax
Returns, (b) any claims (including insurance with respect thereto) or
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litigation of Seller, and (c) the provision of services under the Transition
Services Agreement, provided that such books and records relating to the
provision of services under the Transition Services Agreement are returned to
Purchaser promptly upon the termination of the Transition Services Agreement.
Seller shall not otherwise use or disclose such books and records. After the
Closing Date, Purchaser shall grant Seller access to the books and records of
the Company only in connection with Seller's performance of its services under
the Transition Services Agreement, for Seller's Tax, audit, claims and
litigation purposes and on reasonable prior notice and during the Company's
regular business hours. Notwithstanding the foregoing, in no event shall
Purchaser be required to retain such books and records for a period in excess of
five (5) years from the Closing Date.
7.08 CONSENTS. Anything in this Agreement to the contrary
notwithstanding, this Agreement shall not constitute an agreement to assign any
Contract, benefit or claim if an attempted assignment or assumption thereof,
without the consent of a third party thereto, would constitute a breach thereof.
To the extent that consent by or approval from any person or entity is required
under any of the Contracts as a result of or in connection with the execution,
delivery or performance of this Agreement and Seller's Additional Agreements and
the transactions contemplated hereby or thereby, in any instance where Seller
has not secured such consent or approval prior to the Closing Date, Seller shall
use its best commercial efforts to obtain any such consent or approval after the
Closing Date until such time as such consent or approval has been obtained. If
such consent is not obtained, or if an attempted assignment would be
ineffective, or would affect the rights of the parties such that the Company
would not receive the benefits of such Contracts from the Closing Date and be
able to perform the obligations under such
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Contracts, then the parties shall cooperate in any manner reasonably designed
for the Company to receive the benefits under such Contracts from the Closing
Date and for the Company to be able to perform the obligations under such
Contracts, to the extent that Purchaser or the Company would have been
responsible therefor hereunder if such consent or approval had been obtained.
Seller shall pay and discharge, and shall indemnify and hold the Company and
Purchaser harmless from and against, any and all reasonable out-of-pocket costs
of Purchaser seeking to obtain or obtaining such consent or approval including,
without limitation, the incremental cost of obtaining alternate arrangements, if
necessary, for the provision of any service which is the subject of such
Contracts. The parties agree that Seller's performance under this Section 7.08
shall not be deemed to violate any non-competition provisions in this Agreement
or the Additional Agreements.
7.09 NON-SOLICITATION. Seller agrees that, without the prior written
consent of Purchaser (in its sole discretion), for a period of two (2) years
from and after the Closing Date (or for a period of one (1) year from and after
the Closing Date with respect to employees terminated by Purchaser) it shall not
employ or solicit for employment any person that is employed by the Company or
Purchaser at any time during that two (2) year period (or one (1) year, if
terminated) in connection with the Business, provided that no such restriction
shall apply to the redundant Employees listed on Schedule 7.03.
7.10 INSURANCE. Seller shall maintain the insurance described on
Schedule 3.27 through and including the Closing Date, at which time such
insurance shall terminate. Purchaser shall be solely responsible for procurement
of insurance after the Closing Date.
7.11 EXPENSES OR ASSETS OF THE BUSINESS. Except for the Assumed
Liabilities, Seller
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shall be responsible for all expenses and liabilities related to the Business
for periods prior to the Closing Date and Purchaser shall be responsible for all
expenses and liabilities related to the Business for periods subsequent to the
Closing Date. In the event Purchaser or the Company, on the one hand, or Seller,
on the other hand, pays an expense that is the responsibility of the other party
pursuant to this Section, the party responsible for such expense shall promptly
reimburse the party that actually paid such expense upon provision of
commercially reasonable documentation of payment of such expense. In the event
that Purchaser or the Company, on the one hand, or Seller, on the other hand,
receives any money or property that belongs to the other in accordance with the
provisions of this Agreement, the party receiving such money or property shall
promptly forward the same to the other party.
7.12 CONFIDENTIALITY AND PUBLICITY. (a) Seller shall maintain in
confidence all Confidential Information in its possession related to the
Business, and shall not disclose such information to a third party (other than
its officers, directors, shareholders and professional advisors with a need to
know and an obligation to treat such information confidentially in the same
fashion as is required under this Agreement) or make any unauthorized use
thereof. Seller shall treat such information with the same degree of care
against disclosure that it affords to its own confidential information, and in
no event less than reasonable care. This obligation of confidential treatment
shall not apply to any information that (i) has become generally available in
the public domain through no wrongful action of Seller; (ii) is hereafter
independently developed by Seller without the use of any Confidential
Information; (iii) is hereafter received from a third party who had the right to
disclose such information to Seller; or (iv) is required to be disclosed to
comply with applicable laws, governmental rules or regulations, subpoenas, or
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court order, provided that with respect to any disclosure of information
pursuant to clause (iv), the party making the disclosure will only do so to the
extent required to comply with such requirements and only after first consulting
with the Purchaser and cooperating with the Purchaser in opposing or limiting
the scope of disclosure. For the purposes of this Agreement, "Confidential
Information" shall mean all information relating to the Business of a
commercial, financial or technical nature. The obligations imposed under this
Section 7.12(a) shall be in force for a period of five years from the Closing
Date.
(b) Purchaser shall keep confidential all Confidential
Information through the Closing Date and, in the event that the Closing does not
occur for any reason, Purchaser shall maintain the confidentiality of such
Confidential Information for a period of five years after the date of this
Agreement.
(c) The parties hereto agree that any and all public
announcements or statements concerning either this Agreement or the consummation
of the transactions contemplated hereby shall be mutually agreed to by the
parties; provided, however, that in the event the parties are unable to agree on
a public statement or announcement and counsel for either party is of the
opinion that such statement or announcement is required by law or by applicable
stock exchange regulations, then such party may issue the legally required
statement or announcement. If required by applicable securities law, the parent
company of Seller may fully disclose the terms of this Agreement and the
Additional Agreements in, and may file copies of this Agreement and the
Additional Agreements as exhibits to, its registration statement with respect to
the initial public offering of a portion of its common stock.
7.13 SECTION 338(h)(10) ELECTION. Purchaser, Company and Seller shall
take all actions
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necessary and appropriate (including timely filing of such forms, tax returns,
elections, schedules and other documents as may be required) to effect and
preserve a timely and valid joint election under Section 338(h)(10) of the Code
and under any comparable provisions of state or local tax law (collectively,
including any amendments, supplements or corrections thereto, the "Section
338(h)(10) Elections") with respect to the acquisition of the Company. Purchaser
shall be responsible for the filing of all forms and documents in connection
with the making of the Section 338(h)(10) Elections, and shall provide the
Seller with copies of such filings. At the request of Purchaser, the Seller
shall execute and deliver to Purchaser within 10 days after such request such
documents or forms as are reasonably requested by Purchaser to complete properly
the Section 338(h)(10) Elections.
(b) The amount paid hereunder for the Shares and the liabilities of the
Company and other relevant items (including restrictive covenants) shall be
allocated among the assets of the Company in accordance with Section 338(b)(5)
of the Code and the Treasury Regulations promulgated thereunder (the "Purchase
Price Allocation"). Subject to any allocation required by the Treasury
Regulations to be made to Class I and Class II assets (as defined therein), the
allocation will be first to tangible assets (including, without limitation,
accounts receivable) and the balance will be allocated to goodwill. Such
allocation will be reflected on an agreed upon schedule at Closing. The parties
shall cooperate in the filing of any forms (including Form 8023(a)) with respect
to such allocation, including any amendments to such forms.
(c) The parties shall file (or cause to be filed) all tax returns in a
manner consistent with the Section 338(h)(10) Elections and the Purchase Price
Allocation, and shall take no position contrary thereto or inconsistent
therewith (including, without limitation, in any amended
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return or claim for refund, any examination or audit by any taxing authority, or
any other proceeding).
7.14 DEFERRED REVENUE-BRIDGES LIABILITY.In connection with the Excluded
Liability for Deferred Revenue-Bridge referred to in Section 5.02(a)(iii),
Purchaser shall, pursuant to the terms of the contract, provide conferencing
services to Westinghouse and Siemens Capital at no charge and shall charge
Seller 50% of the full charge for such services when and as used until the
liability is paid in full or expires.
ARTICLE VIII. CLOSING DATE DELIVERIES.
8.01 DOCUMENTS TO BE DELIVERED BY SELLER. At the Closing, Seller shall
execute and deliver to Purchaser the following:
(a) a copy of resolutions duly adopted by the Board of Directors and
sole shareholder of Seller authorizing the execution, delivery and performance
of this Agreement and Seller's Additional Agreements and a certificate of the
secretary or assistant secretary of Seller, dated the Closing Date, stating that
such resolutions were duly adopted and are in full force and effect as of such
date and setting forth the incumbency of each person executing this Agreement,
Seller's Additional Agreements, and any document required by this Section 8.01
on behalf of Seller or Conferencing;
(b) the certificate representing the Shares, together with appropriate
stock powers attached and duly executed in blank, and the minute book, and stock
transfer ledger of the Company.
(c) a Non-Competition Agreement, substantially in the form of Exhibit A
attached hereto (the "Non-Competition Agreement");
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(d) a Conferencing Services Agreement, in form and substance mutually
satisfactory to the parties (the "Conferencing Services Agreement"),
(e) an Events Management Services Agreement, in form and substance
mutually satisfactory to the parties (the "Events Reseller Agreement");
(f) a Transition Services Agreement, substantially in the form of
Exhibit B attached hereto (the "Transition Services Agreement");
(g) an opinion of counsel in form and substance reasonably satisfactory
to Purchaser;
(h) the Schedule of Capital Expenditures pursuant to Section 1.04
hereof;
(i) the resignations of all officers and directors of the Company who
will not be full-time employees of the Company after Closing;
(j) an officer's certificate, dated the Closing Date, stating that the
conditions to Closing contained in Section 6.02 have been fully satisfied and
attaching any updates to the Schedules to this Agreement; and
(k) a good standing certificate of the Company dated as of a date
within five days of the Closing Date.
8.02 DOCUMENTS TO BE DELIVERED BY PURCHASER. At the Closing, Purchaser
shall execute and deliver to Seller the following:
(a) a copy of resolutions adopted by the Board of Directors of
Purchaser authorizing the execution, delivery and performance of this Agreement
and Purchaser's Additional Agreements, and a certificate of the secretary or
assistant secretary of Purchaser, dated the Closing Date, stating that such
resolutions were duly adopted and are in full force and effect at such date, and
setting forth the incumbency of each person executing this Agreement,
Purchaser's
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Additional Agreements and any document required by this Section 8.02 on behalf
of Purchaser;
(b) the Non-Competition Agreement;
(c) the Conferencing Services Agreement;
(d) the Events Reseller Agreement;
(e) the Transition Services Agreement; and
(f) an officer's certificate, dated the Closing Date, stating that the
conditions to Closing contained in Section 6.01 have been fully satisfied.
8.03 FUNDS TO BE DELIVERED. On the Closing Date, Purchaser shall cause
the wire transfer of the funds to be made to Seller as specified in Section
1.02.
ARTICLE IX. INDEMNIFICATION.
9.01 SURVIVAL. All of the provisions of this Agreement shall survive
the Closing for the applicable statute of limitations period, except that the
representations and warranties of Seller, on the one hand, and Purchaser, on the
other, contained in Articles III and IV of this Agreement shall survive for a
period of two years after the Closing Date, provided, however, that the
representations and warranties contained in Sections 3.01, 3.02, 3.03, 3.04, the
first sentence of 3.10 (with respect to title), 3.14, 3.17 and 3.23, 4.01, 4.02
and 4.04 shall survive for the applicable statute of limitations period. The
expiration of any representation or warranty shall have no effect on the
continued validity of any claim if notice was given in accordance with this
Article before the date of such expiration.
9.02 INDEMNIFICATION BY SELLER. Seller shall indemnify Purchaser and
hold Purchaser, Purchaser's subsidiaries and other Affiliates and their
respective officers, directors, employees and shareholders (collectively, the
"Indemnified Purchaser Parties") harmless against and in respect
50
<PAGE> 59
of any and all damages, losses, claims, penalties, liabilities, costs and
expenses (including, without limitation, all fines, interest, legal fees and
expenses and amounts paid in settlement) (collectively, "Losses"), that arise
from or are attributable to (and without giving effect to any Tax benefit to the
indemnified party) (i) any misrepresentation by Seller or breach of a warranty
made under Article III hereof, (ii) any breach of any covenant or agreement on
the part of Seller set forth herein or in any of Seller's Additional Agreements,
(iii) other than the Assumed Liabilities, any liabilities of the Seller or the
Company, whether absolute, accrued, contingent or otherwise, disclosed or
undisclosed, or any liabilities or obligations arising in any way from the
conduct of the Business prior to the Closing, including, but not limited to,
federal, state, local or foreign income, sales and use taxes, excise taxes,
payroll taxes or transfer or other taxes relating to the period prior to Closing
Date, (iv) any agreements, contracts, negotiations or other dealings by Seller
with any person other than Purchaser concerning the sale of the Business,
including brokers or potential purchasers, (v) any liabilities in connection
with any litigation of Seller relating to events or transactions occurring prior
to Closing, and (vi) any liability in connection with the Plans, (collectively,
the "Damages"); provided that Seller shall not be required to indemnify an
Indemnified Purchaser Party pursuant to Section 9.02(i) unless and until the
total of all Damages due to misrepresentations by Seller or breaches of
warranties made under Article III suffered by all Indemnified Purchaser Parties
in respect of which Seller is obligated to provide indemnification exceeds One
Hundred Thousand U.S. Dollars (US$100,000.00) (the "Basket Amount"), whereupon
Seller shall be obligated to indemnify any Indemnified Purchaser Party from and
against any and all such Damages in excess of the Basket Amount. The Basket
Amount shall not apply (x) to breaches of the representation and warranties
contained in Sections 3.01,
51
<PAGE> 60
3.02, 3.03, 3.04, 3.05 (except it shall apply to Sections 3.05(ii) and 3.05(iii)
with respect to rules or regulations) and 3.10 or (y) to any fraudulent
misrepresentation of Seller contained in Article III hereof. Notwithstanding the
foregoing, Seller's maximum aggregate liability under this Section 9.02 shall
not exceed $39,000,000 less the amount of any adjustments to the Purchase Price
made pursuant to Sections 1.03 or 1.04.
9.03 INDEMNIFICATION BY PURCHASER. Purchaser shall indemnify Seller and
hold Seller, Seller's subsidiaries and other Affiliates and their respective
officers, directors, employees and shareholders harmless against and in respect
of any and all Losses that arise from or are attributable to (and without giving
effect to any tax benefit to the indemnified party) (a) any misrepresentation by
Purchaser or breach of any warranty by Purchaser set forth in Article IV hereof,
(b) any breach of any covenant or agreement on the part of Purchaser set forth
herein or in any of Purchaser's Additional Agreements, (c) the Assumed
Liabilities, (d) liabilities of Purchaser for any transfer tax to be paid by
Purchaser pursuant to Section 7.04 hereof, and (e) all obligations and
liabilities pertaining to the Business arising in any way from the conduct of
the Business after the Closing.
9.04 NOTICE TO THE INDEMNITOR. Promptly after the assertion of any
claim by a third party or occurrence of any event which may give rise to a claim
for indemnification from an indemnifying party ("Indemnitor") under this Article
IX, an indemnified party ("Indemnitee") shall notify the Indemnitor in writing
of such claim, and with respect to claims by third parties, advise the
Indemnitor whether the Indemnitee intends to contest same.
9.05 RIGHT OF PARTIES TO SETTLE OR DEFEND. If the Indemnitee determines
not to contest a claim by a third party, the Indemnitor shall have the right, at
its own expense, to contest and
52
<PAGE> 61
defend against such claim. If the Indemnitee determines to contest such claim,
the Indemnitor shall have the right to be represented, at its own expense, by
mutually satisfactory counsel and accountants, and to control the defense of any
such claim; provided, however, that Indemnitee shall have the right to retain
its own counsel, with the fees and expenses to be paid by Indemnitor if
representation of Indemnitee by the counsel retained by Indemnitor would be
inappropriate due to actual or potential differing interests between Indemnitor
and Indemnitee. In any event, Indemnitee may participate in the defense of such
claim, subject to the reasonable direction of the Indemnitor. The Indemnitee
shall make available to the Indemnitor and its attorneys and accountants, at all
reasonable times during normal business hours, all books, records, and other
documents in its possession relating to such claim. The party contesting any
such claim shall be furnished all reasonable assistance in connection therewith
by the other party. If the Indemnitor fails to undertake the defense of or
settle or pay any such third party claim within ten (10) days after the
Indemnitee has given written notice to the Indemnitor advising that the
Indemnitee does not intend to contest such claim, or if the Indemnitor, after
having given notification to the Indemnitee that it intends to contest the
claim, fails within 20 days to defend, settle or pay such claim, then the
Indemnitee may take any and all necessary action to dispose of such claim
including, without limitation, the settlement or full payment thereof upon such
terms as it shall deem appropriate, in its sole discretion, subject to Section
9.06 with respect to any proposed settlement thereof.
9.06 SETTLEMENT PROPOSALS. (a) In the event the Indemnitee desires to
settle any third-party claim (whether or not contested by the Indemnitor), the
Indemnitee shall advise the Indemnitor in writing of the amount it proposes to
pay in settlement thereof (the "Proposed
53
<PAGE> 62
Settlement"). If such Proposed Settlement is unsatisfactory to the Indemnitor,
it shall have the right, at its expense, to contest such claim by giving written
notice of such election to the Indemnitee within ten (10) days after the
Indemnitor's receipt of the notice of the Proposed Settlement. If the Indemnitor
does not deliver such written notice within ten (10) days after receipt of such
notice, or if the Indemnitor, after having given such notice to the Indemnitee,
fails forthwith to defend, settle or pay such claim, the Indemnitee may offer
the Proposed Settlement to the third party making such claim. If the Proposed
Settlement is not accepted by the party making such claim, any new Proposed
Settlement figure which the Indemnitee may wish to present to the party making
such claim shall first be presented to the Indemnitor who shall have the right,
subject to the conditions hereinabove set forth in Section 9.05, to contest such
claim. In all such events, the Indemnitor shall indemnify the Indemnitee and
hold it harmless against and from any and all costs of defense, payment or
settlement, including reasonable attorneys' fees incurred in connection
therewith.
(b) The Indemnitor may settle such third-party claim only if it has
agreed to contest the claim in accordance with subsection 9.06(a) above. In the
event the Indemnitor desires to settle such third-party claim, the Indemnitor
shall not without the Indemnitee's prior written consent, (i) settle or
compromise such proceeding, claim or demand, or consent to the entry of any
judgment which does not include as an unconditional term thereof the delivery by
the claimant or plaintiff to the Indemnitee of a written release from all
liability in respect of such proceeding, claim or demand or (ii) settle or
compromise any such proceeding, claim or demand in any manner that may
materially adversely affect the Indemnitee.
9.07 REIMBURSEMENT. At the time the amount of any liability on the part
of the
54
<PAGE> 63
Indemnitor under this Article IX is determined (which in the case of payments to
third persons shall be the earlier of (i) the date of payment by Indemnitee to
such third parties in accordance with the terms of this Agreement or (ii) the
date that a court of competent jurisdiction or arbitration panel shall enter a
final judgment, order or decree (after exhaustion of appeal rights) establishing
such liability), the Indemnitor shall within 30 days of notice from the
Indemnitee, pay to the Indemnitee the amount of the indemnity claim.
ARTICLE X. EFFECT OF TERMINATION/PROCEEDING
10.01 RIGHT TO TERMINATE. This Agreement and the transaction
contemplated hereby may be terminated at any time prior to the Closing by prompt
notice given in accordance with Section 11.04:
(a) by the mutual written consent of Purchaser and Seller; or
(b) by either of such parties if the Closing shall not have
occurred at or before 11:59 p.m. on August 30, 1999, or such later date as is
required in order to comply with any necessary waiting period under the HSR Act;
provided, however, that the right to terminate this Agreement under this Section
10.01(b) shall not be available to any party whose failure to fulfill any
material obligation under this Agreement has been the cause of or results in the
failure of the Closing to occur on or prior to the aforesaid date.
10.02 REMEDIES. In the event of a breach of this Agreement, the
non-breaching party shall not be limited to the remedy of termination of this
Agreement, but shall be entitled to pursue all available legal and equitable
rights and remedies, including the right to specific performance of this
Agreement, and shall be entitled to recover all of its reasonable costs and
expenses incurred in pursuing them (including, without limitation, reasonable
attorney's fees).
55
<PAGE> 64
ARTICLE XI. MISCELLANEOUS.
11.01 ENTIRE AGREEMENT. This Agreement, Seller's Additional Agreements
and Purchaser's Additional Agreements (together with the Schedules and Exhibits
hereto and the documents referred to herein) contains, and is intended as, a
complete statement of all of the terms of the arrangements between the parties
with respect to the matters provided for herein, and supersedes any previous
agreements and understandings between the parties with respect to those matters.
11.02 GOVERNING LAW; ARBITRATION. This Agreement shall be governed by,
and construed and enforced in accordance with the laws of the State of Delaware
(without regard to conflicts of law principles for such state). The parties
hereto agree that, upon the written demand of either party, any controversy or
claim arising hereunder, except as provided in Section 1.03, shall be resolved
by submission to binding arbitration by the American Arbitration Association
(the "AAA") in accordance with their then prevailing rules and procedures. Such
arbitration shall be before a panel of three arbitrators, one to be appointed by
Seller, one by Purchaser and one by the AAA. If any such arbitrator is unable or
unwilling to serve as such arbitrator, the person entitled to appoint such
arbitrator shall appoint an alternate arbitrator. Any such arbitration shall
take place at an AAA office located in Wilmington, Delaware. All determinations
and the final decision of the arbitration panel shall be by majority vote and
shall be in writing and shall set forth the factual and legal basis for the
determination and the award. Judgment rendered pursuant to such arbitration
shall be final and binding upon the parties without any right of appeal and may
be entered in any state or federal court of competent jurisdiction. Each party
shall bear its own respective expenses incurred in connection with any
arbitration, except that the arbitrators shall
56
<PAGE> 65
have the authority to award reasonable attorney's fees to the prevailing party.
All expenses due to AAA for conducting the arbitration shall be borne fifty
percent (50%) by Seller and fifty percent (50%) by Purchaser.
11.03 AMENDMENT; WAIVER. No provision of this Agreement may be amended
or modified except by an instrument or instruments in writing signed by the
parties hereto. Any party may waive compliance by another with any of the
provisions of this Agreement. No waiver of any provision hereof shall be
construed as a waiver of any other provision or subsequent breach. Any waiver
must be in writing. The failure of any party hereto to enforce at any time any
provision hereof shall not be construed to be a waiver of such provision, nor in
any way to affect the validity hereof or any part hereof or the right of any
party thereafter to enforce each and every such provision.
11.04 NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be deemed given when delivered
personally, seven (7) days after being deposited with the postal service when
mailed by registered mail, return receipt requested, three (3) day after deposit
with a courier when sent by documented overnight delivery service or, to the
extent receipt is confirmed, by facsimile to the parties at the following
addresses (or to such other address as a party may have specified by notice
given to the other party pursuant to this provision):
If to Seller, to it at
Williams Communications, Inc.
One Williams Center, 20th Floor
Tulsa, OK 74172
Attention: James Dutton
Telephone No: (918) 573-4275
Telecopy No: (918) 573-6216
57
<PAGE> 66
with a copy to
Williams Communications Group, Inc.
One Williams Center, 41st Floor
Tulsa, OK 74172
Attention: General Counsel
Telephone No: (918) 573-4205
Telecopy No: (918) 573-3005
If to Purchaser, to it at
Genesys
4 rue Jules Ferry
BP 1145
34008 Montpellier Cedex 1
France
Attention: Francois Legros
Telephone No: 011-33-46-7062-757
Telecopy No: 011-33-46-7062-790
and
Genesys
4 rue Jules Ferry
BP 1145
34008 Montpellier Cedex 1
France
Attention: Marie Capela
Telephone No: 011-33-46-7062-763
Telecopy No: 011-33-46-7062-750
with a copy to
Breslow & Walker, LLP
767 Third Avenue
New York, NY 10017
Attention: Joel M. Walker, Esq.
Telephone No: (212) 832-1930
Telecopy No: (212) 888-4955
58
<PAGE> 67
11.05 SEPARABILITY. If any provision of this Agreement is held by the
AAA or any court of competent jurisdiction to be illegal, invalid or
unenforceable, such provision shall be of no force and effect, but the
illegality, invalidity or unenforceability shall have no effect upon and shall
not impair the enforceability of any other provision of this Agreement.
11.06 ASSIGNMENT AND BINDING EFFECT. None of the parties hereto may
assign any of its rights or delegate any of its duties under this Agreement
without the prior written consent of the others, except that Purchaser may
assign its rights to one or more of its Affiliates and such Affiliate or
Affiliates may assume Purchaser's obligations hereunder, provided that Purchaser
shall remain liable as a guarantor of the obligations of the Affiliate or
Affiliates. All of the terms and provisions of this Agreement shall be binding
on, and shall inure to the benefit of, the respective successors and permitted
assigns of the parties.
11.07 NO BENEFIT TO OTHERS. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto and their respective successors and permitted assigns and they
shall not be construed as conferring and are not intended to confer any rights
on any other persons.
11.08 COUNTERPARTS. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and each party thereto
may become a party hereto by executing a counterpart hereof. This Agreement and
any counterpart so executed shall be deemed to be one and the same instrument.
The exchange (by facsimile) of facsimile copies of executed counterparts of this
Agreement shall be deemed execution and delivery thereof, provided that receipt
of such facsimile is confirmed in writing. Original copies shall follow by
documented overnight delivery.
59
<PAGE> 68
11.09 INTERPRETATION. Article titles and headings to sections are
inserted for convenience of reference only and are not intended to be a part or
to affect the meaning or interpretation hereof. The Schedules and Exhibits
referred to herein shall be construed with and as an integral part of this
Agreement to the same extent as if they were set forth verbatim herein. The
specification of any dollar amount in the representations and warranties
contained in this Agreement or the inclusion of any specific item in any
Schedule hereto is not intended to imply that such amounts or higher or lower
amounts, or the items so included or other items, are or are not material, and
no party hereto shall use the fact of the setting of such amounts or the
inclusion of any such item in any dispute or controversy between the parties as
to whether any obligation, item or matter not described herein or included in a
Schedule is or is not material for purposes hereof. As used herein, "include",
"includes" and "including" are deemed to be followed by "without limitation"
whether or not they are in fact followed by such words or words of like import;
"writing", "written" and comparable terms refer to printing, typing, lithography
and other means of reproducing words in a visible form; references to a person
are also to its successors and permitted assigns; "hereof", "herein",
"hereunder" and comparable terms refer to the entirety hereof and not to any
particular article, section or other subdivision hereof or attachment hereto;
references to any gender include references to the plural and vice versa;
references to this Agreement or other documents are as they may be amended or
supplemented from time to time; references to "Article", "Section" or another
subdivision or to an attachment or "Schedule" are to an article, section or
subdivision hereof or an attachment or "Schedule" hereto; references to
"Generally Accepted Accounting Principles" shall mean generally accepted
accounting principles in the United States.
60
<PAGE> 69
IN WITNESS WHEREOF, the undersigned have executed this Stock Purchase
Agreement as of the date first above written.
WILLIAMS COMMUNICATIONS, INC.
By: /s/ JAMES W. DUTTON
--------------------------------
Name: James W. Dutton
Title: Authorized Representative
CONFERENCING ACQUISITION CORPORATION
By: /s/ JAMES W. DUTTON
--------------------------------
Name: James W. Dutton
Title: Authorized Representative
GENESYS, S.A.
By: /s/ FRANCOIS LEGROS
--------------------------------
Name: Francois Legros
Title: Chairman & CEO
61
<PAGE> 1
EXHIBIT 12.1
WILLIAMS COMMUNICATIONS GROUP, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS EXCEPT RATIOS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, (UNAUDITED) YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- -------- --------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss)
before income
taxes........... $(150,231) $(42,060) $(186,026) $(33,805) $(3,146) $ 6,763 $(9,829)
Add:
Interest
expenses-net.. 20,235 1,694 7,468 933 17,367 13,999 7,405
Rental expense
representative
of interest
factor....... 32,408 19,382 44,590 28,120 18,786 1,784 1,230
Minority
interest
income of
consolidated
subsidiaries... (11,272) 4,904 (15,645) 13,506 -- -- --
Equity losses... 18,682 2,739 7,908 2,383 1,601 93 --
--------- -------- --------- -------- ------- ------- -------
Total
earnings
(loss)
as
adjusted
plus
fixed
charges... $ (90,178) $(13,341) $(141,705) $ 11,137 $34,608 $22,639 $(1,194)
========= ======== ========= ======== ======= ======= =======
Combined fixed
charges:
Interest expense-
net............. 20,235 1,694 $ 7,468 $ 933 $17,367 $13,999 $ 7,405
Capitalized
interest........ 8,798 4,556 11,182 7,781 -- -- --
Rental expense
representative
of interest
factor.......... 32,408 19,382 44,590 28,120 18,786 1,784 1,230
--------- -------- --------- -------- ------- ------- -------
Total
fixed
charges... $ 61,441 $ 25,632 $ 63,240 $ 36,834 $36,153 $15,783 $ 8,635
========= ======== ========= ======== ======= ======= =======
Ratio of earnings to
fixed charges...... (a) (a) (a) (a) (a) 1.43 (a)
========= ======== ========= ======== ======= ======= =======
</TABLE>
- ---------------
(a) Earnings were inadequate to cover fixed charges by $151,619,000,
$38,973,000, $204,945,000, $25,697,000, $1,545,000 and $9,829,000 for the
six months ended June 30, 1999 and 1998 (unaudited) and the years ended
1998, 1997, 1996 and 1994, respectively.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial and Operating Data" and to the use of our
report on the financial statements dated April 7, 1999, except for the matters
described in the third paragraph of Note 10 and Note 17, as to which the date is
July 27, 1999 and our report on the financial statement schedule dated July 27,
1999, in Amendment No. 6 to the Registration Statement on Form S-1 and related
prospectus of Williams Communications Group, Inc. for the registration of its
common stock.
/s/ ERNST & YOUNG LLP
------------------------------------
ERNST & YOUNG LLP
Tulsa, Oklahoma
August 13, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report on the financial statements of ATL -- ALGAR TELECOM LESTE S.A. as of
December 31, 1998 and for the period from inception (March 26, 1998) through
December 31, 1998 (and to all references to our Firm) included in or made a part
of the amendment to the registration statement on Form S-1 of Williams
Communications Group, Inc.
/s/ ARTHUR ANDERSEN S/C
----------------------------------------
ARTHUR ANDERSEN S/C
Belo Horizonte, Brazil
August 16, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 26, 1999, in Amendment No. 6 to the
Registration Statement Form S-1, Registration Statement No. 333-76007 and
related Prospectus of Williams Communications Group, Inc. for the registration
of its common stock.
/s/ DELOITTE & TOUCHE LLP
----------------------------------------
DELOITTE & TOUCHE LLP
Toronto, Ontario
August 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 73,706
<SECURITIES> 0
<RECEIVABLES> 513,330
<ALLOWANCES> 34,098
<INVENTORY> 81,493
<CURRENT-ASSETS> 957,840
<PP&E> 1,063,335
<DEPRECIATION> 202,629
<TOTAL-ASSETS> 3,174,138
<CURRENT-LIABILITIES> 533,662
<BONDS> 1,414,231
0
0
<COMMON> 1
<OTHER-SE> 1,391,160
<TOTAL-LIABILITY-AND-EQUITY> 3,174,138
<SALES> 0
<TOTAL-REVENUES> 1,001,139
<CGS> 0
<TOTAL-COSTS> 1,127,729
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 11,810
<INTEREST-EXPENSE> 29,033
<INCOME-PRETAX> (150,231)
<INCOME-TAX> 45,834
<INCOME-CONTINUING> (196,065)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (196,065)
<EPS-BASIC> (196,065.00)
<EPS-DILUTED> (196,065.00)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 801,726
<CGS> 0
<TOTAL-COSTS> 835,672
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,696
<INTEREST-EXPENSE> 6,250
<INCOME-PRETAX> (42,060)
<INCOME-TAX> (1,183)
<INCOME-CONTINUING> (40,877)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (40,877)
<EPS-BASIC> (40,877.00)
<EPS-DILUTED> (40,877.00)
</TABLE>
